0001
 1               DIGITAL MILLENNIUM COPYRIGHT ACT
 2   
                             ---oOo---
 3   
 4   
 5   
 6   
 7   
 8                 SECTION 1201 RULEMAKING HEARING
 9                BEFORE THE COPYRIGHT OFFICE PANEL
10   
11   
12                        California Hearing
13   
14   
15   
16   DATE:         May 1, 2009
17   
     TIME:         9:15 a.m.
18   
19   LOCATION:     Stanford Law School
                   Crown Quadrangle
20                 559 Nathan Abbott Way
                   Room 80 - Moot Court Room
21                 Palo Alto, California  94305
22   
     REPORTED BY:  Katy Leonard
23                 Certified Shorthand Reporter
                   License Number 11599
24   
25   
0002
 1                      A P P E A R A N C E S
 2   
 3   Moderator:
 4               MARYBETH PETERS
                 Register of Copyrights
 5               Copyright Office
 6   
     Panel Members:
 7   
                 DAVID CARSON
 8               General Counsel
                 Copyright Office
 9   
10               ROB KASUNIC
                 Principal Legal Advisor
11               Office of the General Counsel
                 Copyright Office
12   
13               BEN GOLANT
                 Principal Legal Advisor
14               Office of the General Counsel
                 Copyright Office
15   
16   List of All Panelists:
17               GARY HANDMAN
                 UC Berkeley
18   
19               MARK KAISER
                 UC Berkeley
20   
21               ABIGAIL De KOSNIK
                 UC Berkeley
22   
23               STEVE METALITZ
                 Joint Commenters
24   
25   
0003
 1   List of All Panelists:  (Continued)
 2               FRED von LOHMANN
                 Electronic Frontier Foundation
 3   
 4               CHRISTIAN BUERGER
                 Virgin Mobile USA, LP
 5   
 6               PETER LURIE
                 Virgin Mobile USA, LP
 7   
 8               JENNIFER GRANICK
                 Electronic Frontier Foundation
 9   
10               GREG JOSWIAK
                 Apple, Inc.
11   
12               DAVID HAYES
                 Fenwick & West, LLP
13   
14               CHARLES CARREON
                 Attorney
15   
16                           ---oOo---
17   
18   
19   
20   
21   
22   
23   
24   
25   
0004
 1                          I N D E X
 2                      O F   P A N E L S
 3                                                     PAGE
 4   
 5   9:00 A.M.                                           10
 6   Proposed Class to be discussed:
 7   Section 4A. Commercially produced and distributed
     DVDs used in face-to-face classroom teaching by
 8   college and university faculty, regardless of
     discipline or subject taught, including teachers
 9   in K-12 classrooms.
10   
     11:00 A.M.                                          69
11   
     Proposed Class to be discussed:
12   
     Section 11A. Audiovisual works released on DVD,
13   where circumvention is undertaken solely for the
     purpose of extracting clips for inclusion in
14   noncommercial videos that do not infringe
     copyright.
15   
16   
     AFTERNOON SESSION                                  120
17   
18   
     1:45 P.M.                                          120
19   
     Proposed Classes to be discussed:
20   
     5B. Computer programs that operate wireless
21   telecommunications handsets when circumvention is
     accomplished for the sole purpose of enabling
22   wireless telephones to connect to a wireless
     telephone communication network.
23   
24   
25   
0005
 1                          I N D E X
 2                      O F   P A N E L S   (Continued)
 3                                                     PAGE
 4   
 5   5C. Computer programs in the form of firmware or
     software that enable mobile communication
 6   handsets to connect to a wireless communication
     network, when circumvention is accomplished for
 7   the sole purpose of lawfully connecting to a
     wireless communication network.
 8   
 9   5D. Computer programs in the form of firmware
     that enable wireless telephone handsets to
10   connect to a wireless telephone communication
     network, when circumvention is accomplished for
11   the sole purpose of lawfully connecting to a
     wireless telephone communication network,
12   regardless of commercial motive.
13   
     3:45 P.M.                                          226
14   
     Proposed Class to be discussed:
15   
     5A. Computer programs that enable wireless
16   telephone handsets to execute lawfully obtained
     software applications, where circumvention is
17   accomplished for the sole purpose of enabling
     interoperability of such applications with
18   computer programs on the telephone handset.
19   
20                          ---oOo---
21   
22   
23   
24   
25   
0006
 1                    A T T A C H M E N T S
 2   
 3   From Panelist:  CHRISTIAN BUERGER
                     Virgin Mobile USA, LP
 4   
          Document entitled, "Embedded file system view"
 5   
 6   
     From Panelist:  PETER LURIE
 7                   Virgin Mobile USA, LP
 8        Document entitled, "Network Unlocking Your Mobile:
          Step by Step"
 9   
10   
     From Panelist:  JENNIFER GRANICK
11                   Electronic Frontier Foundation
12        Document entitled, "Renewal: 2008 Corporate
          Sustainability Report" by Recellular
13   
14   
15                          ---oOo---
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0007
 1                  P R O C E E D I N G S
 2   
 3   MAY 1, 2008                                   9:15 A.M.
 4   
 5             MS. PETERS:  Good morning.
 6             I'm MaryBeth Peters.  I'm the Register of
 7   Copyrights, and I would like to welcome all of you to
 8   our California hearing in the Section 1201 Rulemaking.
 9             This hearing is a part of the ongoing
10   triennial rulemaking process mandated by Congress in the
11   Digital Millennium Copyright Act.
12             Section 1201(a)(1) provides that the Librarian
13   of Congress may exempt certain classes of works from the
14   prohibition against circumvention of technological
15   measures that control access to copyrighted words for
16   three-year periods.
17             The purpose of this rulemaking proceeding is
18   to determine whether there are particular classes of
19   work as to which users are, or are likely to be,
20   adversely affected in their ability to make
21   noninfringing uses of works if they are prohibited from
22   circumventing the technological access control measures.
23             After the Copyright Office's initial Notice of
24   Inquiry in this rulemaking, published in the Federal
25   Registrar on October 6, 2008, the Office has received 20
0008
 1   comments proposing exemptions to the prohibition on
 2   circumvention.  We received 56 response to these
 3   proposed exemptions, all of which are available for
 4   viewing from the Copyright Office's Web site.
 5             In addition to the hearing today, the
 6   Copyright Office will also be conducting hearings in
 7   Washington, D.C. next Wednesday, Thursday, and Friday,
 8   the 6th, the 7th, and 8th of May.
 9             Information about the Washington, D.C.
10   hearings is available on the Web site.  We intend to
11   post all transcripts of all hearings on our Web site
12   within a few weeks of the hearings.
13             The comments, responsive comments, and the
14   hearing testimony will form the basis of evidence in
15   this rulemaking, which, after consultation with the
16   Assistant Secretary for Communications and Information
17   of the Department of Commerce, will result in my
18   recommendation to the Librarian of Congress.
19             The Librarian will make a determination by
20   October 28th, 2006 [sic], on whether exemptions to the
21   prohibition against circumvention should be instituted
22   during the next three-year period and, if exemptions
23   should be issued, what particular classes of works
24   should be exempted from the prohibition on
25   circumvention.
0009
 1             The format of the hearing today is divided
 2   into three parts.  First, witnesses will present their
 3   testimony.  This is your chance to make your case to us
 4   in person, and we want you to make it as fully and as
 5   energetically as you can.
 6             And remember, this is a rulemaking that's
 7   based on the evidence that we hear.  So, you have to put
 8   the evidence in front of us.
 9             After you basically make your statements, then
10   we will be asking questions.  Hopefully, we'll be asking
11   some tough questions in an effort to try to define and
12   refine the issues and the evidence that's presented on
13   both sides.
14             This is an ongoing proceeding.  No decisions
15   have been made.  They won't be for a while.
16             With respect to any of the critical issues, in
17   an effort to fully obtain relevant evidence, the
18   Copyright Office reserves the right to ask questions in
19   writing of any participant in these proceedings after
20   the close of the hearing.
21             And those of you who have participated in the
22   past know that we fully avail ourselves of that
23   opportunity.  And obviously those questions and response
24   to those questions also appear on our Web site.
25             Now, let me introduce the members of the
0010
 1   Copyright Office who are here.  To my immediate left is
 2   David Carson, who is General Counsel of the Copyright
 3   Office.  To my immediate right is Rob Kasunic, Principal
 4   Legal Advisor, Assistant General Counsel in the
 5   Copyright Office.  And to David's left is Ben Golant,
 6   also Assistant General Counsel and Principal Legal
 7   Advisor in the Office of the General Counsel.
 8             Before actually turning to the witnesses, I
 9   would like to thank Paul Goldstein, Jillian del Pozo,
10   and the Stanford Law School for extending their
11   hospitality once again in providing a venue for our
12   California hearing.
13             So, let's get started, and I understand, Gary,
14   that you are going to be the first presenter.
15             MR. HANDMAN:  Right.
16             MS. PETERS:  Yes.  Thanks.
17                             ---oOo---
18   
19   PROPOSED CLASS TO BE DISCUSSED:
20   SECTION 1201(4)(A)
21   PANELISTS:  GARY HANDMAN
22               MARK KAISER
23               ABIGAIL De KOSNIK
                 STEVE METALITZ
24   
25             MR. HANDMAN:  Well, good morning.
0011
 1             My name is Gary Handman, and I'm the Director
 2   of the Media Resources Center at Moffitt Library at UC
 3   Berkeley.  This is a position I've held since 1984.
 4             I also serve as a lecturer in the Film Studies
 5   and Media Studies Programs at UCB, as well as a periodic
 6   lecturer in other departments and programs, including
 7   English, History, American Cultures, Rhetoric, and
 8   Theater.
 9             I'd like to thank the committee, Copyright
10   Office, for the opportunity to speak here this morning
11   in support of broadening current DMCA circumvention.
12             If you'll refer to the formal comments I
13   submitted late last year, you'll see that I am speaking
14   here today on behalf of a large group of professional
15   colleagues in libraries and archives across the country
16   who sign their support for that document.
17             I'd like to focus my comments this morning on
18   three basic points.  First, I'd like to discuss the
19   almost universal increase in the use and importance of
20   video in classroom teaching and learning across academic
21   disciplines.
22             I'd like to discuss the types of videos
23   commonly used in the classroom, the specific ways in
24   which these materials are incorporated into classroom
25   activities, and the ways in which the current DMCA
0012
 1   strictures are seriously and consistently impeding this
 2   work.
 3             Secondly, I'd like to respond briefly to the
 4   comments made by the association of American Publishers
 5   and others regarding possible alternative to
 6   circumventing of DMCA encryption.
 7             And lastly, I'd like to offer a few
 8   observations and opinions about present and future
 9   realities in regard to media use in teaching, learning,
10   and research on university campuses.
11             In developing these comments, it occurred to
12   me fairly early on that the media center that I
13   administer at UCB provides some excellent general
14   insights into the ways in which video is typically
15   collected and used in higher education contexts.
16             MRC was opened in 1979, a few years after the
17   introduction of home video technologies.  The Center is
18   currently one of the two or three largest video
19   collections in a US academic library.
20             The MRC collection includes about 40,000
21   pieces, half of which are on tape and half on DVDs.  The
22   collection comprises documentary and educational works,
23   primary source materials, such as news, television
24   programming, as well as a research-level collection of
25   collection of international feature films.
0013
 1             The vast majority of the materials in the
 2   collection have been commercially acquired.  We're not
 3   an archive; we're a college-acquired collection.
 4             These resources support and are used by
 5   virtually every discipline on the Berkeley campus, and
 6   I'd say that well over 90 percent of every video shown
 7   in a classroom on the Berkeley campus is borrowed from
 8   MRC.
 9             Last academic year, the Center circulated over
10   90,000 items.  That's over four times more use than a
11   decade ago.
12             Almost one-hundred percent of these materials
13   circulated were either watched for specific course
14   assignments in the Media Center, or used for screening
15   in the classroom.  About 3- to 4000 items went to
16   classrooms across campus last year.
17             So, which departments and programs are the
18   biggest users of this collection?  The casual outside
19   observer might think it would be Film Studies or Mass
20   Communication Studies.
21             Well, the casual, outside observer would be
22   wrong.  In fact, it's my impression that on most
23   campuses that support centralized video libraries like
24   mine, Film and Media Studies are almost always
25   relatively minor users of such collections, if for no
0014
 1   other reason than the fact that these departments tend
 2   to be pipsqueaks in terms of faculty size and student
 3   enrollments.
 4             Now, that isn't to say that film isn't
 5   intensely used or a vital part of these programs.  In
 6   terms of number, however, the big users are often
 7   heavily enrolled social sciences programs.
 8             Disciplines that I'm referring to include
 9   Cultural and Ethic Studies, Women's Studies, History and
10   Political Science, Public Policy, Development Studies,
11   Environmental Studies, Education and Psychology.
12             And I've brought with me about two weeks of
13   reservation requests if you're interested.  They show
14   which classes on my particular campus are using this
15   stuff.
16             Courses in these departments use video for a
17   number of reasons.  They use video to focus on the
18   various ways in which movies and TV both shape and
19   reflect cultural and political notions, norms, and
20   fantasies.
21             In other words, they view film as a kind of
22   cultural artifact or text that can be read and
23   interpreted as historical or sociological documents.
24             These courses are equally interested in
25   nonfiction films, including documentary film and primary
0015
 1   source materials such as broadcast news to spur
 2   discussion and to provide concrete visual evidence and
 3   examples of the issues being discussed.
 4             Now, underlying the use of both fiction and
 5   nonfiction film in most of these courses is the goal of
 6   making students critical, media-literate viewers, rather
 7   than simply passive receivers of the images which
 8   increasingly bombard our lives.
 9             I should also mention that along with the
10   social sciences, big users of video also include the
11   language departments on campus -- and my colleague, Mark
12   Kaiser, is going to be addressing that in a second --
13   and English departments, which regularly look at the
14   relationship between film and literary texts and
15   authorship in both graduate and undergraduate classes.
16             Over the 25 years that I've been Director of
17   MRC, I've witnessed significant changes, not only in the
18   intensity of media use, but also in the ways in which
19   these media have been incorporated into teaching.
20             It's clear to me that the vast majority of
21   faculty users of MRC, including Film and Media Studies
22   faculty, and those in other disciplines, have, for a
23   number of logistical and pedagogical reasons, gravitated
24   toward using portions of video in class, rather than
25   screening whole works.
0016
 1             From a logical perspective alone, this trend
 2   isn't surprising.  A large number of courses are
 3   shoe-horned into 50-minute slots, and showing an entire
 4   film in class simply isn't feasible, let alone screening
 5   it and discussing it.
 6             From a pedagogical perspective, the ability to
 7   compare sequences or scenes in the same or multiple
 8   works, to zero in on a sequence that addresses a
 9   specific point being made in class, and to incorporate a
10   clip into the context of a PowerPoint presentation has
11   become central to teaching.
12             Many of the strong pedagogical arguments
13   offered last year by Professor Decherney which lead to
14   the expansion of circumvention allowances for Film
15   Studies and Media Studies are, in effect, the ones I'm
16   making her on behalf of other academic disciplines.
17             I have three PowerPoint slides I'd like to
18   show, if it's acceptable.  They will give you an idea of
19   the ways that I use clips in courses -- social science
20   courses outside of film studies.
21             (Presentation of PPT slides)
22             MR. HANDMAN:  Another clip.  Movies basically
23   formulated formed stereotypes.  They formed the image of
24   race that most Americans came to know.
25             This is from a very early Porter film called
0017
 1   "In the Tunnel," which is very strange.  This guy makes
 2   a pass at the white woman on a train.  They go into a
 3   tunnel, and it's found that he's actually kissed the
 4   black woman who is a white woman in black face.
 5             So, again, the movies fairly early on became
 6   ways in which the immigrants and minorities in the
 7   United States could be viewed as cultural others.  And,
 8   you know, this goes and, you know, I finally end up
 9   with -- you know, there are other films.  And then the
10   ultimate here.
11             Let's see now.  I'm not getting any sound.
12   Well, I'll do my Scarlett O'Hara imitation.
13             MR. KASUNIC:  We can hear.
14             MR. HANDMAN:  You can hear?
15             So, again, the movies basically developed a
16   stock group of racial caricatures and stereotypes that
17   have continued actually to the present day.
18             I end this by showing clips from Spike Lee's
19   "Bamboozled," which is basically a critique of these
20   images that were formulated in the first quarter to half
21   of the century.
22             So, that's that.  All right.  I'll leave
23   Scarlett up there.  What the hell.
24             So, in the days of VHS -- that's interesting.
25   In the days of VHS, almost everyone I know who used
0018
 1   video in the classroom in classroom teaching routinely
 2   exercised fair-use rights to excerpt a limited number of
 3   short clips for these purposes.
 4             Current DMCA strictures against circumventing
 5   DVD encryption have, in a sense, trumped those fair use
 6   rights and have left the majority of academic users of
 7   video out in the cold.
 8             At a time when academic scrutiny and media in
 9   the classroom continues to skyrocket, the law has
10   basically prevented us from doing our jobs effectively
11   and legally, or from taking advantage of new
12   technologies.
13             Now, it's the Association of American
14   Publishers and others who have suggested that there are
15   workable alternatives to circumvention.  It's clear to
16   almost anyone who has stood behind a lecturn that
17   shuffling multiple DVDs in order to show various clips,
18   or fumbling with a remote control unit to find clips on
19   a single discs, are simply not viable options.  They're
20   both enormously disruptive and time-consuming in the
21   class.
22             The AAP suggests that filming clips off a
23   monitor or TV screen is an option.  It's not.  Access to
24   the equipment needed to pull this off is seldom readily
25   available to faculty, and the time and technical
0019
 1   expertise required to do this effectively are
 2   prohibitive.
 3             A great deal of what goes on in the classroom
 4   is spontaneous and responsive to the kinds of
 5   discussion and questions that arise organically in the
 6   process of teaching.  The decision to use a group of
 7   clips is often spurred by discussion that occurred in
 8   the previous class.  The AAP's cumbersome
 9   film-off-screen gambit is not amenable to this type of
10   responsive, creative teaching.
11             Perhaps most significantly, the resulting low
12   resolution image and poor sound quality from
13   off-air filming -- off-screen filming are simply not
14   acceptable in most teaching contexts.  Clarity of image
15   and sound are almost always central to clarity of
16   teaching and understanding, regardless of discipline.
17             More to the point, students are much too media
18   savvy to put up for long with images in the classroom
19   that look like something the old proverbial cat dragged
20   in.
21             Finally, I'd like to offer just a few
22   observations about the real world of academia.  With all
23   due respect, I'd like to suggest that regardless of
24   whether the circumvention allowances are expanded or
25   not, faculty will continue to do what they do.
0020
 1             Moving images have become too universally
 2   engrained in world culture, too much and almost a
 3   genetic part of student life, too central to the
 4   teaching and research across the disciplinary board to
 5   even vaguely ignore.
 6             Limiting circumvention allowances to formal
 7   academic programs known as "Film and Media Studies," and
 8   limiting the exemption to the use of materials and
 9   departmental or campus libraries is completely
10   unrealistic in light of current teaching practice,
11   current institutional resources, and evolving trends in
12   education and scholarship.
13             Faculty will continue to use the cultural and
14   academic materials available to them in ways which best
15   support their teaching goals.  These are not
16   18-year-olds holed up in dorm rooms wantonly ripping off
17   content and P to P sharing that stuff for free.  These
18   are individuals engaged in socially significant work
19   using legally acquired videos for the types of limited
20   and noncommercial uses historically covered under fair
21   use.
22             I urge that the Librarian of Congress and his
23   advisers to consider expanding current exemptions in
24   order to support the work of teachers and the interest
25   of students, rather than encouraging an almost
0021
 1   unavoidable and inevitable disrespect of the law by
 2   committed and responsible individuals.
 3             Thanks.
 4             MS. PETERS:  Thank you very much.
 5             MR. KAISER:  I want to thank you for the
 6   opportunity to testify today.  My name is Mark Kaiser.
 7   I am the Associate Director of the Berkeley Language
 8   Center, Director of the Language Media Center, and a
 9   lecturer in Russian language at U.C. Berkeley.
10             My testimony widely reflects the views not
11   only of my colleagues in Language Centers, but also
12   those of foreign language instructors.
13             To appreciate the importance of foreign
14   language film to the teaching of foreign languages, one
15   must understand the changes underway in the field of
16   foreign language pedagogy.
17             In particular, I would draw your attention to
18   the Modern Language Association's 2007 report entitled
19   "Foreign Languages and Higher Education:  New Structures
20   for a Changed World."  This report, written by seven
21   experts in the field of foreign language pedagogy, calls
22   for a restructuring of foreign language departments and
23   the curriculum to meet the needs of an educated
24   citizenry in a flat and shrinking world.
25             It calls for a language curriculum that
0022
 1   generates a specific outcome, namely -- and I quote from
 2   the report -- educated speakers who have translingual
 3   and transcultural competence, the ability to operate
 4   between languages.  This kind of foreign language
 5   education systematically teaches differences in meaning,
 6   mentality, and worldview as expressed in American
 7   English and in the target language.  Literature, film,
 8   and other media are used to challenging students'
 9   imaginations and to help them consider alternative ways
10   of seeing, feeling, and understanding things.  End
11   quote.
12             It is against this methodological backdrop
13   that we must understand the desire of language
14   instructors to incorporate film into the curriculum.
15   Film is unique in that it is not only a cultural
16   artifact, reflecting and reproducing the values embedded
17   in the -- embodied in the target culture, it also
18   produces new language and new ways of understanding the
19   culture.
20             It serves as a social commentary on a
21   particular culture at a particular time.  It is also
22   significant in that it is practically the only source of
23   oral speech emulating the natural conversation available
24   to instructors of foreign languages.
25             Film clips offer instructors the ability to
0023
 1   model language and culture.  When the language textbook
 2   introduces all the vocabulary associated with marriage,
 3   wedding, to be married to someone, to exchange rings,
 4   et cetera, et cetera, et cetera -- all of this nest of
 5   vocabulary, it leaves the student assuming that the only
 6   differences between a Russian and American wedding, this
 7   cultural rite of passage, is the way we pronounce the
 8   words.
 9             However, when the instructor brings in clips
10   from four to five Russian films, scenes where the bride
11   is ransomed, where the crowns are held high over the
12   head during the church ceremony; scenes where the
13   wedding motorcade tours the city visiting the Tomb of
14   the Unknown Soldier and other city sites, the student
15   begins to grasp that each culture has its own traditions
16   comprising the wedding ceremony, and that these
17   traditions have particular meanings for the
18   participants.
19             In more advanced classes, an analysis of the
20   differences between the spoken language of the original
21   and the English subtitles might be used to sensitize
22   students to differences in languages, and that often,
23   ideas and cultural values are lost in translation.
24             Now, it might be suggested that there are
25   alternatives to ripping a DVD to obtain clips.  Let us
0024
 1   consider some of those alternatives from the point of
 2   view of the language instructor.
 3             Instructors, it might be argued, can simply
 4   bring the DVD to the classroom.  This is a possibility
 5   and is done widely today, in particular when instructors
 6   show extended scenes from films.
 7             However, there are significant drawbacks when
 8   instructors want to use short clips from a DVD.  For
 9   one, the instructor loses too much time queuing the DVD
10   to the scene that she wants to display.  This is
11   tolerable when one has one scene to show and it can be
12   primed before the class begins.
13             However, when one wants to show more than one
14   clip so as to compare behaviors, uses of languages,
15   cultural artifacts, or simply show many examples of a
16   particular language use or cultural artifact, we simply
17   lose too much time inserting and queuing the DVD to make
18   it a feasible alternative in a 50-minute language class.
19             For instance, when teaching beginning Russian,
20   I would like to show multiple clips from films
21   demonstrating the different ways Russians greet each
22   other, with colleagues at work, amongst family members;
23   how they might address a neighbor's child, between boss
24   and subordinate, teenagers amongst themselves,
25   et cetera, so as to demonstrate how language varies
0025
 1   depending on social environment, and, I might add, how
 2   textbooks simply -- how textbooks oversimplify even
 3   something as basic as greetings.
 4             In such a lesson on greetings, I might want to
 5   show five to six different clips.  No language
 6   instructor will take the time or waste students' time by
 7   fiddling with five or six DVDs.
 8             A second alternative, one might say, would be
 9   to use VHS, and instructors still do, but it is
10   increasingly difficult to make due with VHS tape.
11   Players are disappearing from classrooms, but more
12   important, new films are not issued on VHS anymore.  It
13   is a disappearing technology.
14             It has been suggested that instructors film
15   the DVD.  Not only is the procedure time-consuming, the
16   quality of the ensuing product, in particular the audio
17   component, is unusable.
18             Foreign language students already have
19   sufficient difficulty understanding the spoken language,
20   and an audio track that has been contaminated by ambient
21   room noise will do nothing to help the comprehension of
22   the text.  Moreover, the distortion in the picture
23   results in text that can no longer be read, facial
24   expressions lost, colors distorted.
25             With your indulgence, I would like to
0026
 1   demonstrate for you how language instructors, or how I
 2   in my language classes, would like to use short segments
 3   of video in their language classes.
 4             Imagine you are at the end of the first week
 5   of a beginning Russian class.  You have been learning
 6   the alphabet, learning greetings -- how to greet your
 7   instructor, your classmates -- and you are learning
 8   Russian names -- nicknames, first names, and
 9   patronymics -- and when to use one and when to use the
10   other.
11             All of this is disorienting, foreign, and
12   strange to the students.  And on the last day of that
13   week, that first week of class, I would show these two
14   clips.
15             Now, this first clip is from a film called --
16   translated as "Prisoner of the Mountains."  Its Russian
17   title is "(Spoken in Russian)," or "The Caucasian
18   Prisoner."
19             And I would point out to my students before
20   watching this clip that the title echoes back in Russian
21   literature.  Alexander Pushkin, the Russian poet, wrote
22   a poem about -- entitled, "The Caucasian Prisoner."
23   Tolstoy modified that poem into a short story, made it
24   more realistic, whereas Pushkin's was somewhat
25   romanticized and so forth.  And here we have a
0027
 1   contemporary film director addressing this.
 2             And I would ask my students, "Why do think
 3   they didn't translate this as "Caucasian Prisoner"?  Why
 4   didn't they translate it as "Prisoner of the Mountains"?
 5             And that would create some discussion around
 6   difficulties with the word "Caucasian" and maybe what
 7   might be implied in English from that versus the
 8   Russian.  And so, then we would watch this clip.
 9             (Showing clip)
10             Let me just explain.  So, a doctor is asking a
11   Russian recruit here to read the eye chart.  The recruit
12   is pronouncing his letters very, very distinctly.  And
13   we would maybe pause this clip and have the students
14   actually practice their knowledge of the alphabet by
15   also reading the chart.  It takes this abstraction of
16   alphabet and makes knowing how to pronounce the letters
17   something that becomes real for the students.
18             I would go on and I would ask the students,
19   after they've seen this clip, What is familiar in this
20   clip for you and what is strange.
21             And of course, what they would respond is,
22   Well, the eye chart, the induction exam, and so forth,
23   that's very familiar, but being paraded around by a
24   young nurse, naked in the barracks, this is something
25   that is quite strange.
0028
 1             And so, we can start talking, even in this
 2   first week of class when their knowledge of Russian is
 3   quite limited, about the differences in cultures and why
 4   maybe they're paraded around naked, but this -- what is
 5   strange in studying Russian and what is familiar, and
 6   that they're going to be encountering this throughout
 7   their studies of Russian -- aspects that are strange and
 8   different and aspects that seem, at least on the
 9   surface, as being familiar.
10             The second clip that I want to show is from
11   "Moscow Doesn't Believe in Tears."  It won the Academy
12   Award for Best Foreign Film in 1981.  And this character
13   that we see here has been sent out in search a friend's
14   boyfriend who is on a bender.
15             (Playing clip)
16             MR. KAISER:  So, he asks -- and he names all
17   of these different nicknames from the Russian name
18   Gyorgi (phonetic) -- (Speaking Russian), et cetera --
19   all of these different nicknames, and I might have the
20   students pause, we might watch that portion of the clip
21   several times, and have the students write down as many
22   of these nicknames as they possibly can remember or
23   catch in this audio.
24             And I would ask my students, "Why does he
25   greet the old woman in the corridor, but he didn't greet
0029
 1   the person who is painting?  What's going on there?"
 2             Now he's found the person he's looking for.
 3             (Playing clip)
 4             MR. KAISER:  And I would ask my students, "Why
 5   did the one use the nickname Gosha (phonetic), and why
 6   did the other use the full form Nikolai?"
 7             And, of course, the answer is, the one has
 8   proven himself a worthy male by downing the whole glass
 9   of vodka and smelling the fish and not eating it.  But
10   this introduces all sorts of other issues that we can
11   talk about:  Male bonding, the role of vodka, food, and
12   habits of eating when you're drinking vodka and so
13   forth.
14             Foreign language educators must choose between
15   teaching in an efficient, engaging, and meaningful
16   manner, enlivening the dry abstractions of textbooks
17   with material that shows language in action in a rich
18   cultural environment, or forego that material and obey
19   the law.
20             Make no mistake, instructors will not use DVDs
21   to illustrate brief scenes from films.  There's too much
22   hassle, and students won't tolerate it.
23             Just two weeks ago, a professor of
24   Scandinavian Languages told me that their department has
25   seen student comments on course evaluations to the
0030
 1   effect, The instructor needs to learn how to use clips.
 2             Using short extracts of copyrighted material
 3   in the classroom used to be something instructors could
 4   do under fair use.  The DMCA took that right away from
 5   educators.  We urge you to restore that right.
 6             MS. PETERS:  Thank you.
 7             Ms. De Kosnik.
 8             MS. De KOSNIK:  Good morning.  Thank you very
 9   much for taking the time to hear our perspective as
10   university faculty and archivists today.
11             My name is Abigail De Kosnik.  It's good to be
12   back at my alma mater.  I graduated from Stanford in
13   1994 with my bachelor's and master's degree.
14             I'm the Assistant Professor at U.C. Berkeley
15   in the Berkeley Center for New Media and the Department
16   of Theater, Dance, and Performance Studies.
17             In addition to teaching courses in the fields
18   of New Media and Performance, I also led a Freshman
19   Seminar earlier this year on the films of Academy
20   Award-winning director Ang Lee, who also visited the
21   campus this term.
22             Last year, before joining the Berkeley
23   faculty, I was a member of the faculty of the Cultural
24   Studies program at Columbia College Chicago, the largest
25   private arts and media college in the United States.
0031
 1   Prior to that, I was a Ph.D. student at Northwestern
 2   University, in the Department of Comparative Literary
 3   Studies, and sometimes taught courses that I designed in
 4   the Asian-American Studies program.
 5             I did not receive my Ph.D. from a Film Studies
 6   department, nor have I ever taught a course for a Film
 7   Studies department.
 8             However, in the classes for which I have been
 9   the lead instructor between 2006 and 2009, a total of
10   ten college courses, I have screened approximately 65
11   films and television series for my students, in part or
12   in their entirety, an average of 6.5 media texts per
13   course.
14             I could not have taught any of my courses
15   without using clips from films and TV series.  I will
16   give just a few examples of how crucial media screenings
17   have been to my teaching.
18             For my Spring 2006 course on remix culture and
19   artistic appropriation, I used Baz Luhrmann's "Romeo +
20   Juliet," a postmodern adaptation of Shakespeare's famous
21   play about star-crossed lovers.  Luhrmann's film
22   translates the tale of two feuding families in
23   16th-century Verona into a 20th-century turf war fought
24   by two mob families.
25             Luhrmann uses MTV-style quick cuts, pop music,
0032
 1   and designer fashion to update a Renaissance text for
 2   contemporary teens.  His "Romeo + Juliet" illustrates
 3   perfectly the idea of artistic appropriation, which is
 4   the act of revising and altering an earlier work in such
 5   a way that brings out new dimensions of meaning in the
 6   original text.  Screening Luhrmann's adaptation for my
 7   class allowed my students to immediately grasp the
 8   cultural importance and artistic value of appropriation.
 9             For my course on Techno-Orientalism, which
10   explores the way that the United States and Europe have
11   constantly drawn upon Asian imagery to represent the
12   hi-tech future, a course which I taught once at
13   Northwestern and once at Columbia College, I screened
14   films and television shows spanning nine decades, from
15   Fritz Lang's 1927 silent masterpiece, "Metropolis," to
16   Ishiro Honda's 1954 genre-defining classic "Gojira,"
17   better known in this country as "Godzilla," to more
18   recent productions such as the 2002 Joss Whedon sci-fi
19   television series, "Firefly," and Korean auteur
20   Chan-Wook Park's 2006 romantic comedy, "I'm a Cyborg,
21   But That's OK."
22             I bring up these examples of courses that I
23   have taught on cultural theory, aesthetics, transitional
24   history, and styles of representation and performance --
25   none of which were taught in Film Studies courses -- in
0033
 1   order to demonstrate that professors in departments
 2   other than Film Studies departments teach film and
 3   television, and need to use high-quality DVDs in order
 4   to effectively instruct our students.
 5             We use media as examples and points of
 6   discussion, as historical artifacts and evidence of
 7   certain worldviews, and as art objects that correspond
 8   to theoretical concepts.
 9             We professors in Cultural Studies, New Media,
10   Performance Studies, Asian-American Studies, and
11   Comparative Literature need to use film and television
12   as much as film and television departments need to use
13   books.
14             And we do not always need or want to show
15   films or television shows at great length.  We very
16   often need to show only a scene or two of each movie or
17   program.
18             In the case of "Metropolis," I need only show
19   that the Robot Maria is dancing in a nightclub called
20   the "Yoshiwara," the name of the red-light district in
21   Edo, now Tokyo, to make my point that Asian references
22   have populated Western science fiction for a very long
23   time.
24             When analyzing a film at greater length, I
25   often need to show several clips from the same DVD, or
0034
 1   clips from several DVDs during one class session.
 2             In my freshman seminar on the films of Ang
 3   Lee, I needed to show several clips from each film in
 4   quick succession in order to point out the recurrence of
 5   certain themes and stylistic devices in Lee's work, such
 6   as his frequent use of the mid shot, his fondness for
 7   setting scenes about psychological or social freedom in
 8   the desert, and his penchant for scenes without any
 9   dialogue at all.
10             I also frequently assign my students the
11   responsibility of bringing in their own movie or TV
12   clips to show to their classmates, usually as part of
13   required class presentations, and my students usually
14   want to show several clips from one TV show or clips
15   from several TV shows as part of their brief
16   presentations.
17             Because my time as an instructor is limited,
18   and because I impose time constraints on my students'
19   presentations, my students and I need to extract clips
20   from DVDs and "cue" them to show one after the other, in
21   quick succession, rather than fast-forwarding through
22   two-hour films or one-hour television episodes, or
23   fumbling with a DVD player to switch out discs.
24             Ripping DVDs and extracting clips is by far,
25   without question, easier and more utile for
0035
 1   instructional purposes than either of the two options
 2   just mentioned.  As teachers, we hope to do everything
 3   possible to create smooth transitions from one object of
 4   study to another over the course of a class session
 5   without unnecessary waiting or disruption of discussion.
 6             The capacity to extract clips and pre-cue them
 7   for our lectures and class discussions will greatly
 8   enhance our ability to use our classroom time
 9   effectively and efficiently, and will enable us to
10   provide our students with the best possible conditions
11   for their learning.
12             I would also like to mention that in my
13   experience, every time I screen clips from a film or TV
14   series, at least one or two students from my classes
15   buy the DVD of those media tests.  In other words, I
16   believe that by teaching media, I market media.
17             I allow students to sample and develop an
18   interest in media productions to which they have never
19   been previously exposed.  Every time I screen media
20   clips for students, in other words, I increase the
21   profits of the media industries.
22             In conclusion, there is no reason that
23   extracting high-quality clips from DVDs should be an
24   acceptable practice for Film Studies professors, and not
25   for professors in other fields.  I support broadening
0036
 1   the current DMCA exemptions for circumventing DVD
 2   encryption in connection with classroom teaching.
 3             Thank you very much.
 4             MS. PETERS:  Thank you.
 5             MR. KASUNIC:  Is Barbara Baraff here?
 6             (No response)
 7             MR. METALITZ:  Thank you very much.  It's good
 8   to be back here.  It's good to see all of you here again
 9   so youthful and energetic, and I appreciate seeing all
10   of your -- of this.
11             I'm actually quite fascinated to hear about a
12   lot of the exciting pedagogical uses of the products
13   of -- mostly one of my clients, the Motion Picture
14   Association, but also potentially the other clients that
15   I'm representing, and how they're being used in higher
16   education today.
17             I am here on behalf of nine copyright
18   organizations, alphabetically listed starting with the
19   Association of American Publishers, but I suppose for
20   this -- for this segment we're mostly talking about
21   audiovisual material.
22             And the particular exemption that is listed on
23   the agenda today, Proposal 4(A), does deal with
24   face-to-face classroom teaching by college and
25   university faculty, including teachers in K through 12
0037
 1   classroom.  I don't think we heard any testimony about
 2   K through 12.
 3             And one point I did want to make is that this
 4   proposal, unlike some of the others that have been put
 5   forward, wasn't limited to clips, but most of the
 6   testimony we heard earlier was about clips.  So, let me
 7   focus on that, and really on the issue of the existing
 8   exemption that is in effect now until October, 2009 and
 9   what should come after that.
10             As you know, the Joint Commenters are --
11   copyright industry groups are not opposed to a
12   recognition of an exemption along the lines of the
13   existing exemption for film and media professors.
14             We did have some narrowing proposals to make,
15   and I will, just for the record, call your attention
16   first to page 8 of our submission where we speak
17   generally about some of the narrowing that would need to
18   be carried out, in our view, if, as the Office proceeds
19   down the road, the path that it first blazed three years
20   ago, of defining or at least refining an administrative
21   exemption based on characteristics of the use or of the
22   user, which is a new -- new interpretation, a
23   reinterpretation by the Office of the statute.
24             Those -- and this would be a theme that you'll
25   be hearing throughout the next few days at these
0038
 1   hearings, where we think that many of those narrowing
 2   principles ought to apply across the board.
 3             And then with particular respect to Proposal
 4   4(E), we have some more specific proposals for narrowing
 5   that I found on, I believe, pages 29 and 30 of our
 6   submission.  But I'm not going to go into those today.
 7   I think that would be more focused in Washington.  And
 8   instead look, really, at 4(A) as it's been presented
 9   here this morning.
10             As I said, the question is not about the
11   validity or the value of the kinds of uses that my
12   colleagues from U.C. Berkeley have talked about.  That's
13   really not in question here.
14             It's really -- the issue before this Panel is
15   the prohibition on circumvention under Section
16   1201(A)(1) of Title 17 impeding these types of uses in
17   the sense that Congress intended when it passed this
18   statute, and in the sense that the Copyright Office and
19   the Library of Congress have applied that standard over
20   the past nine years.
21             There's a threshold question among the burdens
22   that the proponents of the exemption have to meet.  One
23   is, of course, to establish that the uses we're talking
24   about are noninfringing.  And I certainly didn't see
25   anything here that would cause me to question that in
0039
 1   terms of the clips that were shown and so forth.  So,
 2   that's not really the issue.
 3             The issue primarily is whether it is necessary
 4   to circumvent the access controls such as CSS on DVDs in
 5   order to achieve those -- advance those objectives and
 6   make those noninfringing uses.
 7             And the standard that the Office is applying
 8   has been quite clear since the beginning of this --
 9   since the first of these proceedings in 2000 based on a
10   host of precedence in the copyright law, which is that
11   it's not simply a question of what's most convenient, or
12   what is simplest or most attractive necessarily to use,
13   but whether the noninfringing use can be made without
14   circumvention in a manner that meets the -- that meets
15   the pedagogical needs.
16             As the Office put it in its 2006
17   recommendation, it found that as far as the film and
18   media professors were concerned, they had made the case
19   that the alternative methods that were then available
20   were wholly insufficient for pedagogical purposes.  They
21   had shown that in their teaching they had to demonstrate
22   what only may be revealed by use of the DVD version by
23   stripping away the access control and extracting clips
24   from the DVD version.
25             So, the burden that the proponents have to
0040
 1   meet this time is really to establish that in their
 2   uses, the uses that they want to make -- using film as a
 3   historical or sociological document, as Professor
 4   Handman indicated; using it in the language teaching
 5   settings that Professor Kaiser indicated; showing it as
 6   an art object, as Professor De Kosnik indicated -- are
 7   those objectives -- is it wholly insufficient to use
 8   other means to display these clips in their classrooms,
 9   other than circumventing CSS or whatever access controls
10   apply and displaying the resulting clips.
11             Now, I don't -- I think it's worth pointing
12   out a couple of things with regard to this question of
13   alternative means, alternative methods, alternative
14   formats, which is really the key question here, and, of
15   course, that is a changing world.
16             I think the proponents are absolutely correct
17   that it's less and less viable going to VHS, for
18   example, as an alternative that's readily available to
19   faculty in many of these situations.
20             At the same time, there is -- are certainly
21   new formats and new channels that can be utilized for at
22   least some of the material that the proponents are
23   talking about.  Increasingly, audiovisual material,
24   particularly current television shows, but also other
25   material, is available online, through sources -- Web
0041
 1   sites such as Hulu, where it is quite possible, as we
 2   explain in our submission, to pre-mark particular
 3   segments of a television program and then simply call
 4   them up and display them in the classroom without having
 5   to do any circumvention.  Whatever.  So, in many cases,
 6   there would be alternative formats available.
 7             I'd also want to say that the alternatives
 8   that have been deprecated here regarding copying off a
 9   screen or a monitor to achieve these clips and then
10   manipulate them and then do, really, all the things that
11   the proponents are talking about in terms of showing
12   clips in quick succession, jumping back and forth from
13   one title to another -- all of those things certainly
14   can be done by filming off the screen.
15             And I think the Panel would be aware -- and
16   we'll hear testimony next week in Washington -- that
17   those techniques are more and more readily available;
18   the equipment is getting better; the quality of the
19   images is getting much better.  And you'll see some
20   demonstrative evidence of this in the Washington
21   hearing.
22             So, certainly equipment that is well within
23   the scope of the Media Center at Berkeley, but, in fact,
24   is probably in the living rooms of many of the faculty
25   members that we're talking about, can be used to
0042
 1   create -- to extract clips without circumvention that I
 2   think would -- I think it would be very -- it would be
 3   difficult to show -- and I think the evidence will show
 4   this in Washington -- it would be difficult to show that
 5   those are wholly insufficient for the pedagogical
 6   purposes that are described here.
 7             I can understand the frustration here, because
 8   obviously the Copyright Office is not an expert in the
 9   dividing lines between academic disciplines, and those
10   lines are never as clear perhaps as they seem to be from
11   the outside.
12             So, what Professor De Kosnik says about the
13   kinds of uses that she's making, even though those
14   courses are not in the Media Studies department, that's
15   certainly a valid point.  But, I think, that the
16   question that the Panel will have to -- or, that the
17   Office will have to deal with in its recommendations is
18   looking at all of these uses.
19             And we've looked at all of the uses that are
20   stated in the submissions, and of course I'm seeing
21   these for first time, but they're really quite similar
22   to some that have been stated in the submission.
23             And when you're using film as an historical
24   and sociological document -- when you're using it to
25   illustrate the language points that Professor Kaiser
0043
 1   talked about -- you obviously need a certain level of
 2   quality, but it strikes me as quite intuitively obvious
 3   you don't necessarily need the same level of quality
 4   that the Office found was needed by the Film and Media
 5   Studies professors three years ago, and that made any
 6   other alternative wholly insufficient for their
 7   pedagogical purposes, that those classes were teaching
 8   something that simply could not be taught except by
 9   exacting clips through this method of circumvention.
10             So, I don't think the case has been made that
11   that is true for any of the examples that have been
12   given here that are merely talking about the content of
13   the film, putting it in context, looking at it from
14   different angles, repurposing it in some very creative,
15   innovative, and, I'm sure, some educationally valuable
16   ways.
17             But the real question is, Is the existing
18   prohibition that's been in place since 2000 on the
19   circumvention of access controls on DVDs impeding those
20   uses to the extent that the Office has found in the past
21   is necessary in order to justify an exception.
22             Again, based on what we've seen in the
23   submissions and what we've seen this morning, I would
24   certainly have to say in our view, the answer is no.
25             But I also recognize that some of this is
0044
 1   dependent on what you will hear -- testimony you will
 2   hear in Washington, both as to alternative means, and
 3   also I should mention as to other ways of -- consensual
 4   ways of gaining access to this content that don't
 5   involve circumvention.  I think you'll hear some
 6   testimony about that as well.  But I think that's the
 7   standard, really, that the Office will have to continue
 8   to bear in mind.
 9             Okay.
10             MS. PETERS:  Thank you.
11             Okay.  Let's start the question-and-answer.
12   We're going to go over here.
13             David is suggesting that -- is there anything
14   that anyone here wants to respond to given what Mr.
15   Metalitz has said?
16             MR. HANDMAN:  Well, just very briefly, I would
17   like to point out that at U.C. Berkeley, one of the
18   preeminent universities in the United States -- an old,
19   established school, which I think is very similar to
20   other universities of its size and age -- there are
21   virtually no institutional resources to do the kind of
22   alternative that Mr. Metalitz is talking about.
23             There are no cameras available to faculty, and
24   even if there were cameras available to faculty to do
25   the kind of filming suggested, the kinds of spontaneous
0045
 1   need, the kind of responsiveness to teaching, in almost
 2   every case, I think, would preclude doing that.
 3             There's a vast difference between using a
 4   desktop machine to extract a clip very quickly perhaps
 5   at home or other places and assembling this equipment,
 6   which would again at Berkeley have to be personal
 7   equipment, because it just isn't there to pull this off.
 8             So, that's all.
 9             MR. KAISER:  And I would just add, even if
10   Berkeley has the resources to go out and purchase such
11   equipment, all of your local high schools would not have
12   such capabilities, and they would then suffer.  Language
13   instruction at high school -- at the high school level
14   would be precluded from this kind of use of film in
15   their classes.
16             MR. METALITZ:  Can I respond to that?
17             MS. PETERS:  Yes.
18             MR. METALITZ:  I think you will have
19   testimony, and we will submit some information, about
20   the resources that are available.  We don't know what's
21   available at Berkeley, because their Web site is so out
22   of date on this, but certainly at City College of
23   San Francisco, equipment that's comparable to the
24   equipment that you will see -- the demonstrative
25   evidence that you will see next week is readily
0046
 1   available, at least according to the college, and, in
 2   fact, that seems to be true of most institutions of
 3   higher learning.  Obviously, I can't speak to the
 4   situation at Berkeley.
 5             And with regard to spontaneity, I guess
 6   everything is relative, and I'm not sure if you're
 7   suggesting that you would do this on the fly in the
 8   classroom; somebody would say, Gee, what about that
 9   issue and that film, and you would then decrypt a DVD
10   and show a clip in real time that hadn't been suggested
11   until that class came.
12             I would suggest that obviously there's
13   preparation involved in any of these things, and I'm not
14   sure that it's a legally -- if there's a difference
15   whether it's happening at home in your den or in the
16   Media Center at the university.
17             Spontaneity obviously is a factor in
18   determining fair use, but I'm not going to question
19   whether any of these uses are fair use.  I would just
20   think that the kinds of thoughtful, intriguing uses that
21   you've talked about here are probably things that you
22   think about before you walk into the classroom.
23             So, some preparation -- the fact that some
24   preparation is needed shouldn't be a disqualifying
25   factor.
0047
 1             MS. De KOSNIK:  I have a response to the
 2   earlier comment.
 3             On the point of Hulu, which is a free, online
 4   archive of some television shows, I'd like to say you
 5   cannot edit Hulu videos.  You cannot construct several
 6   clips, a series of clips from different shows using
 7   Hulu.
 8             Not all television programs are available on
 9   Hulu by any means.  I've shown Flash Gordon television
10   series, you know, episodes from the 1950s, which are on
11   DVD and not on Hulu.  I've shown Japanese-animated
12   television series not available on Hulu.
13             In terms of -- in response to the
14   filming-off-the-screen, filming-off-the-monitor
15   alternative means proposal, this is a problem comparable
16   to locking the book.  You cannot ask students to flip
17   through a locked book.
18             As a teacher, one could copy entire passages
19   of a book onto a blackboard and ask students to copy
20   those words onto their notebooks, but this would simply
21   be highly inefficient and not the most rapid means of
22   teaching or learning available today.  Asking us to film
23   off a monitor is akin to going back to copying whole
24   passages to a blackboard, as my mother had to do in the
25   Philippines in her village in the 1940s.
0048
 1             In terms of not needing the same quality in
 2   non-Film and Media studies courses as Film and Media
 3   studies professors and students require, this
 4   institute -- if that were accepted, this would institute
 5   a second-class citizenship for non-Film and Media
 6   Studies students, and it would shortchange the education
 7   of all but a handful of students on university campuses.
 8             In other words, only the hundred or so
 9   students taking Film or Media Studies courses in any
10   given semester would therefore be able to, as part of
11   their education, view high-quality, best-quality film
12   and video, and all other students on a campus the size
13   of Berkeley -- 30,000 students -- would not be able to
14   access that quality of instructional text.
15             That's my point.
16             MS. PETERS:  Thank you.
17             MR. KASUNIC:  Well, let's start with a general
18   question.  This applies to anybody, but I think it would
19   be most focused to Berkeley professors.
20             One of the issues that was raised, and it was
21   important in the exemption three years ago, was that
22   that quality wasn't necessary for the pedagogical
23   purposes.
24             Now, we understand that there could be quality
25   differences in other ways of obtaining material, but why
0049
 1   is that -- is there any reason why the quality is
 2   necessary to the particular -- to the particular
 3   pedagogy of the class?
 4             MR. KAISER:  Well, certainly for foreign
 5   language instruction, having as clear an audio track as
 6   possible is essential for the students to be able to
 7   understand and differentiate between the sounds of a
 8   language that they are in the process of learning.
 9   Sounds that they don't even recognize as phonemes,
10   because they're not phonemes in English or in their
11   native language.
12             To take that audio that is in digital form,
13   run it through a speaker, capture that again, and then
14   play it back out through a speaker a second time is
15   going to denigrate that audio track significantly.
16             MR. HANDMAN:  I'd also like to suggest that a
17   large portion of materials used in classrooms outside of
18   Film Studies are subtitled.  And subtitling is really an
19   iffy proposition.  Sometimes it's okay, but very
20   oftentimes it's difficult, even with a high-resolution
21   image -- a primary, high-resolution image.  And filming
22   that stuff off screen is going to degrade the image even
23   more.  So, that's one issue.
24             The other issue, which has just flown out of
25   my head, but I'll remember, um -- I forgot.
0050
 1             MS. De KOSNIK:  While you're thinking about
 2   that, I'd like to say that critical understanding and
 3   analysis of any text, including a media text, depends on
 4   close observation.  As professors, we call it "close
 5   reading."
 6             We would never ask art history students to
 7   closely observe a painting -- a representation of a
 8   painting or a sculpture that was blurry around the
 9   edges.  They could not sufficiently observe or analyze
10   that painting or sculpture, which would be represented
11   to them in a slide, if there were any kind of loss of
12   clarity of the image.  Nor would we ask students to
13   analyze closely and interpret any film or video image
14   that had some amount -- some quantity of loss in the
15   quality of the image.
16             MR. HANDMAN:  Well, one of the things I'm a
17   bit concerned about is that a lot of this discussion
18   seems to focus, I think, on feature films, on movies,
19   the movies; right.  The kinds of stuff that Film Studies
20   uses.
21             In fact, the vast majority of materials used
22   on the Berkeley campus and other campuses that I know of
23   are documentary in nature.  They're either
24   primary-source material, things like news reels, news,
25   or produced documentary stuff.  Produced documentary
0051
 1   stuff almost always includes primary source footage in
 2   it.  In other words, it includes archival material in
 3   it.  The quality of archival material in nonfiction
 4   film, again, just like subtitles, varies radically
 5   depending on the filmmaker's expertise, what he or she
 6   could get his or her hands on, or whatever.
 7             So, if you show a primary-source document
 8   embedded in a produced documentary and cram it through a
 9   third generation, you're going to get a pretty
10   bad-looking image, an image that's very hard to -- as
11   Abigail said, it's hard to read.
12             It's a primary -- it's as if you took a
13   photograph of a micro form, a photograph of a
14   primary-source New York Times from the 1890s, and then
15   filmed it three times again.  You're going to get -- you
16   know, you're going to get a kind of loss of clarity that
17   makes teaching very difficult, I think.
18             MR. KASUNIC:  And do those types of works --
19   the documentary clips and the other works that you're
20   trying to use -- do those generally contain access
21   controls?
22             MR. HANDMAN:  Yes.
23             MR. KASUNIC:  On the DVD?
24             MR. HANDMAN:  Yeah.
25             MR. KASUNIC:  Well, to get some understanding
0052
 1   of the relative differences in time and effort and what
 2   it takes to obtain material and not having had the -- I
 3   don't think that any of us have had the expertise in
 4   terms of actually decrypting a DVD, so can you just give
 5   us generally some kind of understanding of what it
 6   takes, how you would go step-by-step to get a clip from
 7   a DVD.
 8             MR. HANDMAN:  You mean, if it were not
 9   illegal.
10             MR. KASUNIC:  If it were not illegal.
11   Hypothetically speaking.
12             MR. HANDMAN:  Okay.
13             I would do it in one of two ways:  I could do
14   this at home.  I could do it after dinner.  I could do
15   it anytime.  I would, on my Macintosh, use a software
16   that rips chapters out of the DVD, and I would use an
17   editing package like iMovie or Final Cut to excerpt the
18   clip.
19             It would take me -- to excerpt the three clips
20   or four clips up there would take me under a half an
21   hour, under 15 minutes, maybe.  The most difficult thing
22   is getting to the piece that you want.
23             MR. KASUNIC:  Well, just break that down a
24   little bit more for us.
25             MR. HANDMAN:  How would I actually do it?
0053
 1             MR. KASUNIC:  Well, in steps.  In terms of,
 2   you got the DVD and you got the software.
 3             MR. HANDMAN:  You take the DVD.  You put it
 4   into your computer.  You crank up the software page and
 5   you say, Give me Chapter 3.  So, it rips Chapter 3 out
 6   and puts in on your desktop.  This is hypothetically
 7   speaking, of course.  It rips Chapter 3 out and puts it
 8   on your desktop.  You invoke it into your editor and you
 9   say, I want from this point in to this point out.  And
10   that's it.  Okay.  You're through.
11             There are other ways of doing it.  I mean, one
12   could play the DVD through a converter into your machine
13   and catch it on the fly and then edit it that way.  But
14   in any case, you know, you can do it anywhere.  I could
15   do it at the -- there's a café in the library, and I do
16   stuff there.  I take my Macintosh and do it while I'm
17   having a latte.
18             MR. KASUNIC:  Hypothetically.
19             MR. HANDMAN:  Hypothetically.  Hypothetically.
20             MR. KASUNIC:  Now, there was also testimony
21   that doing it in other ways -- obtaining those clips,
22   for instance, with the video would be excessively
23   cumbersome and difficult and expensive.
24             In order to assess that, what would be the
25   steps necessary, what would be the cost, what would be
0054
 1   the inconveniences in terms of doing it in that manner?
 2             MR. HANDMAN:  Well, I've never done this
 3   myself, but I would imagine it would be getting your
 4   hands on a fairly high-quality video camera, and getting
 5   your hands on a tripod or some stabilization mechanism;
 6   getting yourself a monitor that was high enough
 7   resolution, large enough, so that it made sense to do;
 8   getting the lighting right so that you didn't get
 9   shadows; taking time to set up the camera precisely so
10   that it was focused on the image and the image was clear
11   in your field; capturing that and getting to the point
12   in the DVD that you wanted to capture; and playing
13   precisely that and making sure that you synchronize the
14   record function with the play function.  Taking that
15   file after you've done it in the -- assuming that you
16   capture it on the DV, on the digital video, and then
17   basically playing that through a converter into your
18   machine, capturing the output --
19             (Technical problems with audio equipment)
20             MR. HANDMAN:  So, I think one of the points to
21   be made is that a faculty person could pull the
22   former -- even a tenured faculty could pull the former
23   operation off.  Faculty can be trained.  It's not
24   generally known, but you can train a faculty to do new
25   tricks.  A faculty person can do this with minimum
0055
 1   software and a minimum amount of training.
 2             The other method takes not only abundantly
 3   more equipment, but a kind of expertise that most -- and
 4   time that most faculty simply don't have.
 5             And again, I can't speak to every university.
 6   I know for a fact that community colleges are generally
 7   better equipped for various historical reasons than
 8   places like ours.  You simply couldn't do this at
 9   Berkeley -- I mean, if you wanted to, unless you own
10   your own --
11             MR. KASUNIC:  Now, you said that you never did
12   use a video camera.
13             Is there anyone here who did?
14             MS. De KOSNIK:  Yes.
15             I've had students assist me with taping off of
16   monitors, which involved checking out equipment from the
17   Northwestern cage, which is the repository of all
18   audiovisual media equipment, and it requires the steps
19   of communicating to a student assistant what you need
20   done; having the source video in some capacity; the
21   student making a reservation at the cage; checking out
22   the equipment under your EGIS (phonetic), your sign-off;
23   bringing that equipment to wherever the monitor is that
24   is going to be filmed; relinquishing the audio, although
25   I know that you could do an audio out into the camera,
0056
 1   if that's the kind of recording equipment that you have.
 2             And even after you filmed the portion of the
 3   film that you need, you would still have to feed that
 4   file into some kind of editing equipment, usually,
 5   because you want to do a bit of testing, you want to
 6   make sure the image is captured.
 7             So, regardless, there's no sort of scenario in
 8   which you extract the -- exactly the clip that you need
 9   in the format that you have it on your digital video
10   camera and are able to just simply screen that.  You
11   would still need to do the intermediary steps of editing
12   software.
13             MR. KASUNIC:  Didn't Gary mention that after
14   you extract the DVD, you would put it into --
15             MR. HANDMAN:  Well, it's on your desktop.  You
16   just fire up your editor and suck it in there.  I mean,
17   just import the file that you just -- yeah.
18             MR. KASUNIC:  But you would have still have to
19   go through that --
20             MR. HANDMAN:  Right.
21             MS. De KOSNIK:  The latter part would be the
22   same, but it's the difference between sitting at your
23   desk; using your thumb and your forefinger to open a
24   DVD, open a piece of software just like Word, but a
25   different kind of editing software, an audiovisual
0057
 1   editing software; import the DVD files into that
 2   software, which takes some time.
 3             The software pumps out a file that appears on
 4   your desktop -- usually an AVI file -- importing data to
 5   something as simple as Quicktime Pro, which you can
 6   upgrade Quicktime for $30, and using two arrows to move
 7   across that DVD extract to find the clip that you need.
 8             That's -- so, it's a very basic -- it's a
 9   three- or four-step maneuver.
10             MR. KASUNIC:  Well, then let me -- in terms of
11   thinking about that and the difficulty, then the problem
12   is -- it's bringing -- capturing it outside the
13   computer, bringing it into the computer.
14             Now, this is something that my demonstrative
15   evidence -- and I wanted to get opinions from
16   professors, and I also want to get some information from
17   Steve about whether this is problematic in any way.
18             I've used, for sometime, a program that --
19   capturing software, and so, for screen captures -- I
20   guess I won't use the particular software name at this
21   point, but I have -- it seems to be used in a similar
22   way from what capturing the screen with a video camera
23   would be.  It's getting the analog output after the DVD
24   has been decrypted, and is being rendered in analog form
25   to be used by I [sic].  So, this -- and there's no
0058
 1   changes to the setting.
 2             So, I've done -- captured a couple clips, and
 3   there just happens to be no specific choice in terms of
 4   what the DVD was.  It was the one that had not been
 5   returned to Netflix yet.  And it was, "O Brother, Where
 6   Art Thou?"
 7             And so, let's just see if --
 8             MR. HANDMAN:  Again, how was this done?
 9             MR. KASUNIC:  It was capturing software that
10   can capture individual images, or it can capture video
11   clips from the output of the screen.
12             MR. HANDMAN:  So, it's like Snapz, or
13   something like that?
14             MR. KASUNIC:  Snapz, SnagIt.  Many other types
15   of --
16             MR. HANDMAN:  Yeah.
17             Well, this looks like crap compared to what
18   you can do with other stuff.
19             MR. KASUNIC:  Well, thinking about some of the
20   different issues, because in terms of being able to view
21   subtitles, being able to view audio quality...
22             (Playing clip)
23             MR. KASUNIC:  And now, just for some other
24   image, I also, on the same DVD, just captured some of
25   the previews and thought it included the warning screen.
0059
 1   And again, no selection here.  It's just what was
 2   available.
 3             MR. HANDMAN:  This is the same software?
 4             MR. KASUNIC:  Yes.
 5             (Playing clip)
 6             MR. HANDMAN:  So, are you suggesting that this
 7   is not bypassing circumvention because it's recording
 8   off the screen?
 9             MR. KASUNIC:  Well, I will leave that to
10   Steve.  My sense is that this is obtaining it from the
11   screen output in exactly the same way that a video
12   camera would obtain that same screen output, except
13   you're not using a camera.
14             So, my sense would be that it is not -- I
15   don't know -- I'm open to other people having different
16   views of this.
17             This is just the other preview.  And I think
18   we can probably stop that now.  Thanks.
19             And one thing I have been requested to expose
20   is that this was, in fact -- SnagIt was the program
21   used.  So, just -- it's available for purchase.  It's
22   not a free download, but it cost for this particular
23   version.  I think there may be a number of other ones.
24   It's 49.99.
25             MR. HANDMAN:  Can I suggest that there are
0060
 1   other ways besides the ripping that I mentioned.  And
 2   I'd be very curious to see whether Mr. Metalitz feels
 3   that this is a bypassing circumventrical [sic] way.
 4             The way in fact that I personally would do
 5   this if I were to do -- if I were to do it, would be to
 6   play the DVD on a standard DVD player through an
 7   analog-digital/digital-analog box, AD/DA box, which
 8   converts the signal to an analog signal and then resends
 9   it out as digital, and capture it with iMovie or Final
10   Cut.
11             So, I'm not ripping anything off.  I'm playing
12   the work through a box that converts it into a different
13   type of signal, and not really -- I mean, technically
14   not decrypting anything.  I'm simply playing it through
15   this thing and sucking it up on the machine end.
16             MR. KASUNIC:  That sounds like that's part of
17   the problem that was being presented before -- is
18   there's a number of different steps.  Here, you're not
19   leaving your computer at all, and it's --
20             MR. HANDMAN:  Well, you need three pieces of
21   equipment, rather than one piece of equipment.  You need
22   a player or a box and a computer.  But it's still easier
23   than filming off screen, because you don't have to focus
24   anything.  You just play it, capture it, and edit it.
25             MS. De KOSNIK:  But in terms of this, which is
0061
 1   using some kind of screen capture technology -- well,
 2   there is some artifacting, as you can tell.  I mean, in
 3   both sound and image there is a stutter.  And also,
 4   especially in the green screen in the previews and even
 5   in here you can see some artifacting, some pixelation.
 6             So, there is sort of an element of asking
 7   students to read a book with pages torn out or read a
 8   book with blurry words or something.  I mean, it's not
 9   illegible, but students are used to viewing video of a
10   certain quality, and it is strange for them and sort of
11   hurts their eyeballs to not have that quality.
12             But I will say that if this is not decryption,
13   I mean, if screen-capture technology is permitted, um,
14   sure.  I mean, great.
15             Then let's say that we can capture clips using
16   SnagIt.  You didn't rent a camera and position it in
17   front of your monitor.  Why didn't you do that?  Because
18   it's a pain in the behind.  You would rather do a screen
19   capture using software on your existing machine than get
20   a different machine and position it in front of your
21   monitor.
22             MR. KASUNIC:  Well, the reason I did it was so
23   I could bring it here and show you, but yeah.
24             So, Steve, do you -- I know that this is --
25   that you aren't necessarily -- or, at all prepared to
0062
 1   address this particular technology, but -- and we'll
 2   have another opportunity to do it in Washington, but do
 3   you have any reactions to this in terms of -- and
 4   certainly there is a somewhat diminished quality, but
 5   again, as we started off talking about, that just
 6   because students may expect -- I teach, and I know
 7   students expect many things that I don't give them.
 8             And the expectation in terms of what is
 9   important to us is not necessarily just what their
10   expectation is, but the pedagogical importance of that,
11   or the particular use, if it's not completely
12   insufficient for the purposes.
13             So, is there any -- do you have any views in
14   terms of whether capturing just the screen output would
15   be a problem?
16             MR. METALITZ:  I'm certainly not going to give
17   an opinion on that on the fly, but I'm sure you'll give
18   us a copy of what you've just put in the record here,
19   and hopefully we'll get to deal with that next week.
20             I'm not disputing that some means of
21   accomplishing this goal are more convenient than others.
22   It's quite clear that mere inconvenience is not the test
23   that the Office can apply.  It's not the test that
24   Congress wanted the Office to apply, and neither was
25   hurting the students' eyeballs.
0063
 1             So, everything exists on a spectrum, but the
 2   relative level of inconvenience, I'm not disputing that
 3   some methods are much more convenient than others.
 4             MR. KASUNIC:  But if this was using a similar
 5   method to a video camera of obtaining that, then the
 6   fact that it was more convenient wouldn't really be an
 7   issue, if it's capturing in the same general manner,
 8   basically an analog hole issue.
 9             MR. METALITZ:  Well, I think -- I can
10   understand why the faculty -- and it's perfectly
11   reasonable that they want to use the most convenient,
12   legal method that's available.
13             MR. KASUNIC:  Let me ask one question, and
14   this will come up again in the next panel as well, but
15   there was an interest in providing students with the
16   ability to decrypt.
17             Is there any reason for concern, given the
18   fact that we know not to -- not to cast dispersions on
19   students generally, but given the fact that we have seen
20   many students not have a certain amount of respect for
21   copyright, if there is encouragement for decrypting for
22   one purpose, is there necessarily going to be any
23   differentiation between encouraging decryption of DVDs
24   and -- you said that, I think, Abigail -- that this
25   actually enhances the market.  It's almost a marketing
0064
 1   device for DVDs.
 2             Well, if they're getting this through
 3   decryption, isn't there the danger that in terms of that
 4   marketing device they won't be enhancing the market, but
 5   will just be decrypting?
 6             MS. De KOSNIK:  Well, fortunately, we don't
 7   have to show our students how we acquire media of any
 8   kind in order to teach with that media.
 9             So, we are not giving classes on how to
10   decrypt or pirate or anything, or even how to use
11   editing software.  If anything, you can look to Film
12   Studies departments for those classes.
13             So, in Performance studies and in Cultural
14   studies, you know, there's no knowledge of technological
15   tools that we're making available to students.
16             And DVDs -- acquiring DVDs legally by
17   purchasing them is still by far the most -- the easiest,
18   most convenient way for students to get a hold of media
19   that they like in a world of multiple, multiple media
20   channels today.
21             There's a problem of how to market new media,
22   a different media to young people, and school is a great
23   place for students to learn about new products they
24   would never have otherwise encountered.
25             So, I definitely believe in terms of the
0065
 1   influence that we have, just how we influence student
 2   behavior, for sure we influence students directly to go
 3   out and acquire these collections for themselves, and I
 4   don't think that we've ever influenced students to
 5   behave in any illegal fashion.
 6             MR. KAISER:  I would also echo Abigail's
 7   comments.  Students in foreign language classes learn
 8   about foreign language film.  It is not something that
 9   they have a great deal of exposure to for the most part.
10             And they become much more interested in
11   foreign language film.  They want to learn the names of
12   the films.  They want to go out and rent the films or
13   buy the films.  I see this all the time in my classes.
14             They are not interested in going out and
15   making clips from these films.  They have no purpose for
16   those clips.  There's no real reason for them to create
17   clips.  And so, I don't think that would be a particular
18   problem.
19             MR. KASUNIC:  I guess the point was that the
20   same software that you make the clips can also make
21   reproductions of the -- can also decrypt the entire DVD;
22   right?
23             MR. KAISER:  Yes.
24             MR. HANDMAN:  Yeah, but -- yeah.  I mean, I
25   guess that's true.
0066
 1             One of the things also that I think goes on
 2   in -- or, should go on in most of these classes is, you
 3   know, a discussion of what media is about these days and
 4   what it means to be a responsible citizen in a
 5   media-soaked environment.
 6             And I think -- you know, again, what I said
 7   about faculty, I think, is the same about students.  You
 8   know, they're going to do -- they're basically going to
 9   do what they do.  I don't think asking them to show a
10   clip in a classroom or encouraging them to show clips as
11   part of their student work in a classroom is going to
12   open floodgates that wouldn't have been there before.
13             It's like the forbidden fruit thing.  You show
14   them something and suddenly they go wild and de-encrypt
15   everything.  I just don't think that's the case.
16             I'd also -- by the way, yesterday I was
17   talking to Professor Schoeler (phonetic) -- Jeffrey
18   Schoeler, who teaches in Film Studies, and this echoes
19   these two comments.
20             I told him -- I said, I don't get what the
21   deal is.  But he said there's not a case in which I
22   don't -- he teaches an avant-garde -- sort of an arcane,
23   avant-garde film class.
24             He said, "There isn't a class that I don't
25   teach in which I use clips in which I don't get a half a
0067
 1   dozen people coming up after class saying, 'Show me --
 2   Can I see the case, because I would like to go out and
 3   buy this stuff.'"
 4             MR. METALITZ:  Well, of course, this proposed
 5   exemption that is on the agenda today does not refer to
 6   students, but it's certainly true now that the Copyright
 7   Office is deciding to go down the road in defining
 8   exemptions in terms of users and uses -- specific users
 9   and uses, there's a much greater comfort level of how
10   this exemption would be used in the hands of responsible
11   faculty members than it might be if it were open to
12   students in all these areas as well.
13             And so, I guess I'll just leave it at that.
14             MS. PETERS:  Okay.  Good.
15             MR. CARSON:  I think you've acknowledged that
16   the end result of what the three protectors are doing is
17   something you've got no problem with, which is fine,
18   good.  You've also acknowledged there are ways in which
19   they could do it that doesn't involve decryption.
20             Let us know, then, what's the problem with
21   them decrypting in this case?  You've told us there are
22   other ways.  Why do we care?  Why do you care that they
23   shouldn't be able to use what they think and what we
24   might all agree it's the optimal way to do it.  Why make
25   them leap over a couple of other hurdles --
0068
 1             MR. METALITZ:  Well, I think there's two
 2   reasons.  One is, we're not here to exercise our
 3   personal preferences as to what the rules ought to be.
 4   Congress set the rules.  Congress gave you certain
 5   authority to recognize exceptions and set up the
 6   standards for what those would be.  Obviously you have
 7   to apply those based on the evidence, but we're not just
 8   talking here about our personal preferences.  We're --
 9   or institutional preferences necessarily with my
10   clients.
11             I think the other point is that there is a --
12   I don't think anyone -- especially when you are defining
13   exemptions in terms of uses and users, there's obviously
14   some leap-through to other types of users and
15   enforcement issues.
16             And we don't have -- we can't really assume
17   that everyone will -- that every specific issue will
18   always be observed in all instances.
19             The whole -- I think one of the main reasons
20   why Congress was concerned about this area was to try to
21   discourage the development and proliferation of markets
22   and certain inventions of tools.  And that's
23   certainly -- I don't know if that answers your question.
24             MR. CARSON:  Well, you've got remedies against
25   circumvention tools; right?
0069
 1             MR. METALITZ:  Yes.
 2             MR. CARSON:  What I'm really getting at is,
 3   one of the things we certainly considered is what the --
 4   the exemption in front of us is, if this exemption were
 5   to be granted, what would be the harm to the copyright?
 6             I'm trying to understand.
 7             What would be the harm to the copyright in
 8   this particular case if the exemption that's on the
 9   table now were granted?
10             MR. METALITZ:  Well, I think you will hear
11   some more about licensing and permissions markets in
12   Washington.  And that might be -- that could be part of
13   it, but I think the other concern is simply the
14   proliferation of exemptions that allow the use of these
15   tools.
16             MR. CARSON:  Okay.
17             MS. PETERS:  I don't have any questions, so
18   we're actually sort of on time.  We're going to take a
19   five-minute break.
20                           ---oOo---
21   
22   11:00 A.M.  PROPOSED CLASS TO BE DISCUSSED:
23   
     SECTION 1201(11)(A)
24   
     PANELISTS:  FRED von LOHMANN
25               STEVE METALITZ
0070
 1   
 2             MS. PETERS:  Okay.  We're going to start with
 3   the second proposed class, and the second class is
 4   "Audiovisual works released on DVD, where circumvention
 5   is undertaken solely for the purpose of extracting clips
 6   for inclusion in noncommercial videos that do not
 7   infringe copyright."
 8             We'll start with Fred von Lohmann representing
 9   EFF, and then move to Steve Metalitz, representing a
10   variety of copyright owners.
11             So, if you are ready.
12             MR. von LOHMANN:  I will be, as soon as I find
13   my notes.  Here we go.
14             Good morning.  Thanks to the Copyright Office
15   for having these hearings in California.  It certainly
16   makes things easier for those of us on who are on the
17   West Coast.
18             The proposed class, as Register Peters
19   mentioned, is "Audiovisual works released on DVD where
20   circumvention is undertaken solely for the purpose of
21   extracting clips for inclusion in noncommercial videos
22   that do not infringe copyright."
23             So, let me begin by saying a few words about
24   what I think the problem is that this proposal intends
25   to address.
0071
 1             So, we have today astronomical growth of what
 2   many people have called "remix culture."  And of course,
 3   remix culture is not new.  We have had fans, members of
 4   the public creating derivative kinds of fan-driven works
 5   for a very long time.  One need only think about things
 6   like fan fiction and the long history of fan fiction to
 7   realize that.
 8             But what is new is the dramatic move of this
 9   remix creativity into video.  And of course, one need
10   only look at a site like You Tube and the rise of all of
11   its competitors to see this.
12             And so, as we put in -- in our submission,
13   together with this proposal, there's a considerable
14   amount of evidence to suggest that remixing video,
15   including video from DVDs, is now a mainstream activity
16   and likely to only become more so.
17             So, the "Pew Internet & American Life Project"
18   in 2007 had a survey that already showed that over 25
19   percent, 1 in 4, online teenagers, teenagers who use the
20   Internet, had already remixed content in creating their
21   own.  And that was in 2007.  I think we can only imagine
22   that that number is even greater today.
23             We have the evidence submitted by Professor
24   Wesch from Kansas State University.  He is probably the
25   leading ethnographer of You Tube.  He and his team at
0072
 1   Kansas State have been looking at large numbers of You
 2   Tube videos to understand what people on You Tube are
 3   doing.
 4             And he found that roughly 2- to 6,000 remix
 5   videos are being uploaded each day on You Tube on the
 6   basis of his research.  Those are remixes that include
 7   clips that are or are likely derived from DVD.  So,
 8   particularly, video remixes from sources that appear to
 9   be movies or television released on DVD.
10             We, of course, have evidence of entire genres
11   of remixed videos that are now in place.  So, Professor
12   Wesch points to things like the trailer mash-up genre
13   where he estimates more than 13,000 videos on You Tube
14   in this genre of mixing new trailers essentially, or
15   movies.  We have examples of those cited in our
16   submission.
17             Over 10,000 videos on You Tube of film
18   analysis.  I personally think this is a very exciting
19   category where people actually are doing film criticism
20   with the movies they are reviewing.  So, rather than we
21   write our review, you go watch the movie, and then you
22   come back and think about what we said, you can actually
23   see the review on top of the movie as it proceeds.
24             And then of course we have the example of
25   vidders, which we mentioned.  I think you'll be hearing
0073
 1   from some of the vidding community in Washington, D.C.
 2   next week.  Over 10,000 videos that community has
 3   created, all of which are built on remixing video from
 4   movies and television shows.
 5             And of course also Mimi Ito's submission in
 6   support of our exemption, citing more than tens of
 7   thousands -- actually, 30-, 40,000 videos a year in the
 8   so-called anime music video genre where books are
 9   creating new videos to go with music that are taken from
10   anime films, largely Japanese-animated movies on DVD.
11             So, we have this activity.  There's really, I
12   think, no question that that's going on.
13             The problem we really have here is inadequate
14   knowledge regarding the legal strictures on how one
15   takes clips from DVDs.
16             I think we actually had an illuminating little
17   exchange as a result of Mr. Kasunic's example just
18   moments ago about exactly what is or what isn't legal
19   for taking a clip from DVDs.
20             If those of us who are well counseled and
21   steeped in this have a hard time figuring that out, one
22   can only imagine what the teenagers who are engaging in
23   this remix activity must face.
24             In fact, it's bizarre in many ways, and
25   certainly in talking to members of this community, they
0074
 1   have been flummoxed at the notion that it is illegal to
 2   rip a clip from a DVD, but that it would be legal to do
 3   a cam of a screen, and it would be legal to use screen
 4   cap, maybe, or, in fact, it is more legal, at least from
 5   a circumvention point of view, to actually download the
 6   entire movie from the Pirate Bay and take the clip,
 7   discarding the remainder of the movie -- that that, at
 8   least from a 1201 point of view, is far preferrable.
 9   All of this seems very confusing to lay people.  And I
10   think you'll have more testimony next week from
11   Professor Cappa (phonetic) on that as well.
12             So, the problem really is that 1201 has become
13   a trap for the unwary for this particular category of
14   new creators.  It has become a situation where they have
15   no awareness of the law when they create the videos, and
16   yet that awareness can become palpably obvious when they
17   are either sued, or as is frankly quite a bit more
18   common, they see their videos taken down by a DMCA
19   takedown request, or there is a cease-and-desist letter
20   delivered to them if they try to use or distribute their
21   remixed creativity.
22             At that point, perhaps they do call an
23   attorney.  Often they call me.  And at that point they
24   do become aware that they have unintentionally, and for
25   purposes that I would argue are entirely noninfringing,
0075
 1   nevertheless crossed the legal trip wire that they had
 2   no awareness was there.
 3             What that means for them is, it becomes very
 4   difficult for them to avail themselves of the DMCA
 5   counternotice procedure that is contained in Section
 6   512, because certainly if they talk to an attorney, the
 7   attorney will tell them, "You run the risk that you
 8   could be sued for a 1201 violation, even if you think
 9   your activity would otherwise be of fair use," therefore
10   making it more dangerous for you to essentially tweak
11   the tail of a rights holder by sending counternotice or
12   otherwise insisting on your fair use right.
13             In other words, by the accident of having
14   taken a clip by ripping DVDs, the method that is, as we
15   just heard, the most convenient, and quite frankly the
16   most widely used method, you've suddenly found that you
17   are, in essence, less able to assert your fair-use
18   privilege because of the fear of 1201 liability.  So,
19   that's the problem.
20             So, the proposed exemption designed, intended
21   to address that problem as narrowly as possible.
22             So, as the Copyright Office invited in 2006,
23   we began with a general class of works, audiovisual
24   works on DVD, and then we refined it with reference to
25   the use and users to avoid over-breadth.  So, we
0076
 1   specifically said noncommercial uses.
 2             Here I'm sensitive to the fact that it is
 3   precisely the noncommercial user, the amateur creators
 4   who are the least likely to have the legal
 5   sophistication or the access to the legal knowledge to
 6   get this right in the first instance.
 7             One might imagine, for example, that a
 8   commercial video producer, say, the "Daily Show," for
 9   example, if they wanted to take a clip from a DVD -- and
10   presumably their attorneys would advise them to set up a
11   camcorder to do that -- that obviously is not the case
12   for most noncommercial creators.
13             We also cabined it here up to just
14   noninfringing uses.  Surprisingly, from my point of
15   view, the Joint Commenters, and several others who have
16   opposed this proposal, have sort of risen up to complain
17   specifically about our records of cabiness [sic] to
18   noninfringing uses.
19             It seems to me that is exactly the kind of
20   refining that would avoid over-breadth.  So, if, in
21   fact, a user turns out to have crossed the line beyond
22   fair use, and is found to be an infringer, this
23   exemption would not protect them from 1201 liability.
24             Then, of course, we also cabined this to only
25   apply to DVDs.  And here in particular, as I'll mention
0077
 1   in a moment, I'm sensitive to the four factors the
 2   Copyright Office is instructed to consider in this
 3   Rulemaking.  In particular, the effect on the market for
 4   copyrighted works.
 5             DVDs, as we've demonstrated in both the 2006
 6   Rulemaking and also again this time, there is really,
 7   given the widespread availability of circumvention tools
 8   for years for DVDs -- there is really no plausible
 9   argument in my view, and certainly no evidence produced
10   by those who oppose this proposal, that permitting
11   noncommercial users who are noninfringing copyright to
12   circumvent will somehow undermine the market for DVDs
13   protected with CSS.  If the widespread availability of
14   those tools hasn't done so already, it's hard to imagine
15   how this incremental change would make a difference.
16             So, again, the intent here really is to afford
17   this community of creators their day in court, their
18   ability to assert their free speech rights, their
19   fair-use rights.  To do so in a way where they don't
20   face liability under 1201 before ever reaching that
21   question.
22             Now, the Joint Commenters determined this from
23   the other legal questions the Copyright Office is going
24   to have to answer here, Are these uses noninfringing.
25   Well, the Joint Commenters themselves concede that some
0078
 1   of these uses certainly are.
 2             And, in fact, considering the tens of
 3   thousands, hundreds of thousands of works we're talking
 4   about here, there's really no question that a large
 5   number, certainly in absolute terms a very large number,
 6   are going to be noninfringing.
 7             It's hard to know in advance which will and
 8   which won't, but we can be quite sure that some are,
 9   and, of course, the proposed exemption is cabined to
10   only apply to those that are.
11             These are noncommercial works, they are
12   transformative in nature.  They generally use only a
13   small portion of the original.
14             I don't believe there is any evidence that
15   this use is likely to harm any existing or potential
16   market.  In other words, under the four factors there
17   are certainly many of these videos that would qualify.
18             So, the question becomes, Well, who should be
19   responsible for separating those that do qualify as fair
20   uses from those that don't.
21             And our argument is, it's the same entity that
22   was always charged with doing that, namely the courts,
23   and it is only by granting this exemption that those
24   courts will have the ability to reach these questions,
25   because otherwise, many of the creators would be found
0079
 1   liable under 1201 and, of course, therefore have really
 2   little reason to reach the fair-use question.
 3             In fact, copyright owners would have almost no
 4   reason to sue under their exclusive rights under 106,
 5   when, in fact, they would have an easier time of it
 6   under 1201.
 7             So, turning to the statutory factors very
 8   quickly, the availability for use of the works,
 9   ironically while the Joint Commenters and Time Warner
10   and DVD, CCA and others have repeatedly made the point
11   that CSS, at least from their point of view, has
12   increased the availability of audiovisual works for
13   watching, the same CSS has also, in my view, reduced the
14   availability of works for remixing, precisely because it
15   has created this barrier, TPM, around the ability to
16   take those clips.
17             The alternatives are inadequate.  Under this
18   factor, the Copyright Office has asked, Well, could you
19   do something else.
20             And to return to the some of the themes that
21   were touched on in the last panel, that certainly other
22   alternatives exist, but from my perspective, certainly
23   from the perspective of this category of users --
24   noncommercial, remix video creators -- the problem with
25   those alternatives is they are not fairly accessible
0080
 1   because -- not a lack of possibility, not that it can't
 2   be done, but that this category of creators don't know,
 3   and really have no realistic way of finding out, that
 4   this is what is required.
 5             It also, of course, requires additional
 6   equipment, which I think the vidding community has
 7   submitted some information.  I think you'll hear more
 8   next week about purchasing hundreds of dollars worth of
 9   additional equipment is not very realistic as well.  And
10   finally, those alternative are inadequate, because at
11   least in many cases, video quality matters.
12             Lest we focus too much on You Tube here, the
13   vidding community has for many years, rather than
14   putting their videos online, preferred to show their
15   videos at live conferences where video quality matters
16   quite a bit.
17             And, in fact, even in the online computer
18   context in our comments, I point out a video by a vidder
19   named Luminosity called "Vogue."  And I have links in
20   our proposal to both the full-resolution version, as
21   well as the version that's hosted on You Tube.  And I
22   would again urge the Panel to watch both of those
23   versions and ask for yourself whether or not there has
24   been a serious loss of creative impact of the point of
25   that video when, in fact, that it's shown in a
0081
 1   low-resolution, pixelated version.
 2             So, the other issue -- and again, to return to
 3   a point I mentioned earlier, the harm to the market
 4   factor, in my view, is not here favoring the
 5   copyright-industry position.
 6             As we have said repeatedly, there has been a
 7   widespread availability of free, easy-to-use,
 8   DVD-ripping tools for years.  Those are mainstream
 9   tools.
10             In fact, as we point out in our proposal,
11   those have been reviewed in the Fort Worth Star Ledger,
12   USA Today, Mac World, PC World -- hardly the stuff of
13   sophisticated computer hackers.
14             If the widespread availability of those tools
15   hasn't eroded the incentives and reduced the
16   availability of DVDs, it's rather difficult to imagine
17   how permitting this category of users is going to make
18   any difference.
19             And, in fact, if anything, I think this factor
20   should cut the other direction, because we have a
21   situation here where as to these remix videos, new works
22   of creativity, the granting of this exemption will
23   support, will help the availability of those works.
24             And in my view, there's nothing in the
25   legislative history or in the statute that suggests that
0082
 1   the works created by members of the MPAA ought to count
 2   more in terms of their value and their availability than
 3   the new works being created by these noncommercial,
 4   amateur creators.
 5             And, of course, finally, I think the Copyright
 6   Office has said there are additional factors that you
 7   can consider, and I think one factor that really matters
 8   here that the Office should consider is the legitimacy
 9   of copyright law general.  I think we should hesitate to
10   embrace a view of the law that would turn all of these
11   tens of thousands of people who take clips from DVDs to
12   make these kinds of remixed videos -- to turn them all
13   into lawbreakers, which in the absence of the exemption,
14   based on the comments of the Joint Commenters, I think,
15   would be the alternative.
16             So, I think I will stop there.  I will just
17   say finally that the Joint Commenters and some of the
18   others who oppose this proposal have emphasized the
19   importance of avoiding consumer confusion.
20             Quite frankly, consumer confusion is what
21   reigns in the marketplace today, particularly vis-à-vis
22   this category of creators.  If one really cares about
23   minimizing consumer confusion, the best thing you can do
24   would be to grant the exemption, which would once again
25   create the much more simple, much more straightforward
0083
 1   proposition that if what you have done is a fair use --
 2   if it is noncommercial, if it is not harming the market,
 3   if it's short excerpts -- if you pass on that, the legal
 4   outcome will not suddenly be altered based on which tool
 5   you may or may not have used in order to make your
 6   creation.
 7             That's a rule that quite frankly I think the
 8   creators can understand, and more to the point, is a
 9   rule that we need the courts to address.
10             I think what we -- what copyright law, I
11   think, could really use right now is some court
12   precedence about exactly how we think about fair use for
13   this new category of creativity.  There are no court
14   rulings on point.
15             And what I'm concerned about is that the use
16   of 1201 to threaten folks who engage in this kind of
17   creativity will actually leave us without judicial
18   guidance for even more time.
19             MS. PETERS:  Okay.  Thank you very much.
20             MR. METALITZ:  I'm surprised that Fred didn't
21   start by talking about the new standard that he wants
22   the Copyright Office to apply, because -- in judging
23   whatever exemptions meet the qualifications of the
24   statute.
25             Because I think he would probably agree that
0084
 1   if that standard is not adopted, it's virtually
 2   impossible for his proposed exemption to become -- that
 3   standard is basically the standard that Congress
 4   considered and rejected in 1998.
 5             There are many, many other opportunities that
 6   Fred's organization and others have advocated for in the
 7   ensuing eleven than years.  That standard is, Go ahead
 8   and circumvent, and if we end up with what the end
 9   product turns out to be in fair use, then you have no
10   liability for circumvention.
11             And in other words, there is no 1201(1)(A)
12   liability in the absence of copyright.  And that is not
13   the law.  It has never been the law.
14             Congress, it was presented with the option to
15   make that the law.  It declined it.  It has consistently
16   declined it ever since.  And the Copyright Office, if
17   it's going to follow the law, can't possibly adopt that
18   interpretation.  But that's really what his exemption
19   boils down to.
20             He's saying, There's a bunch of activity going
21   on here.  Some of it is noninfringing.  We agree that
22   some of it is probably noninfringing, but, of course,
23   it's defined so broadly, that whether we're talking
24   about absolute numbers or relative numbers, there's also
25   probably quite a bit of infringing going on.  And if it
0085
 1   turns out to be noninfringing, then all is forgiven as
 2   far as your violation of the law in terms of using -- in
 3   terms of circumventing an access control, which it's
 4   clearly specified should be protected.
 5             I'm also -- I mean, it's really a question of
 6   whether we're here to talk about what copyright law
 7   needs, which was Fred's last -- or, what copyright law
 8   now says, what Title 17 now says, and the way the
 9   Offices consistently interpret it, which is not to say,
10   If it might be, if it plausibly could be fair use, if
11   there is any combination of possible worlds in which it
12   would be fair use, this is the one -- then circumvention
13   is okay, unless and until it can be proved to not be
14   fair use.  And that's just not the way the law reads,
15   that's not the way the Office has applied the law.
16             The Office has said, and it said it in the --
17   it said that the proponent has to show that the use
18   they're talking about is, in fact, noninfringing.
19             He can't show that, because in such a broadly
20   described class, there's obviously going to be a lot of
21   infringing uses, as well as potentially some
22   noninfringing uses.
23             I've got to say also that this whole argument
24   about the DMCA notices is -- and this is a trap for the
25   unwary.  It's one that's a red herring that I haven't
0086
 1   been able to follow quite as closely perhaps as I should
 2   have.  I'm not sure who's been caught in this trap for
 3   the unwary, but the idea that people who get takedown
 4   notices under Section 512 for material that is
 5   noninfringing would be inhibited somehow from asking for
 6   them to be put back under 512.
 7             Given the experiences that everyone has had
 8   under 512, which is the put-back notices, when they are
 9   generated, are very rarely followed by lawsuits.  And
10   the fact that you can't face a takedown notice from the
11   DMCA on a 1201 violation -- it's only for copyright
12   violations.  So, that can't be the basis for a valid
13   takedown.
14             People who feel that their material is
15   noninfringing have the put-back readily available to
16   them.  Very few of them use it, and there might be a lot
17   of reasons why that's true, but it certainly is
18   available.
19             And I'm sure that the EFF is helping to
20   instruct people in when they should be using it and
21   encouraging them to use it.  That's how that is supposed
22   to work.
23             It really doesn't have anything to do with the
24   issues that we're talking about here.  So, I think that
25   threshold question really is pretty determinative of
0087
 1   this exemption.
 2             Yes, there's a lot of creativity.  Some of the
 3   links that are in the testimony.  Some of the examples.
 4   There's clearly -- there certainly is not infringing
 5   activity.  There's clearly also a lot of infringing
 6   activity perhaps in some of the ones I've seen.  Less,
 7   though, for the audiovisual, which is the only thing
 8   that's covered by the exception.
 9             The sound recording is usually copied in its
10   entirety, and so, we may have a different outcome there,
11   but that's not -- I -- granted that's not really the
12   focus of the proposed exemption.
13             The real focus of the proposed exemption is to
14   try to persuade the Copyright Office to recommend to the
15   Library of Congress to do what Congress decided not to
16   do and what it clearly didn't want the Library to do,
17   which is to say no circumvention liability, except when
18   there's copyright liability.  That isn't the law.  That
19   shouldn't be the law.  And that's why the exception
20   shouldn't be granted.
21             MS. PETERS:  Thank you very much.
22             MR. von LOHMANN:  Could I briefly respond?
23             MS. PETERS:  Yes.
24             MR. von LOHMANN:  I would just like to point
25   out, we are not asking for what Congress considered and
0088
 1   rejected in 1998.  Of course, I will say I would have
 2   preferred if Congress had adopted the amendment at that
 3   time, but I fully understand and agree with
 4   Mr. Metalitz, that that is not something that the
 5   Copyright Office can amend retrospectively itself.
 6   Maybe we will get Congress to reevaluate that.
 7             But what we've proposed here is considerably
 8   narrower than that, and it's narrower in exactly the
 9   ways that the rulemaking authority of the Copyright
10   Office would permit.
11             So, rather than saying that for any
12   noninfringing work, for any class of works, for any
13   category of users, there can be no liability absent
14   infringement, which is, I think, what the amendment
15   would have done, and that is, I would agree, not within
16   the Copyright Office's power to grant, what we have
17   asked instead is for a class of works exactly as the
18   statute conceives that has been refined with respect to
19   particular users and uses, which is exactly what the
20   Copyright Office itself said was within its power in
21   2006.
22             And particularly in here, I think, the most
23   important point, after a consideration of the four
24   statutory factors, I believe, with respect to DVDs
25   protected by CSS -- we have made our point that this
0089
 1   will not harm the market, given the widespread
 2   availability of circumvention for many years now.
 3             So, we have not asked, for example, for this
 4   same exemption to apply to the Blu-ray or this same
 5   exemption to apply to other protected media forms where
 6   perhaps that record is not as vividly clear.
 7             So, I would merely respond that we are not --
 8   to use the colorful language from the Joint
 9   Commenters -- launching the Copyright Office down the
10   slippery slope.
11             We are, in fact, asking for a specific, much
12   narrower category in light of the realities of the
13   evidence that's out there.  There's nothing in the
14   statute that says that is not appropriate.  There's
15   nothing that says that that is outside the Copyright
16   Office's purview.  In fact, so long as it does not
17   infringe copyright caveat is something that Congress
18   itself did in 1201(F).  So, this is hardly the kind of
19   thing that's unprecedented.
20             And certainly as to the 512 point, I think
21   we're largely in agreement.  I'm not saying that sending
22   a 512 notice is appropriate for a 1201 violation.
23             What I'm saying is, if you have engaged in new
24   remix creativity, and you are -- you do receive the
25   attention of the rights-holders' attorneys, if you have
0090
 1   legal representation that is qualified, that person will
 2   have to warn you that you have potentially created a
 3   liability under this other statute by accident, in
 4   essence, that may create a liability that would prevent
 5   you from wanting to insist on your rights.
 6             So, as to Mr. Metalitz' question about, where
 7   does this happen in the real world, this happens at EFF
 8   all the time.  We hear from folks who create remix
 9   videos who we're absolutely certain upon reviewing, that
10   it's a fair use.  I have no question about it
11   whatsoever.
12             And yet I have to ask the question, "So, where
13   did you get those clips?  Did you rip those clips from
14   the DVD, or did you set up a camcorder?"
15             And then after I get the answer, I'm often
16   forced to say, "Well, you have to understand that while
17   I think you have an iron-clad case on fair use, there
18   are statutory damages available for the fact that you
19   ripped the DVD, and if the copyright owner wanted to
20   come after you, they don't have to sue you for
21   infringement.  They can just sue you for circumvention."
22             And after that conversation is completed, I
23   certainly have had clients decline to insist on their
24   free-speech privileges.
25             MS. PETERS:  Thank you.
0091
 1             MR. KASUNIC:  Well, I am struggling with some
 2   of these issues, but in particular I guess there's a
 3   number of things I want try and to touch on.
 4             Let's start with where Fred left off in terms
 5   of the 512 issue, because this seems to be -- I don't
 6   think this has come up before in terms of the
 7   interrelationship between 512 and 1201.
 8             We do know that there are many videos.  Some
 9   of the ones that were cited in EFF's comments related to
10   remixes like the "Brokeback Mountain" and "Back to the
11   Future," and the others that are essentially using
12   trailers or other portions of the DVD, and where there
13   seems like there's been some acceptance that -- or, at
14   least acquiescence in terms of not bringing an action
15   against those.  They're still up on the Internet.  So,
16   there appears not to have been a takedown notice since.
17             But this raises the issue that then in -- for
18   many of these where there seems to have been a sense
19   that these are noninfringing uses of that or acceptable
20   uses of it, there really would -- if copyright owners
21   decided to send takedown notices, there would be no
22   recourse.
23             So, right now we may be relying on
24   acquiescence, but all of the videos that have received a
25   lot of popular attention -- now, copyright owners
0092
 1   decided that they did not want those on You Tube or any
 2   other source on the Internet.
 3             They could send takedown notices and there
 4   would be no recourse for that; is that true?
 5             MR. METALITZ:  I don't understand what you're
 6   saying.  There's always recourse to takedown notices and
 7   put-back procedure.
 8             MR. KASUNIC:  But weren't you just saying that
 9   you cannot have a counternotice based on any
10   circumvention violation?
11             You can only --
12             MR. METALITZ:  You can't have a takedown
13   notice based on a circumvention violation.
14             MR. KASUNIC:  But if there is a claim that
15   there that is an infringing use, can there be a request
16   for counternotice? because this would -- I mean, this
17   would all be based on the underlying --
18             MR. METALITZ:  You're assuming that the
19   creator of this remix says, Yes, I'm a copyright
20   infringer, but I'm not going to be -- the 1201
21   violation, so I'm want it put back.
22             MR. KASUNIC:  I think the claim would be that,
23   I'm not infringing.  It's a fair use.
24             MR. METALITZ:  Well, that's different.
25             MR. KASUNIC:  So, you can send the
0093
 1   counternotice, and if it was put back up, then there
 2   would be the anticircumvention.
 3             MR. METALITZ:  Has that happened?
 4             Have we seen lawsuits against these
 5   individuals for 1201(A) violations because they dare to
 6   put back something that they thought was fair use and
 7   that the copyright owner improperly issued a takedown
 8   notice for?
 9             MR. von LOHMANN:  I'm not aware of a suit in
10   that context.  All I'm aware of is clients who have
11   chosen not to tread that path for fear of that outcome.
12             Now, just to clarify this, as Mr. Kasunic
13   points out, there are plenty of these videos up there,
14   but I don't agree that there is universal acquiescence
15   on the part of rights-holders.
16             In fact, in our proposal we point out that
17   several of those trailer remixes have been the subject
18   of takedowns.  So, the acquiescence here is spotty.
19             There have been plenty of examples of this
20   kind of creativity being taken down.  We've highlighted
21   some in our proposal.  There are certainly many others
22   I'm aware of as well.
23             And often the creators, then, are sort of
24   hounded off of one site, post on another, and sort of --
25   there's this hopping around, losing audience at each
0094
 1   hop.  It is certainly far from ideal.
 2             And of course, in the case of You Tube, if you
 3   receive more than two DMCA takedown notices, they cancel
 4   your entire account, which will then take down all of
 5   your videos.  Whether they are remix or original or not,
 6   they're all gone.
 7             So -- but this is somewhat -- I will agree
 8   with Steve, this is somewhat separate.  We could have a
 9   long and fruitful debate about the flaws in 512 with
10   respect to protecting fair use, but I just want to again
11   point out, my argument is simply that the overlay of
12   1201 liability makes it very intimidating for anyone who
13   might want to insist on a noninfringing use.  And
14   certainly, Steve's clients have been uniform in
15   insisting that fair use is not a defense to a 1201
16   violation.
17             In fact, just this week here in the Real DVD
18   case, they were renewing that same argument.  So, if we
19   take them at their word, then we do have the very
20   dilemma I pose, which is the courts may never get to
21   these interesting fair use and -- I think later today
22   we'll also hear some debate about the scope of Section
23   117 -- courts may not be able to reach some of these
24   unresolved, jurisprudential questions if, in fact,
25   there's 1201 liability that would come down on these
0095
 1   folks if, in fact, the court would ever reach these
 2   other questions.
 3             MR. KASUNIC:  And part of your argument was
 4   that we need courts to begin to address that, but the
 5   courts aren't going to even have the chance to address
 6   it if there's no counternotification sent and the
 7   willingness to litigate the issues.  So, if --
 8             MR. von LOHMANN:  Well, there's willingness to
 9   litigate the issue.  Don't get me wrong.  I'm more than
10   happy to bring those cases.
11             What I'm not willing to do is bring those
12   cases where my client would be 100 percent certain to
13   lose, at least that's the position of the Joint
14   Commenters and the MPA and others.  If my clients would
15   be certain to lose on the 1201 claim, then it would be
16   much less attractive to get into that litigation.
17             And I think that's what you're going to see
18   from this category of activity that draws from DVDs,
19   which, again, is huge.
20             MR. KASUNIC:  And that must, then, be the only
21   response you're getting.  You said if you ask potential
22   clients how they did this, if they could bring that
23   argument without that specter of 1201, had they used the
24   video camera or used some other way of getting that, but
25   that's just not happening.
0096
 1             MR. von LOHMANN:  Right.
 2             Here the hurdle is one of lack of knowledge of
 3   legal sophistication.  That, I think, is the biggest
 4   barrier to the alternative options that the MPA and
 5   others have urged.  It's not that it's infeasible.
 6             Now, it may well be infeasible for some of
 7   these creators, but it's just something that it takes
 8   quite an advanced copyright lawyer to distill the
 9   difference between the cam, the screen cap, the download
10   from Pirate Bay, and the ripping of DVD.
11             In the real world -- certainly this is what
12   I've heard from folks in the vidding community and
13   others who I've spoken to -- the easiest thing to do,
14   the thing you discover if you type the words "How do I
15   take a clip from a DVD" into Google, is to use a program
16   like HandBrake or DVD Shrink or any of the number of
17   others that are there.  You just heard in the panel
18   before us that even the Film Studies people understand
19   that that is the easiest, simplest, cheapest mechanism
20   to use.
21             MR. KASUNIC:  Well, doesn't that argument, in
22   terms of the unsophistication of users, in some ways cut
23   both ways, that if there is the creation of an
24   exemption, are they going to be sophisticated enough to
25   understand it?
0097
 1             MR. von LOHMANN:  And here again, my argument
 2   is not that I think the law is going to teach the world.
 3   I'm a little -- I'm not quite that naive.
 4             So, the goal here is -- the creators are going
 5   to do -- they're doing what they're doing now.  They're
 6   going to continue to do what they're doing in the
 7   future.  They are, perhaps sadly for them, going to be
 8   unaware of our very erudite discussions on this subject
 9   matter.
10             The place that will matter is when there is,
11   as you point out, a lack of acquiescence on the part of
12   a copyright owner, and that copyright owner decides to
13   bring the matter into court or to send a
14   cease-and-desist letter or send a takedown.  That will
15   be the point where someone with legal sophistication
16   will become involved.
17             So, that's -- it's not that I think the
18   decision one way or the other here will change behavior
19   as much as it will change the risk profile and the
20   ability of people to actually, you know, fight
21   against -- against a copyright owner who objects.
22             Obviously, there's no problem in all the
23   circumstances where no rights-holder ever objects.  The
24   problem arises where a rights-holder does object, and
25   essentially 1201 gives them a trump card for fair use.
0098
 1             MR. KASUNIC:  Well, Steve, do you think that
 2   that -- is that problematic where the law isn't changing
 3   the behavior, but is just fitting behavior so that -- I
 4   mean, does this lead us to potential problems in terms
 5   of having to just accommodate whatever people feel like
 6   doing?
 7             MR. METALITZ:  Um, well, I think that's
 8   certainly the signal that would be sent if this
 9   exemption were to be adopted, which is, it's okay, go
10   ahead.  If you're noncommercial and if you're using a
11   DVD, those aren't the type of -- I mean, it's not just
12   us saying it, but the courts have said it too regarding
13   a 1201 violation.
14             But the question again is, persons who are
15   users of copyrighted work -- if such -- in a particular
16   class, such persons are or are likely to be adversely
17   affected by virtues of prohibition and their ability to
18   make noninfringing uses.
19             So, there haven't been any cases in which the
20   scenario has played out, and the scenario is, you post
21   the remix online, the copyright owner sends you a
22   takedown notice, you send a put-back notice, the
23   copyright owner sues you, and -- for infringement or --
24   and has a count of 1201 violation, which you will lose.
25             That's the scenario that Fred is spelling out.
0099
 1   It hasn't happened.  Is it likely to happen?  Is it more
 2   likely than not to happen in the ensuing three-year
 3   period?  What is the evidence for that?
 4             This is really tied into the standard that you
 5   set, the reason that Congress says it has to be a
 6   noninfringing use that is or is likely to be impeded.
 7             So, you first have to have a very, very high
 8   level of certainty that it's a noninfringing use.  I
 9   don't think this class comes anywhere close to that, but
10   even if it did, you'd have to say, Well, here's the
11   scenario in which that noninfringing use will be
12   impeded.
13             How likely is that to happen?
14             MR. KASUNIC:  But can't the prohibition be
15   impeding the noninfringing use just by, in fact,
16   chilling the user from going forward to --
17             MR. METALITZ:  Well, the evidence from the
18   person who's counseled these people is that it's not
19   impeding that use at all right now, because they're
20   doing it.
21             In fact, 100 percent of them are doing that,
22   rather than using other methods, which, as he points
23   out, could be infringement.  That's his testimony, and I
24   really have no firsthand knowledge on this from -- well,
25   I don't have "no," because I counsel clients too.  Not
0100
 1   all my clients are people I'm representing here today.
 2             So, these questions do come up, but I'm not
 3   sure that you could -- I just think it's a rather
 4   tenuous link that's being portrayed here to show -- to
 5   try to meet this statutory standard of, have been or is
 6   likely to be -- is now being impeded or is likely to be
 7   impeded in the next three years.
 8             MR. von LOHMANN:  Of those millions, I think
 9   there are without question going to be hundreds of
10   thousands, tens of thousand -- either way, a very large,
11   absolute number that are going to be noninfringing.
12             According to the position of the Joint
13   Commentators and those who publish commercial DVDs, all
14   of those noninfringing uses over the next three years
15   will per se be unlawful.  If that's not an adverse
16   effect, I don't know what is.
17             MR. KASUNIC:  In terms of determining whether
18   that use is noninfringing or not, isn't one of the
19   considerations going to be -- or, isn't a relevant
20   consideration going to be, was it -- as we've seen in
21   the comparative context from others, Did you use more
22   than what was necessary to fulfill the purpose if there
23   were alternative means of obtaining the same point, as
24   with in the pedagogical uses, in this case, of making
25   some kind of prerogative use, a -- whatever the
0101
 1   particular point of the fair use is -- comment,
 2   criticism -- whatever that is -- and it could be done
 3   without circumventing -- isn't that going to be a
 4   relevant consideration in terms of the fair-use question
 5   as well?
 6             MR. von LOHMANN:  I don't think it is.  I
 7   think that inflates two separate questions.
 8             You're absolutely right that a court, in
 9   evaluating the fair-use assertion, will have to consider
10   the question of, How much did you use, Did you use more
11   than was necessary.
12             But I'm unaware of any fair-use case that has
13   ever asked the question of, What mechanism did you use
14   in order to get the piece you used.
15             In other words, I'm not aware of a court
16   saying, for example, to, you know, Mr. Koons, that,
17   Well, you got it by clipping it from a magazine, and it
18   would have been different if you had gotten it by
19   clipping it from a coffee table book.
20             I don't think that --
21             MR. KASUNIC:  But isn't that in part because
22   we haven't seen the actions relating -- or, that involve
23   both issues?
24             So, we haven't seen the 1201 fair-use issue
25   come up yet in court cases.  When we do, that could be a
0102
 1   significant consideration for a court to determine
 2   whether -- in that context whether using more than
 3   necessary in that context also had some relationship to,
 4   what else was available in order to make this film.
 5             MR. von LOHMANN:  Right.  Or how it was done,
 6   as it were.
 7             You may well be right.  I would warmly welcome
 8   the opportunity to brief and argue that subject in front
 9   of an Article III judge.
10             MR. KASUNIC:  Well, I --
11             MR. von LOHMANN:  Unfortunately, if you
12   accept -- there is no defense along those lines to a
13   1201 violation.  I'm unaware of any court -- and I'm
14   sure the Joint Commenters would say that, you know, if
15   you've circumvented the TPM, you've circumvented the
16   TPM.
17             MR. KASUNIC:  But if there's an exemption in
18   place, wouldn't it moot that point?
19             I mean, there would be no issue of, would
20   there be circumvention of 1201 because the exemption
21   would exist.  So, the only way to raise the point is
22   with the specter of 1201.
23             MR. von LOHMANN:  I'm not sure I agree with
24   that.  I'm not ready to -- I'm not saying I wouldn't
25   make that argument if the opportunity arose, but I could
0103
 1   certainly imagine someone saying under the fourth factor
 2   that the mechanism you use might be relevant under a
 3   fourth-factor analysis relating to the impact it might
 4   have the on market.
 5             Again, I'm not saying I would agree with that,
 6   but I could certainly imagine it coming up.  And all of
 7   this just underscores the point that we need
 8   jurisprudence in this area in order to answer many of
 9   these questions.
10             We're getting interesting, various
11   jurisprudence in cases like Blanch v. Koons, in the J.K.
12   Rowling Harry Potter Lexicon case.  We're getting
13   valuable contributions from the courts.
14             It would be a shame if we couldn't make
15   progress in that on the very questions you raise,
16   because 1201 violations are per se and there is no
17   fair-use defense.
18             Now, I will say also for the record I am not
19   conceding that there is no defense.  I'm merely pointing
20   out that that is the position of many who oppose this.
21             And I will point out that cases like
22   Chamberlain and Storage Tech, I think you can make an
23   argument that a nexus with infringement is now required
24   under existing case law.
25             But again, let's set that aside.  The
0104
 1   exemption would, of course, be much clearer.
 2             MR. KASUNIC:  I guess I wanted to give some
 3   opportunity to -- I had mentioned to both of you before
 4   that there were a couple of arguments.  I think we've
 5   addressed some of the issues related to Fred in terms of
 6   the standards we applied, but it was mostly in the
 7   context, I think, of how Steve characterized that.
 8             So, there are two issues:  One being how we
 9   should look at fair use in this rulemaking, and whether
10   we should give the benefit of the doubt where there is
11   uncertainty as to whether a particular use is or is not
12   a fair use -- to give the benefit of the doubt to the
13   user in order to allow that to be determined by an
14   Article III court ultimately.
15             Do you have anything that you want to add or
16   explain in terms of discussion about that particular
17   issue, or is that the summary of it?
18             MR. von LOHMANN:  Not very much more than is
19   contained in our two submissions already.
20             Again, I'll merely reiterate the point:  We
21   are not asking for a per se -- an exemption that says
22   any time there is a benefit of the doubt, there is no
23   1201 liability.  We are saying that that standard, as
24   applied through the four statutory factors that the
25   Copyright Office is required to consider, means that for
0105
 1   noncommercial creators who again lack the relevant legal
 2   sophistication to, you know, do differently, and who are
 3   more likely to qualify as fair users, and for DVDs
 4   protected with CSS where the protection measure has
 5   already been so thoroughly compromised that any impact
 6   on the market is difficult to imagine -- in that narrow
 7   area, the benefit of the doubt should be granted in
 8   order for these questions to get to the Court.
 9             So, you know, it is -- we are not saying --
10   and I think we make this clear in our original
11   proposal -- that the benefit-of-the-doubt test should
12   trump the rest of the rulemaking analysis.
13             You would still have to do the statutory
14   four-factor analysis.  You'd have to ask whether or not
15   the class was adequately defined.  And in our view,
16   we've done that for this particular proposal.
17             MR. KASUNIC:  Well, in that same context --
18   and if you have any responses to that, but also maybe
19   incorporating Steve into your thoughts -- to what
20   extent, if you took issue with some of the refinements
21   in the Office's and the Librarian's determination in
22   2006 of how a class of works could be defined, is
23   this -- are we seeing a problem in relation to this
24   particular proposal, and maybe more generally in terms
25   of proposals of where we're beginning to expand a
0106
 1   particular class of works to the extent where it's
 2   becoming some of the early things that we had for -- or,
 3   early proposals for exemptions we had for fair use --
 4             MR. METALITZ:  I think that's exactly the
 5   concern.  That's the bottom of the slippery slope, I
 6   guess, if you want to get all the way down the hill.
 7             And we saw this morning that, you know, the
 8   one area where the Office decided to define in terms of
 9   the use and user, you know, there's pressure to
10   change that -- let's have some more users, let's have
11   some more users, let's have some more users.  They're
12   similar, meaning, they do or don't have the same
13   pedagogical needs.
14             I think that's a margin -- a question at the
15   margin.  Your -- this proposal is much -- obviously it
16   goes much farther than that.  I mean, it may be now, but
17   it certainly is -- the question of the benefit of the
18   doubt -- it's -- the rulemaking must grant exemptions
19   for activities that a court might find to be
20   noninfringing.
21             (Reading)  Disqualify the exemption only if
22   the Librarian concludes that no reasonable court could
23   find that the activity in question would constitute a
24   fair use or fall under any other statutory exemption.
25             So, it's basically saying, Go ahead and do it,
0107
 1   and if a court decides it's not fair use, then you can
 2   have 1201 liability as well.  It's not "benefit of the
 3   doubt" standard.
 4             What you've been applying over the last nine
 5   years has been, in fact, noninfringing standards.  And I
 6   recognize there's a little wiggle room there.  You can't
 7   anticipate every single use of all -- you know, a lot of
 8   these are -- but that's also the reason why, I think,
 9   the Office has been particularly reluctant to rely on
10   Section 107 fair use as the basis for determining
11   noninfringing use.
12             It's much more comfortable with what you can
13   see in 108, or can see in 110, or by association with
14   110 with the classroom use.  I recognize the copying
15   isn't covered by 110, but it's obviously very closely
16   linked to the public performance exception in 110.
17             These are exceptions where it's a little bit
18   easier to predict in advance and with a high level of
19   confidence that, you know, that's going -- that's going
20   to be noninfringing.  You've got a high level of
21   confidence, a high level of certainty.  It's not a
22   hundred percent, but it's a high level of certainty.
23             Fair use is not like that.  And it's not like
24   that in general, and it's certainly not like that when
25   you have a very broadly defined class of all audiovisual
0108
 1   works on DVD, whether -- well, whatever they are.  What
 2   kind they are.  And clips -- clips not defined.  This --
 3   this could be one minute; this could be X minus one
 4   minute.
 5             You know, it's a very broad group, and I think
 6   your level of confidence in being able to predict that
 7   this is going to be found noninfringing, I just don't
 8   think you have that level of confidence, and for that
 9   reason, it's not appropriate for an exception.
10             MR. KASUNIC:  I want to yield so that some
11   other people can ask questions.
12             One last quick thing, though, that you also,
13   in addition to taking issue with how the copyright or
14   how the Registrar had refined a scope and class of
15   works, you argued in the alternative that in every case
16   we should apply that standard, but apply it more
17   rigorous.
18             So, can you -- is there a way to fashion this
19   particular exemption that would more adequately refine
20   and restrict beyond saying noncommercial fair use is
21   for -- I mean, is there a way that we could use that
22   refinement?
23             MR. METALITZ:  I think it really depends on
24   the evidence that you have if this is impeding the
25   use -- you know, the scenario we went through hasn't
0109
 1   occurred, but what is the evidence of a particular
 2   targeted, focused use that would be noninfringing in a
 3   very high percentage of cases.
 4             Yes, we did give you several -- I think there
 5   were six or seven points that we suggested be applied in
 6   the context, excepting your decision from three years
 7   ago that you would refine the categories using
 8   characteristics of uses or users -- some principles that
 9   ought to be applied, or yardsticks that ought to be used
10   in order to try to make sure that it was focused and it
11   was -- is it the sole purpose, and is this the sole
12   effect, is the noninfringing use the sole effect of
13   circumvention.  And there were several others, which we
14   can go through there; right --
15             MR. KASUNIC:  Yes.
16             MR. METALITZ:  -- and that could be applied.
17             We don't have an alternative to propose that
18   could apply.
19             MS. PETERS:  Okay.
20             Ben.
21             MR. GOLANT:  I have a question about our
22   weighing of the factors.
23             I was wondering, is this an unlimited kind of
24   consideration, or do we somehow try to look at it in
25   sole copyright, or should we maybe adopt something like
0110
 1   the FCC publication standard?
 2             I'm just looking for the scope and what it all
 3   means in consideration of all other factors we have to
 4   consider.
 5             MR. von LOHMANN:  Well, the statute makes it
 6   clear, and the Copyright Office has also found, that the
 7   list of statutory factors is nonexclusive.  The
 8   Copyright Office is entitled to consider other factors,
 9   and it has.  In the '06 ruling we've done so with
10   respect to phone unlocking exemption, which we'll be
11   turning to shortly.  So, I think there isn't a rigid
12   definition.
13             I would suggest that with respect to this
14   exemption, I think we meet -- we -- our burden on the
15   statutory factors, obviously this would help
16   availability of these works for critical and commentary
17   uses -- the third of the four.
18             Again, I think it has no adverse impact on the
19   copyrighted works of the Joint Commenters.  It does,
20   however, have an adverse impact, if this exemption is
21   not granted, on the new creators that we mentioned.
22             On the second statutory factor regarding
23   availability for use for nonprofit and educational
24   uses, I don't really see this proposal as having sort of
25   a neutral factor.  I don't see it as diminishing or
0111
 1   increasing the availability for use of works for that
 2   category.  That obviously goes more, I think, to the
 3   Panel you heard earlier this morning.
 4             And so, I think, that's, you know -- I would
 5   urge the Copyright Office to consider the public
 6   interest here, not -- I mean, both in the sense of
 7   looking as they consider the statutory factors, but also
 8   as a separate factor, as I think the Copyright Office
 9   did in connection with the phone unlocking exemption in
10   2006.
11             And from my point of view, the important
12   public interests here are squaring practice among
13   noninfringing users with the law; restoring a rule that
14   is more comprehensible, more sensible; and also the
15   public interest in allowing the Court to develop this
16   jurisprudence in an area where quite frankly we're
17   working without good judicial guideposts.
18             And just to cap one of the things that Steve
19   mentioned a few moments ago, I would emphasize the
20   Copyright Office has premised exemptions in the past on
21   fair use.  Both the eBook exemption and the Film Studies
22   professors exemption were premised in part in 107.
23   There is -- and in both of those cases, I think there's
24   no clear precedence out there that says that those are
25   fair uses.
0112
 1             The case that is -- in my experience I've
 2   never seen a published opinion that has said that film
 3   professors using clips in class, including reproductions
 4   made thereof, is a fair use.  I also don't think in that
 5   circumstance we had an example of actual lawsuits, as
 6   Steve seems to suggest is somehow part of our burden.
 7             It is not as though film professors were being
 8   threatened routinely and hauled into court routinely for
 9   this.  And nevertheless, the fact that all of that
10   activity, which is socially valuable, would otherwise be
11   unlawful was viewed as an adverse effect.
12             So, I think the proposal is not so at odds
13   with the historical practice, as Mr. Metalitz suggests.
14             MR. CARSON:  Let me say what I think I heard
15   from you and give you a chance to tell me why I think I
16   heard it right.
17             What I think I heard from you is that while
18   there may be alternative means for -- well, the fact of
19   the matter is, the vast majority of people are prima
20   facie violating 1201, and that we really need to correct
21   that, because there's no way we're going to teach them
22   how not to violate Section 1201.
23             Is that more or less your message, or is it
24   part of your message?
25             MR. von LOHMANN:  Well, I would put it this
0113
 1   way:  There are three reasons I think those alternatives
 2   are not realistically available for this category of
 3   users.  One is, as you point out, a lack of legal
 4   knowledge and sophistication.  And I do think that's not
 5   going to change.
 6             I'm not saying that that somehow excuses
 7   unlawful behavior.  I'm saying that as to the users who
 8   are not infringing, this is exactly the category that
 9   Congress needs to shield from the adverse effect.  If
10   you are not infringing, then the circumvention should
11   not be impeding your noninfringing use.
12             So, as to those who are infringing, nothing
13   about this proposal would excuse them from either
14   circumvention liability or copyright infringement
15   liability.  So, that's the first answer.
16             But I would emphasize there are two other
17   answers as well that I think are equally important.  One
18   is, there are categories and creators here for whom
19   video quality matters in the same way -- or, to the same
20   degree that it matters with Film Studies professors.
21             And again, I urge you to bring up this line of
22   questioning with the Organization of Transformative
23   Works, which will be testifying before you next week in
24   Washington.
25             So, that is a separate reason why these
0114
 1   alternatives don't meet the needs of this creator
 2   community.
 3             And finally, I'd also say the third reason is
 4   the additional expense involved; right?  These are
 5   noncommercial creators for whom this activity is not
 6   something they are generally paid for, and to that
 7   extent, it's a relatively delicate, fragile, if you
 8   will, form of creative activity.  One that nevertheless
 9   copyright law should value as much as anything.
10             In fact, arguably, copyright law should try to
11   give incentives to get the creation of these works
12   accomplished.  They are original works of authorship.
13             But if you are saying to that community that
14   you have to spend hundreds of dollars on equipment in
15   order to engage in this, a very large number, I think,
16   would say, Well, you know, I've got hundreds of dollars
17   for other things, and I won't engage in that creativity.
18             So, to the extent the University of California
19   system just a few minutes ago told you that it's too
20   much money for them to go out and acquire this
21   equipment, I would urge you to consider how much more of
22   a barrier that would be to people who are doing this as
23   a hobby in their spare time.
24             So, three separate reasons why those
25   alternatives are not realistically available to this
0115
 1   category of users.
 2             MR. CARSON:  Is $49 to acquire the software
 3   that Rob has too much of an expense?
 4             MR. von LOHMANN:  I am very curious to hear
 5   from Mr. Metalitz and his clients whether they think
 6   that is a non -- that is not in violation of 1201.
 7             MR. CARSON:  We're all very curious.
 8             MR. von LOHMANN:  Yes.
 9             In fact, I will point out the Copyright Office
10   itself in its Section 104 report suggested in a footnote
11   the use of a similar product would violate Section 1201,
12   or in the alternative, that Congress should amend the
13   law to make that a violation.
14             MR. CARSON:  What do they know.
15             MR. von LOHMANN:  So, I think if we can get
16   clarification on that, then perhaps we can revisit that
17   question.
18             MR. CARSON:  That would be very helpful.
19             One more thing, I guess.  Just looking at the
20   statute, as it sometimes helps to do --
21             MR. von LOHMANN:  I have the same one you do.
22             MR. CARSON:  Then go to page 236.
23             And Section 1201(A)(1)(B) -- and actually,
24   Steve did recite this earlier, but I pulled it a couple
25   of minutes before he recited it.  It's the same thing
0116
 1   that was occurring to me.
 2             So, what we have to do here is figure out
 3   whether there are users of a particular class of
 4   copyrighted works -- let's take it in two parts -- who
 5   are being adversely affected by the prohibition -- to
 6   me, your whole case is they're not being adversely
 7   affected, because they're just going ahead and doing it.
 8             MR. von LOHMANN:  Well, my point is, they are
 9   being adversely affected when, in fact, they face an
10   objection from a copyright owner.  At that point they
11   are adversely affected, because their options to insist
12   on their fair use privileges are limited by the
13   operation of 1201 as a sort of real world reality.
14             So, it's not a -- I mean, yes, I think people
15   are going to continue to do this, and to the extent
16   copyright owners don't mind, then we don't have a
17   problem.
18             But copyright owners do mind, as -- in the
19   proposal we point out a number of these videos that have
20   been the subject of takedowns.  I quite frankly think
21   it's only a matter of time before one or more of these
22   are the subject of litigation.  I mean, just look at
23   what we've seen.
24             Viacom and others have publicly said that they
25   send hundreds of thousands of takedowns to You Tube on a
0117
 1   regular basis.  I think there's a real adverse effect
 2   when they are confronted with an objection by a
 3   copyright owner, whether in the form of a
 4   cease-and-desist letter or in the form of a 512
 5   takedown.
 6             So, that's one concrete form of adverse
 7   effect.  It may only affect a small proportion of the
 8   total number of creators, but I think it's an important
 9   portion.  It is the portion where, I think, fair use is
10   most critical to mediate that dispute.
11             And the second, I think, adverse effect is,
12   all of this creativity is, at least if you believe the
13   position of the Joint Commenters, per se unlawful.  And
14   I think that's an adverse effect, even if, you know, it
15   doesn't divert all of them -- right? -- in the same way
16   that I think it was an adverse effect for the Film
17   Studies professors.
18             I mean, the reality is -- I think you've
19   either heard this or will hear it, I'm sure -- many
20   professors engage in this practice and engaged in it
21   before the exemption was granted.  And many of them
22   continue to engage in it now, even if they're not Film
23   Studies professors.
24             That doesn't change the fact that declaring
25   all of that creative activity to be unlawful is, in my
0118
 1   view, an adverse effect.  I mean, the -- if that's not
 2   an adverse effect, then literally until the copyright
 3   owner files the first lawsuit, one could never qualify
 4   for an exemption.  And that seems, to me, to be
 5   particularly unfortunate where the -- short of filing a
 6   lawsuit, they can deliver cease-and-desist letters and
 7   such all they like.
 8             So, I would love it if I could somehow tap the
 9   nationwide database of all the cease-and-desist letters
10   ever sent for videos.  In fact, I've urged You Tube to
11   make even their own DMCA takedown database available
12   publicly, and of course, no one will do that.
13             So, based -- I only have anecdotal evidence,
14   but based on what I have seen, a large number of these
15   videos are being taken down.  These creators are being
16   silenced.  And I think that's an adverse effect.
17             MR. CARSON:  But do you know for a fact that
18   the people whose videos are being taken down are
19   electing not to send the notice out of fear of -- that
20   they'll be held -- sued for violation under 1201?
21             MR. von LOHMANN:  Again, I have purely
22   anecdotal evidence, a few examples, mostly because
23   that's -- getting a window into that -- it's the heart,
24   but it seems to me clear that if in the next three years
25   somebody makes one of these videos, they find themselves
0119
 1   the subject of an objection from a copyright owner, they
 2   obtain reasonable, you know, qualified legal counsel,
 3   that is the advice they're going to get.
 4             I didn't hear anything from Steve or anyone
 5   else to suggest that that's not the advice you would get
 6   from someone who understood how the law operates.
 7             MS. PETERS:  Okay.
 8             Thank you both very much.  We will see both of
 9   you this afternoon.
10             You're on all day long, Steve.
11             And we start again at 1:45.  Thank you.
12             (Luncheon recess taken at 12:11 p.m.)
13   
14                           ---oOo---
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0120
 1                           ---oOo---
 2   MAY 1, 2009        AFTERNOON SESSION            1:56 P.M.
 3   
 4   
 5   PROPOSED CLASS TO BE DISCUSSED:
 6   SECTION 1201(5)(B), (5)(C), and (5)(D)
 7   PANELISTS:  CHRISTIAN BUERGER
                 JENNIFER GRANICK
 8               PETER LURIE
                 STEVE METALITZ
 9   
10             MS. PETERS:  Okay.  Good afternoon.
11             For those of you who were not here this
12   morning, all of the material is on our Web site.  The
13   material from the hearings will be on our Web site
14   shortly, in a couple of weeks.
15             And the way that we're doing this is the
16   witnesses get to make statements, and then Copyright
17   Office personnel get to ask questions, hopefully such
18   questions that help us move forward.
19             And later we may submit to people who
20   testified additional questions that either come up as a
21   result of this hearing today or next week in Washington,
22   or later as we consider the exceptions and what has been
23   submitted.
24             You can see our names up here.  I'm Marybeth
25   Peters, Register of Copyrights.  To my left is David
0121
 1   Carson, General Counsel.  To my right is Rob Kasunic,
 2   who has been involved in every one of the 1201
 3   proceedings.  They probably call him "Mr. 1201."  He was
 4   hoping not to hear that.  And he is Principal Legal
 5   Advisor and General Counsel in the General Counsel's
 6   Office, obviously.  To David's left is Ben Golant, who
 7   is also an Assistant General Counsel, Principal Legal
 8   Advisor.
 9             And so, we will now basically focus on a
10   variety the classes of works that deal with computer
11   programs.  They're labeled (5)(B), (5)(C), (5)(D),
12   and -- okay.
13             Who's going first on this side?
14             MR. LURIE:  I am.
15             MS. PETERS:  Okay.  Peter Lurie is starting.
16             MR. LURIE:  Thank you very much.
17             My name is Peter Lurie.  I'm General Counsel
18   and co-founder of Virgin Mobile USA.  I appreciate the
19   opportunity to participate this evening.
20             With me is Christian Buerger, who is Senior
21   Director of Mobile Devices, and he'll be testifying
22   about the more technical aspects.  He'll be speaking
23   more intelligently about them than I can.
24             A quick background on Virgin Mobile USA:  We
25   founded the company for a single reason, and that was to
0122
 1   offer an attractive, competitively priced, prepaid,
 2   pay-as-you-go service in the U.S.  Before we got into
 3   the market, prepaid was what you got if you didn't pass
 4   a credit check or if you were unwilling to commit to a
 5   one- or two-year contract at 40 or $50 a month.
 6             We think that our success has proven the
 7   concept.  We're the sixth largest wireless carrier in
 8   the U.S.  We've got over 5 million customers.  Our
 9   handsets are available at over 45 stores including Best
10   Buy, Target, Wal-Mart, Radio Shack, and over 140,00
11   locations -- grocery stores and gas stations.
12             We did not set out to build a network.  We did
13   not set out to build bricks-and-mortar stores.
14             We focused on the customer experience.  We
15   designed a service plan; pricing; the Web site; the
16   content on the phone, which is very important; the Web
17   site customer care experience; the marketing materials.
18   Anything the customer experiences or touches, we
19   designed and we built.
20             And we've also pioneered the grab-and-go model
21   of handsets where you can go into a store that doesn't
22   necessarily focus on wireless, such as a Wal-Mart or a
23   Best Buy, and without too much salesman help, walk out
24   with everything you need, call us up, get online,
25   activate the service.  That means dramatically lower
0123
 1   pricing for our customers.
 2             We -- although we say a value or reduced
 3   product, it's not a bare-bones product.  So, it's a
 4   rich, multimedia product.  The device has messaging,
 5   text messaging, picture messaging, music, games, ring
 6   tones, and an array of copyrighted content.
 7             As I said, we don't impose credit checks as a
 8   part of long-term commitments.  And what we've found is
 9   that this service is particularly attractive to
10   low-income customers.  About a third of our customers
11   are from households with an income of less than $35,000
12   a year.  Half of them are new to wireless.
13             When they leave, interestingly enough, half of
14   them who leave don't leave for a competitor.  They're
15   not taking their phone elsewhere.  They are leaving
16   because they can't afford wireless, which is really
17   interesting, because our service is very inexpensive.
18             You can spend as little as -- as low as $10 a
19   month on service.  And it's troubling, because wireless
20   does have real social benefits.
21             The MIT Center for Development found last year
22   in a study that wireless provides low-income consumers
23   with increased job retention rates, personal security,
24   access to emergency services.  Real specific benefits
25   that they lack when they are priced out of the wireless
0124
 1   market.
 2             And we think that we play a broader role in
 3   increasing access to wireless service to low-income
 4   consumers.  In fact, our success has really -- I don't
 5   think it's an overstatement to say that we've
 6   revolutionized wireless in the U.S.
 7             All of our competitors now have very
 8   attractive and very competitive prepaid services,
 9   whether it's Verizon or -- they have these products.
10   We've created prepaid as a growth area and expanded
11   access to wireless service.
12             Let me talk a bit about handsets very briefly.
13   We sell our handsets at a substantial discount.  We pay
14   for it, we manufacture it, and we sell them to the
15   consumer.  We subsidize them.
16             The subsidy is greatest for the least
17   expensive handsets that we market.  We sell them at
18   substantial losses.  To do that, we expect that those
19   handsets are used with our service.
20             We -- we are able to provide this, because the
21   handsets have security software that protects an array
22   of copyrighted content, and also limits the use of our
23   service.
24             And again, we don't require long-term
25   commitments.  We can't rely on a two-year contract to
0125
 1   ensure that we get our investment back.  We have to make
 2   sure that our service is competitively priced every day.
 3             The handsets are packaged with terms of
 4   purchase.  Right on the package it says you can't alter
 5   the software.  You can't alter the hardware.  You must
 6   use it with original service.  The terms of service are
 7   on the package, on the Web site.  Again, these are
 8   critical aspects for the business model, and critical in
 9   protecting the copyrighted content on the phone.
10             If we were forced to sell handsets without
11   that security software, handset prices would at least
12   quintuple.  So, what we think is that -- we think
13   there's a lot at stake with this proceeding.
14             We don't think that the fact that the
15   exemption has existed for three years without handset
16   pricing increase -- having increased is indicative of
17   what will happen in the future.
18             We've had to make substantial investment in
19   the security software in our handsets to protect the
20   copyrighted content and to protect our handsets against
21   reflashing.  We have launched over 30 lawsuits against
22   an array of networks that purchase our handsets in bulk,
23   hack them, and sell them overseas at a price -- the
24   market pricing that handset.  So, they're capturing
25   their subsidy.
0126
 1             We've won all those cases, because the
 2   practice is frankly unlawful.  It violates our rights.
 3             And what we think is at stake here is not a
 4   legitimate customer who wants to take their handset to
 5   another competitor.  That's not actually what's going
 6   on.  There may be isolated instances.
 7             Consumers have a view of how long their
 8   handsets are attractive to them.  Handsets are
 9   expensive.  They get more and more expensive, and they
10   improve in functionality and design.
11             We find our customers -- our best customers
12   actually are buying handsets every six 6 or 8 or 12
13   months at a substantial loss to us, because we don't
14   charge them more simply because they're a customer.
15             There are a number of reasons why customers
16   don't want to take their handsets to another service,
17   one of which is that they like getting new handsets.
18   Handsets are relatively inexpensive.  And another is
19   that in the U.S., a lot of different carriers have a lot
20   of different technologies, where we use Sprint's CDMA
21   network.
22             You could take our handset and use it on the
23   Sprint network, but you couldn't take it and use it on
24   the Verizon CDMA network, because we use different
25   frequencies.
0127
 1             You certainly couldn't take it and use it on
 2   an AT&T GSM network, and presumably it would not -- the
 3   request is not to offer a very, very expensive quad band
 4   handset that would work on all networks.
 5             Let me just run through the other arguments.
 6   The first is that the proponents of the exemption argue
 7   that the handset security software doesn't protect
 8   copyright interest.  That's false.  The handset
 9   security -- the handset software -- the security
10   software directly protects music, graphics, ring tones,
11   the operating system.
12             The request for the proposed exemptions are
13   themselves directed at noncopyright purposes.  This is
14   not a request to -- for a legitimate use of copyrighted
15   content.  This is simply a request to use this
16   proceeding to enable free-riding schemes.
17             There are those who would take the investment
18   that we're making, the handsets that we're selling at a
19   loss, and repurpose them for use with their business,
20   and effectively increase handset prices for everyone,
21   for low-income consumers.
22             Again, I do not believe that this is about
23   consumers taking a handset for use on another service
24   after using it with one service.
25             Again, there are certainly isolated incidents
0128
 1   of that, but this is really about using the proceeding
 2   to protect the business model that's free riding, that's
 3   illegitimate, and would be damaging to a broad array of
 4   consumers in the U.S.
 5             Our handsets are not just pieces of hardware.
 6   It's not a toaster.  It's not a garage-door opener.
 7   It's a sophisticated, multimedia device with an array of
 8   copyrighted content.  The security software is akin to
 9   CSS that protects DVDs.  There is no logical difference
10   between the two functions.
11             And again, this is -- this is really -- I
12   think that this is about enabling a business model that
13   would increase prices across the country.
14             Finally, the proponents argue that there will
15   be environmental benefit.  That also is untrue.  We are
16   actually the first, and remain the only carrier in the
17   country to offer prepaid return envelopes with every
18   package with all of our handsets.  So, if you don't need
19   your handset, you want to return it, you want to recycle
20   it, send it back to us, we'll recycle it.  California
21   has a recycling -- the provider of the device has to to
22   accept it back.
23             Again, there's no evidence, no evidence that
24   repurposing handsets would lengthen their use in
25   service.  Again, consumers have a view of how long those
0129
 1   handsets are attractive.
 2             And number two, because what's really
 3   happening here is not in allowing presumable customers
 4   to repurpose handsets, but enabling free riders to
 5   highjack a subsidized phone for use on their network.
 6             You're still starting on day one in that
 7   you -- the handsets start on day one, and -- it's not
 8   a -- there's no second life to that handset, because it
 9   isn't being repurposed by a company that's already using
10   it on one network.  It's being activated for the first
11   time on a network for which it was not designed.
12             Let's talk about our copyright interest in the
13   handsets.  Again, although we have a value-oriented
14   product, it's not a bare-bones product.
15             We deliver our phones with preloaded ring
16   tones, games, software, a user interface that we
17   designed and have a copyrightable interest in, and an
18   operating system that the handset manufacturer designed
19   and owns that we are obligated deeply to protect.
20             In fact, our agreement with, say, major music
21   companies to provide music on the phones requires that
22   we protect the content on the phone.  If it became
23   unprotected, they would terminate our agreement and we
24   wouldn't be able to deliver their content.
25             There's been a suggestion that instead of
0130
 1   using the security software to protect all the content,
 2   we should invest in much more expensive, much more
 3   complicated DRM that would attach to each piece of
 4   content.  That's not feasible for us.
 5             Our chipsets and our lower-end handsets don't
 6   support DRM.  If you don't support DRM, you use the
 7   handset security software to protect the copyrighted
 8   content.  And, in fact, I don't believe -- and Christian
 9   will talk in more detail -- that DRM would protect
10   Java-based applications.
11             If you unlock our handsets, you have access to
12   all the copyrighted content on the handset.  You can
13   repurpose it for use on another network, if it were to
14   work on a network, but you would also be damaging -- it
15   is the DRM, but it is the handset security software on
16   the phone.  And again, our more basic chipset doesn't
17   support that type of complex DRM.
18             The proponents argue that the 2006 exemption
19   has increased the availability of handsets and not
20   reviewing exemptions would lead to a decrease of their
21   availability.  Actually, the reverse is true.
22             Because we have been able to stay one step
23   ahead of -- it's like who walks the talk.  So, it's a
24   significant investment on our part.  We are able to sell
25   our handsets at a substantial discount -- $10, $15 in
0131
 1   the marketplace -- without requiring customers to enter
 2   into two-year contracts and spend $50 a month on them.
 3   What that means is that a customer can by a $10, a $50
 4   handset, use it for a period of time, and buy another
 5   one.  That is increasing the availability of the
 6   handsets.
 7             If we were unable to secure our handsets and
 8   we were unable to stay -- if our technology were
 9   superior to what -- the handset unlocking technology,
10   our handsets would quintuple in price.  The number of
11   handsets would decrease and consumers would have to --
12   would probably either have to spend more up front for a
13   prepaid service, and if -- assuming they could afford
14   it, or engage in a postpaid service.
15             I remind you that there are an array of
16   unlocked handsets out there.  If you're a postpaid
17   carrier and you offer a postpaid service, you could
18   offer a lot of handsets, because you know that with a
19   two-year contract, you're going to recover your
20   investment.
21             You could offer the same device at two
22   different prices:  A higher price that's unlocked
23   without a contract, and a lower price, subsidized price,
24   unlocked with a contract.
25             We don't have that luxury.  We're very focused
0132
 1   on this model, on this area of the market, and we serve
 2   them very well.
 3             We think that a company that is trying to
 4   prevent free riding is not chilling access to wireless
 5   services.  We think that we are -- we've been -- as I
 6   said before, I think we've revolutionized access to
 7   attractive wireless services in this country.
 8             The proponents also argue that we are not
 9   protecting any copyrighted interest -- ring tones,
10   graphics, games.  We offer an array of downloadable
11   content.  It's all copyrighted content, and it's all
12   protected by the handset security software on the phone.
13             Finally, again the proponents argue that there
14   are environmental benefits.  And I noted that we have a
15   comprehensive recycling school, and there is no evidence
16   that repurchasing handsets increases the handset life
17   and means that a handset ends up in a landfill if it
18   were not recycled any faster.
19             That summarizes our position here.  And I'll
20   turn it over to Christian.
21             MS. PETERS:  All right.
22             MR. BUERGER:  Thank you for listening to, I
23   think, three points that I'm going to talk about.  My
24   name is Chris Buerger.  I'm the Engineering Manager at
25   Virgin Mobile.
0133
 1             I'm going to talk about three points.  One is,
 2   I'm going to describe the handsets and the technology
 3   that we use and the technical protection measures.
 4   Secondly, I'm going to describe the copyrighted
 5   materials on the phone -- on the real phone using the
 6   information on the screen.  And then thirdly, I'd like
 7   to describe the consequences of unlocking a handset,
 8   both from the perspective of sharing the copy -- those
 9   copyrighted materials, as well as any other consequences
10   that might be about the functionality of the -- the core
11   functionality of the phone.
12             Virgin Mobile uses CDMA handsets, which are
13   technically quite different to a GSM-based handset.
14   There's no SIM card.  The concept of a SIM card doesn't
15   exist.
16             For many core functions of the -- the key
17   technical protection measure that's being used is called
18   an "MSL," Master Subscriber Lock.  And that Master
19   Subscriber Lock is essential in protecting a number of
20   functions on the handset.
21             One is, certainly it's used to protect the
22   handset from any kind of attempt to be reflashed.  The
23   second core protection measure, or purpose of the Master
24   Subscriber Lock, is the access to the Embedded File
25   System.  And the Embedded File System is really the
0134
 1   location of all the copyrighted materials.  And if I
 2   could draw your attention to either the screens or the
 3   handout, that would great.
 4             (Screen projections displayed)
 5             (Document attached)
 6             MR. BUERGER:  So, as Peter described, some of
 7   the handsets are a combination of software content and
 8   hardware.  And Virgin Mobile's devices really are a
 9   combination of content that's either generated by the
10   handset manufacturer, the OEM, such as Samsung or LG;
11   Virgin Mobile, which could be graphical assets, sound
12   assets when the phone boots up; or third parties.  And
13   third parties could be anything from Google Maps to
14   electronic art, Tetris, any kind of game or ring tone or
15   wallpaper.  And all of these components are created and
16   combined to create the device binary.
17             If you look at the screen, the file structures
18   that are used really vary by OEM.  Every manufacturer
19   has slightly different file structures, and the screen
20   shots below are really just for reference, but I think
21   they provide you with an illustration of what the memory
22   locations of where the copyrighted works reside really
23   look like.  And they look very similar to what you might
24   see in a Microsoft Windows kind of environment.
25             So, in the first screen shot you actually see
0135
 1   the directory of any kind of preloaded Java
 2   applications.  This typically includes the Java file for
 3   the application, or the PNG file, which is an image file
 4   for the thumbnail to identify the application.
 5             On the next screen shots, you see directories
 6   of preloaded screen savers.  Again, Virgin Mobile owns
 7   the copyright to a lot of these materials.  All
 8   preloaded wallpaper.
 9             One of the key points that Peter made earlier
10   as well is, we have extensive relationships with content
11   vendors to ensure that the content that a user might
12   download or purchase through the handset is adequately
13   protected.
14             And there are hundreds of thousands of pieces
15   of content, whether it's ring tones, wallpapers,
16   screens, games, et cetera.  All of that content is also
17   freely accessible in the Embedded File System.
18             So, on these screen shots you actually see the
19   directory of preloaded ring tones, which are just plain
20   MP3 files.  And the same applies to the directory of
21   purchasing ring tones.
22             So, all of this information that you can see
23   here can literally be dragged and dropped onto your PC,
24   and then you can -- any kind of malicious user could
25   choose to share this content through a peer-to-peer
0136
 1   network or through any kind of Internet-based
 2   distribution system.  You could even E-mail it to other
 3   people.
 4             One of the points that Peter mentioned before
 5   is that because of the economic model of Virgin Mobile,
 6   many of our handsets use technology that falls more
 7   within the value tier of chipset manufacturers, and
 8   these types of chipsets really do not support kind of
 9   extensive Digital Rights Management software or any kind
10   of protection mechanisms that are outside of the
11   industry-standard MSL mechanism.
12             The other point to make is that DRM
13   technologies in the mobile world really focus on only
14   specific types of content, specifically around
15   single-track music and single-track video.
16             However, there's no comprehensive DRM
17   technology out there for wallpapers or Java games.  So,
18   you know, one set of technology cannot be used to
19   protect every single type of copyrighted content.
20             Another type of copyrighted content that is on
21   our phones are all graphical assets that represent the
22   Virgin Mobile brand.  DRM mechanisms simply do not
23   apply.
24             So, adding, you know, additional
25   software-based or hardware-based security features would
0137
 1   certainly mean for us to purchase much more expensive
 2   devices, and would also have an effect that we would
 3   limit the number of phones that we would be -- that we
 4   could sell.
 5             One of the key points that we wanted to
 6   make is that -- and this is really talking about the
 7   consequences of using copyrighted works after the phone
 8   has been unlocked and made available to a different --
 9   to work on a different carrier.  Should this happen, and
10   a phone has been unlocked, the copyrighted works,
11   particularly for me and you, Virgin Mobile USA assets
12   are still being used in conjunction with the new
13   information or software that is put onto the phone.
14             So, even though the phone is now being
15   reprogrammed to work on a new carrier, the existing
16   Virgin Mobile assets, both those that we license, as
17   well as those that we own, are still being used in that
18   context.
19             So, let me give you a concrete example.  Just
20   because you reprogram the phone to work on a different
21   network operator, your version of Tetris will still
22   work, will still run.  The phone will still play a
23   jingle when you power it up.  It will still show all the
24   Virgin Mobile assets, all the graphical assets.
25             The last point that I'd like to make is also
0138
 1   the functionality of security that could be compromised
 2   once a handset is unlocked.  In the Cricket testimony,
 3   there's actually a very clear statement that as part of
 4   the unlocking process, both the PRL, Preferred Rolling
 5   List, as well as memory locations would be affected, and
 6   those memory locations are the exact repositories of all
 7   of the copyrighted works.
 8             And changing a number of these locations could
 9   also mean a loss of functionality of the handsets,
10   because content that a user may have invested in and
11   purchased from Virgin Mobile may no longer work.  Other
12   functions such as MMS may no longer work.
13             And the final point that I also wanted to
14   make, one of the consequences that may create -- and
15   it's outlined in the Metro testimony -- is that
16   unlocking a handset will almost -- could potentially
17   invite the user to illegally or unlawfully use a
18   handset.
19             One of the key things that would be very hard
20   to enforce afterward is, once a phone is unlocked, to
21   prevent the user from actually stealing air time on the
22   new carrier's network.
23             It also -- as Peter would make the point
24   earlier, it would be very difficult to actually create
25   technology, once a phone has been unlocked, to prevent
0139
 1   it from being sold in India, for example, which is a
 2   popular destination for companies that are engaging in
 3   bulk-buy purchases of handsets.
 4             Okay.  Thank you.
 5             MS. PETERS:  Thank you very much.
 6             Ms. Granick.
 7             MS. GRANICK:  Thank you very much for having
 8   me here to testify about this exemption.  It's nice to
 9   be back before the Copyright Office.
10             I am Jennifer Granick.  I'm the Civil
11   Liberties Director at the Electronic Frontier
12   Foundation, and I'm here today representing three
13   handset recyclers:  The Wireless Alliance, Recellular,
14   and Flipswap.
15             The Wireless Alliance is a Colorado Limited
16   Liability Corporation that recycles and resells used,
17   refurbished, and new cellular products.  That client
18   sells between 40- and 60,000 phones per month.
19             Recellular is the world's largest recycler and
20   Recellular -- reseller of used cellular phones and
21   accessories.  Recellular is a partner with CTIA and with
22   Virgin, and worked with the Wireless Foundation of CTIA
23   on its original Donate-a-Phone charitable program.
24             Recellular donates millions of dollars to
25   charity and recycles or uses tens of millions of phones.
0140
 1   Almost 6 million phones last year.
 2             And Flipswap is a company that offers fast and
 3   free ways for consumers to trade in their handsets in
 4   exchange for cash, gift certificates, or store credit.
 5             We are here seeking a renewal of the exemption
 6   the Copyright Office granted in 2006 for phone
 7   unlocking, but with a change.
 8             CTIA in its filing recognized that an
 9   exemption is warranted because customers have good cause
10   to want to unlock their phones.  So, the question is not
11   whether to renew the exemption, but what the scope of
12   that exemption should be.
13             And we are here today asking for something
14   very simple:  If I own a phone and it is compatible with
15   a particular network provider, and that provider wants
16   me as a customer, I should be able to use that phone on
17   that network.
18             This is a no-brainer, when you think about
19   going and getting your car serviced somewhere.  But
20   because a handset is both a hardware and a software
21   device, the DMCA inhibits this customer choice.  And to
22   vindicate the civil right, the Wireless Alliance asked
23   for the exemption in 2006.
24             Now we're here asking for the Copyright Office
25   to remove the clause of that exemption that allows the
0141
 1   unlocking solely for noncommercial purpose.
 2             And the reason why we're asking for that is
 3   because a few district courts have misconstrued that
 4   aspect of the exemption to not apply if the unlocker has
 5   some kind of financial interest in the unlocking.  And
 6   this is very problematic to my clients, because my
 7   clients, while they're in the business of doing good,
 8   also want to do well.  They sell these handsets on the
 9   secondhand market.
10             And it's also problematic for the consumer,
11   because the consumers have many legitimate, economic
12   reasons why they might want to unlock their phone,
13   either to save money because they bought a secondhand
14   phone, because they want to resell their phone, they
15   want to save money while travelling internationally to
16   save money by switching to a new plan.
17             So, the idea that only where there's no
18   commercial purpose whatsoever is unlocking okay, is
19   basically emasculating the exemption that was granted in
20   2006.  And that's why we ask the Copyright Office to
21   remove this limitation.
22             Now, CTIA accepts the need for an exemption,
23   but proposes even narrower language than was granted in
24   2006.  And this language would eliminate the existing
25   safety valve that -- what we have, and would limit it
0142
 1   only to individual customers who unlock solely for a
 2   noncommercial purpose, who comply with all contractual
 3   obligations, and then only if the provider does not also
 4   use the network lock to control access to other works.
 5   And unfortunately, this formulation of the exemption
 6   doesn't help my clients or your average consumer.
 7             We talked about why the noncommercial clause
 8   is a problem.  But the contractual obligation clause is
 9   also a problem.
10             First of all, my clients and other recipients
11   of secondhand phones don't have contractual obligations
12   with a provider.  So, it's not clear under CTIA's
13   formulation whether the exemption could apply to us,
14   because there's no contractual relationship.
15             Further, it's very difficult for courts
16   analyzing 1201 claims to determine whether to grant
17   motions to dismiss in unlocking cases without doing
18   fact-finding on the contractual issues.
19             Also, these contractual issues are not the
20   interests that the copyright law seeks to vindicate.
21   Those are business model interests that the Office
22   recognized in 2006 are separate.
23             And finally, whether or not the customer or
24   the possessor of the phone has fulfilled their
25   contractual obligations is probably not known at the
0143
 1   time of circumvention or unlocking since when you do
 2   have other contractual relationships, it lasts over a
 3   period of time.
 4             I think the comment by eBay in support of this
 5   exempting indicates one of the kinds of problems that
 6   their customers' secondhand phone sellers have when you
 7   have an uncertain applicability of an exemption hanging
 8   over their head.  And they pointed out in their Verified
 9   Buyer Program that they get a lot of improper and
10   potentially chilling claims through that program that
11   interfere with the market for secondhand phones.
12             Then finally, the idea that the TPM controls
13   access to no other work is a severe limitation that
14   basically takes away the benefit of the exemption,
15   because first of all, there's no way for the average
16   phone unlocker to know whether the lock controls access
17   to other works or not.
18             Most people who unlock their phones don't have
19   any way of telling whether something like Virgin, MSL,
20   or the usual SPC or SIM lock is related to TPMs on other
21   content.
22             And also, it means, as we discussed during the
23   2006 Rulemaking Hearing, that network providers are able
24   to construct the phones in such a way that the same TPM
25   that locks the phone to a network also controls access
0144
 1   to any other code and that the exemption doesn't apply,
 2   putting the question of whether the safety valve exists
 3   totally within the power of the manufacturers and
 4   providers and not in the purview of the Copyright Office
 5   and the Librarian.  So, there are even more compelling
 6   reasons to grant this exemption than there were in 2006.
 7             One reason is that recycling has grown, but
 8   not nearly enough.  The estimate is that there are 125
 9   million phones per year retired, and 80 percent of those
10   phones are serviceable and work, and would work on
11   networks.
12             My client, Recellular, which is the largest
13   phone recycler, recycles about 6 million phones.  So,
14   that leaves almost 120 million phones, 80 percent of
15   which were perfectly fine but end up in landfills.
16             And what you need to do -- what we can do to
17   try to make the life of these phones longer -- the idea
18   that, If you unlock a phone so that it can be used on
19   another network unless there's that many more customers
20   who can purchase it and who might be interested in
21   buying it, but that does nothing to keep the phone out
22   of the landfill, is simply false.
23             And I provided to the Copyright Office the
24   report from Recellular about its program for phone reuse
25   and recycling, and these companies basically do
0145
 1   everything they can to try to keep the phone in an
 2   active life, and give it to a person who wants to use it
 3   and satisfy that need.
 4             (Document attached)
 5             MS. GRANICK:  And only at the very end of the
 6   phone's life when it can't be used anymore do they
 7   recycle it.  That's -- reuse is the best way of
 8   recycling a phone, and only later is trying to chop it
 9   down into it constituent parts and metal, the next most
10   environmentally friendly method.
11             Second, there are basically two kinds of locks
12   that we're talking about in 2009.  One is the locks that
13   are on CDMA phones, and the other is the locks that are
14   on GSM phones that lock the SIM card.
15             Now, we can talk -- and maybe I'll leave it to
16   questions that the Panel might have about how the
17   unlocking works -- but one thing we know is that under
18   some circumstances, most of the providers of CDMA
19   service do unlock their phones, so they don't have
20   concerns in those circumstances that there are other
21   copyright interests at stake.
22             They unlock the phones for their customers
23   under certain narrow circumstances.  And I want to talk
24   a bit about what that means when the customer unlocks
25   the phone for themself, because we know that providers
0146
 1   will do it in their narrow situation.
 2             So, I provided you with a printout from the
 3   Virgin Australia Web site that's just that kind of
 4   compendium of different methods for unlocking phones,
 5   and I just want to run through the two main ways that
 6   people do it.
 7             (Document attached)
 8             MS. GRANICK:  So, one way is when you know
 9   what your SPC code is.  And when you know what the SPC
10   code is, you do it, depending upon the model of the
11   phone, according to this printout that I provided, and
12   you type something into the keypad of the phone to bring
13   it to the service screen, and then you type in the SPC
14   code, and then the phone is unlocked.
15             And the question is, Well, how do you know
16   what the SPC code is.  And people are able to buy SPC
17   codes for various phones over the Internet or to
18   calculate the SPC code based on the algorithm that the
19   carrier uses.
20             So, very often the codes are built off the
21   unique serial number on the phone, and there's an
22   algorithm that changes that into a particular code
23   number, and when you type that code number in, the phone
24   becomes unlocked.  So, this is -- this is one way.
25             Another way is to use a tool to read the data
0147
 1   that's on the phone and to clear the SPC value that's
 2   stored on the phone and put another value in.  For
 3   example, all zeros.  And that is another way that people
 4   can unlock their phone.
 5             Now, in both of these situations, basically
 6   what you're doing is you're finding the place in the
 7   phone's data registry where the SPC code resides, and
 8   you are either entering the correct code or altering
 9   that piece of data to a code that you know.
10             Okay.  This is not changing the binary of the
11   software on the phone any more than when I type my PIN
12   number into the ATM, I'm changing the binary on the ATM
13   machine.
14             This is a registry of data that is something
15   that is stored in there, that the software on the phone
16   looks to and acts on, but it's simply a number, a piece
17   of data.  And when I change that piece of data, it
18   allows the user to change other parameters, other data
19   sets on the phone, like the Preferred Roaming List,
20   which is the list of towers or services for the handset
21   to look for.
22             And if you have other questions about that, I
23   can try to answer them.
24             And then the final method is the method of
25   reflashing, which is basically a total rewrite of
0148
 1   everything on the chip where I just put an entirely new
 2   operating system, entirely new software on the chip.
 3   And many providers give that software away for free.
 4   And what it does is it takes the existing software and
 5   it's gone, and there's a new thing there.
 6             Also, since the last Rulemaking, we have some
 7   policy statements from the FCC about open devices and
 8   open wireless networks, and the acting FCC chairman
 9   Copps has made a statement that open applications and
10   open device requirements for broadband stimulate
11   innovation for both Internet and for wireless providers,
12   and that the FCC will continue to look for ways to
13   promote open-access conditions and to monitor spectrum
14   acquisition and anticompetitive practices in the
15   wireless market.
16             And I would direct your attention to the
17   comment submitted in support of our exemption by the
18   Public Interest Spectrum Coalition on this point.
19             And then finally, since 2006, a very important
20   point is that we have seen no evidence of infringement
21   or harm to copyright interests as a result of this
22   exemption.  And if you look at all of the submissions
23   from all of the opponents, nobody is saying that
24   copyright interests have been compromised by this
25   exemption.
0149
 1             Virgin says there's been no handset cost
 2   increase.  The problem that they have is really a
 3   problem with people who are the bulk purchasers and
 4   unlockers.  And in Virgin's case, they bring lawsuits
 5   against these people.
 6             I don't know, and I'd be interested in
 7   hearing, whether those lawsuits made a 1201 claim or
 8   not.
 9             I know that in the Tracfone lawsuits, those
10   lawsuits do make 1201 claims, but those claims are one
11   of a set of claims including trademark infringement,
12   contract violations, unfair competition, and other legal
13   remedies that Tracfone has found also very useful in
14   pleading in those lawsuits.
15             So, specific responses to filings by Virgin or
16   CTIA, first I would point out that courts have not held
17   that unlocking phones is an infringing activity.  In the
18   cases cited in these oppositions -- in Tracfone versus
19   Dixon, that's a case where the defendant admitted their
20   liability.  There was no dispute and no finding.
21             The Thomas case is a default judgment case.
22   And the Bitcell case is a consent judgment case.  So,
23   there are no cases where courts have looked at the
24   technology of unlocking and found that practice to be
25   infringing.
0150
 1             Next, in terms of the copyright interest, what
 2   our exemption is asking for is for a class of works that
 3   are works that control -- that the handset uses in order
 4   to connect to the local networks.  We are not asking for
 5   an exemption for access to classes of works that are
 6   ring tones or wallpaper, or even to the user interface
 7   that a company like Virgin puts on the phone.
 8             It's not clear from the submission why it is
 9   the -- or, how it is that Virgin places -- these are
10   copyright interest that are at stake.
11             What their submission basically says is that
12   because customers are supposedly subject to some kind of
13   sale license, whether it be shrink-wrap or click-wrap
14   license, that they will stay with Virgin and use the
15   device on Virgin's network, that when they fail to do
16   so, they are somehow infringing copyright.
17             I think there's a serious question as to the
18   enforceability and interpretation of those Terms of Sale
19   or Terms of Use.  But even if there is a valid contract
20   here, this is an entirely noninfringing activity under
21   Section 117.
22             The phone purchaser is an owner of the phone.
23   Under Krause versus Titleserv, the purchaser has the
24   right to lawfully use and keep the phone forever.  He
25   can throw it away.  He can put it in the trash.  He can
0151
 1   give to somebody else.  And these are the extent of
 2   rights that owners have that give them the rights under
 3   117.
 4             Now, if the firmware is stored on the device
 5   and the provider has no right of repossession, and even
 6   when the relationship is terminated, then 117 should
 7   apply to further use of that firmware, and probably also
 8   of those purchased ring tones and even the operating
 9   system.
10             And there is no wireless provider that I'm
11   aware of that tells users that when they sell you the
12   phone, you have to give the phone back to them or you're
13   not allowed to dispose of it, or any of those kinds of
14   limitations.  That means that the normal customer is not
15   a 117 owner. So, 117 applies in probably every case of
16   sales of phones.
17             Furthermore, fair use applies.  I could go
18   through the fair-use factors, but I think one of the
19   most important things to point to is there is no market
20   for this firmware outside of the handset.  The handset
21   and the firmware go together, and the value of the
22   firmware is pretty much entirely with the functionality
23   that it provides for the handset.
24             On the issue of whether it is a satisfactory
25   alternative for carriers to unlock, first of all, Virgin
0152
 1   doesn't unlock their phones.  And carriers only unlock
 2   under certain very narrow circumstances.  Carriers don't
 3   have an incentive to unlock, because they get a volume
 4   discount from manufacturers, which means they want to
 5   move new product.
 6             Customers report that they have had trouble
 7   getting phones unlocked.  Carriers tell you that they
 8   only unlock when you are an active customer, and then
 9   only if you've met certain circumstances, not always
10   clear from their Terms of Service.
11             And those circumstances simply don't apply to
12   people like my clients who are not customers of these
13   providers.  They are bona fide, secondhand owners of
14   these devices, and they get tens of thousands of phones
15   a month, millions a year, and they get them from Best
16   Buy.  They get them from Wal-Mart.  They get them from
17   Virgin.  They get them from AT&T.  They get them from
18   CTIA.
19             And they can't go through these tens of
20   thousands of phones, figure out what network they were
21   originally on, and then walk into the AT&T or the Sprint
22   store and say, "Will you unlock this for me?  I'm not a
23   customer."  That just simply isn't what's happening
24   here.
25             And just to give you some sense of the scale
0153
 1   of this in terms of the interest, Virgin has 5 million
 2   customers, Verizon has about 80 million customers, AT&T,
 3   I believe, has a comparable number, and AT&T and Verizon
 4   together are about 60 percent of the wireless market.
 5             The recycling industry estimates that about
 6   two-thirds of those phones are replaced every year, and
 7   that the average life span of a phone is about 18
 8   months.  So, if you look just at Verizon, they are --
 9   they are needing to recycle or reuse about 54 million
10   phones just from that one carrier every year.
11             So, there is a huge gap between Virgin and the
12   rest of the industry, and a huge gap between what
13   recycling is currently being done and what could and
14   should be done.
15             And for some more information about the
16   recycling issue, I gave you the year-end report from
17   Recellular so you could see the kinds of programs they
18   have, the volume that they're dealing with, and also the
19   amount of the phones that still are ending up in
20   landfills.
21             So, just one other point on that, if you look
22   at Verizon's recycle and reuse program, HopeLine, they
23   collect 1 million phones per year.  That's 1 million out
24   of the 54 million phones that Verizon customers probably
25   stop using every year.
0154
 1             There is a huge need for companies like my
 2   client, and that's because carriers simply don't fulfill
 3   the reuse/recycle need.  They don't have any incentive
 4   to.  There's no reason for them to -- there's no --
 5   frankly, there's no economic incentive for them to do
 6   so.
 7             And my clients are trying to step into and
 8   fill that gap.  And the reuse of these phones is greatly
 9   promoted by increasing the number of potential customers
10   that could be on these phones.
11             When you have a phone, you don't know what
12   network it can be used on, and you don't know what
13   customers will want to buy it and can unlock that phone.
14   And most of these phones, once unlocked, will be
15   compatible on any CDMA or any GSM network.  That greatly
16   increases the chance that somebody somewhere will be
17   able to get some use out of this item instead of it
18   ending up in the landfill.
19             So, I'd like to be available to answer any
20   questions that you have, but I also have some questions
21   about -- some questions that I think that the submission
22   from Virgin really doesn't answer about what -- you know
23   when they -- they don't unlock.  Where do they think
24   those handsets that are retired go if they don't unlock
25   them?
0155
 1             And they're selling new handsets to customers
 2   less than -- pretty much a new one every year.  I wonder
 3   whether they are bringing 1201 claims in their cases or
 4   not, and why they think that they have the growth that
 5   they had, even though the exemption has existed for the
 6   past three years, and why some CDMA carriers do unlock
 7   if they're saying that that's so closely tied with the
 8   copyright infringement of the ring tones and wallpaper
 9   and those other works.
10             We know that they unlock, and they do so
11   because they -- they do so in narrow circumstances that
12   are not adequate for the reuse or recycling reasons, but
13   then that begs the question of why they think that this
14   lock is required for protecting other interests.
15             MS. PETERS:  Thank you.
16             Mr. Metalitz.
17             MR. METALITZ:  Thank you very much.
18             It's a pleasure to be here with several
19   witnesses who know a great deal about this technology
20   and about these markets, and for that reason, I'm going
21   to try to be very brief, because I don't know as much as
22   either -- as any of them do about those questions, and
23   they obviously have a long disagreement, although I'm
24   not sure how many of them are directly relevant to the
25   task that's before you.
0156
 1             What I would just like to add on behalf of the
 2   Joint Commenters is to say first of all, we're not
 3   either supporting or opposing the principle -- this --
 4   an exemption in this area.  It depends on whether the
 5   clients meet their burden of showing -- meeting the
 6   statutory standards for an exemption.
 7             But I do want to just bring to your attention
 8   a couple of areas where I think the record is quite
 9   different this year than it was three years ago, and it
10   may require you to have some inquiries to handle this a
11   little bit differently than three years ago.
12             And a lot was derived from Exhibit A to the
13   NPRM comments that EFF put in in the second round which
14   provide a more detailed explanation of some of what's
15   going on here after circumvention.
16             Back in 2006 -- if you look at page 51 of your
17   recommendation -- you basically concluded that there's
18   nothing in the record that has any -- that gives any
19   suggestion that there's any infringement involved here,
20   and nothing that could -- can't reasonably be understood
21   as infringement, what people are doing as a result of
22   circumvention.
23             Now, without regard to whether -- that
24   characterization of the 2006 record, the 2009 record, it
25   seems to me, is quite different.  There certainly is
0157
 1   suggestion of infringement, and we've heard that from
 2   Virgin Mobile, and it's in some of the other papers.
 3             And on this issue -- I think last time --
 4   it's -- my recollection is that the reason you reached
 5   that conclusion may have been because a lot of what was
 6   going on was what Jennifer Granick described, which was
 7   entering new values into databases, and the question was
 8   whether that was a creation of a derivative work, or was
 9   that something else just like inputting a PIN code into
10   the ATM, that was used as an example.
11             And if you look at the submission from
12   Cricket, they make the same argument, and this argument
13   is made by several of the proponents.
14             But if you look at Exhibit A, page 13, it
15   seems pretty clear that what is happening here in
16   installing a patched version of Apple's-based band
17   firmware, using the Apple, for example -- and this is
18   about unlocking, not jailbreaking, if you will; this is
19   about access to the network, and it states that this is
20   basically identical to Apple's code, except -- and then
21   there are some differences.
22             So, it seems to pretty clearly to make the
23   case that a derivative work is being prepared, or an
24   adaptation is being prepared.
25             So, the Section 117 issues that are described
0158
 1   here -- let's talk about it -- are quite relevant here.
 2   I'm not going to get into the merits of the argument one
 3   way or another, but as I read the 2006 decision, you
 4   didn't even reach that.  You didn't even touch 117,
 5   because there was not, in your view, any evidence in the
 6   record that there was any adaptation being made.
 7             That's not the case now.  There certainly is
 8   evidence of it.  It's obviously for you to decide how
 9   credible that evidence is, but I think the 117 issues
10   may have to be joined.
11             And the second area where I think the record
12   is quite different is on this question of access to
13   works other than the firmware that controls access to
14   the network.  In your decision and your recommendation
15   in 2006, you reviewed the evidence, and you said,
16   really, it's just speculation that there might be some
17   access to these other works.
18             As I recall, we said on behalf of the Joint
19   Commenters, This could happen.  And there was some
20   evidence that, no, it probably wouldn't happen because
21   of the structure of where DRM would come in, and the --
22   others would come in, and your conclusion was that our
23   concern was really speculative, and therefore, it was
24   not really a factor in the decision.
25             But again, I think if you look at Exhibit A on
0159
 1   page 13, you find -- what I thought was interesting was
 2   that it's exactly -- the same tool that is used to
 3   circumvent access controls leading to applications is
 4   also used to circumvent the access controls with regard
 5   to network access.
 6             It's this P-W-N-A-G-E Tool -- and I think it's
 7   Welsch that has W as a vowel, so I don't know how to
 8   pronounce that, but it's the same tool.  And it strikes
 9   me if the same tool is being used in the same way with
10   these objectives, maybe it's not just a speculative
11   issue anymore.  And of course, you also heard testimony
12   from Virgin Mobile on this.
13             And so, this is obviously -- again, I'm just
14   pointing out this is another area in the record.  And
15   you said on page 53 of the recommendation, quite
16   properly, I think, that you want to make sure to avoid
17   any unintended consequences of this.
18             You now have a record that, I think, is a
19   little more than speculation about whether there would
20   be this impact.  And so, I think you have to take that
21   into account.
22             Let me just conclude by mentioning three areas
23   where we looked at the proposals from (5)(B),(C), and
24   (D) and had some concerns about the wording.  And then
25   there is now -- this is a joint proposal, but if I'm not
0160
 1   mistaken, maybe -- I don't think your clients have
 2   signed on to that proposal.  I'm not sure of the status
 3   of that, but the other chief proponents did.
 4             So, first of all, for the reasons I just
 5   stated, I think it is very important to retain this
 6   language about the sole purpose being accessed to the
 7   upper network, because, again, there's some evidence
 8   that it would accomplish access to a lot of other
 9   things, and that obviously is of very great concern to
10   the Joint Commenters, the music industry, and others --
11   the video game industry and others whose content we're
12   talking about here to some extent.
13             I think we would also recommend, as we do in
14   our general list of limiting factors on page 8 of our
15   submission, that this really would be limited to access
16   circumvention that solely have the effect of enabling
17   access to another network, regardless of having to prove
18   the purpose or the intent.  That's always difficult, but
19   you can sometimes look more objectively at what the
20   effect is.
21             Second, there's been a proposal to move from
22   language dealing with wireless telephone handsets and
23   wireless telephone communications network to more
24   capacious language about wireless communications
25   devices, wireless communications networks.
0161
 1             I think I understand the motivation for this,
 2   but I think you have to look very carefully again what
 3   might be the unintended consequences of this.
 4             If you look at the MetroPCS submission,
 5   they're talking about wireless broadband cards that
 6   might be used in your laptop, might be a component of
 7   the video game console, and would qualify as a wireless
 8   communications device.  Perhaps the whole console would
 9   qualify as a wireless communications device.  Perhaps
10   every computer which is capable of gaining access to a
11   wireless network would be considered a wireless
12   communications device.  So, we're concerned about the
13   breadth of this.
14             We don't know also whether the factual issues
15   that we're debating here about telephones really apply
16   in that context.
17             For example, how common is it that a wireless
18   broadband card used in connection with one of these
19   devices will only allow access to one particular
20   network.  I know, fortunately, the one in my laptop
21   accesses all kinds of networks.
22             So, again, I don't know -- that may be a
23   factual question, but certainly the factual case that's
24   being made here may not be the same in that environment.
25             And we also would have different behaviors as
0162
 1   far as switching costs.  There's a lot of discussion
 2   about whether people would actually swap out their
 3   phones more quickly anyway when the subscription period
 4   is over.  It might be totally different if you're
 5   talking about a much wider range of wireless
 6   communications devices -- laptops, video game consoles,
 7   and everything else.  So, you can't just assume that the
 8   same conditions would apply there, so you'd have to
 9   again look at the commercial behavior.
10             And finally, the commercial purpose issue --
11   and I see that the other proponents dropped that
12   phrasing.  I would say they didn't feel they needed that
13   phrasing, if I recall correctly, in the exemption.  I
14   gather that the wireless lines and others still want to
15   have that phrasing in the exemption, regardless of
16   commercial purpose.
17             MS. GRANICK:  Or that it be made clear that
18   just because there's some financial aspect to it, it
19   doesn't mean that it's not solely for connecting to a
20   network.
21             MR. METALITZ:  Well, see, our concern about
22   "sole" is a little bit different, because it's about
23   what else it does, rather than why you're doing it.
24             But I think it is important to note that some
25   of the submissions have said that really, many of the
0163
 1   proponents of these -- not all, but many of the
 2   proponents are entities that are offering circumvention
 3   services to consumers, and I think that has to be taken
 4   into account.
 5             So, I just wanted to add those brief
 6   observations about the state of the record that I think
 7   are important for the Copyright Office to look at.  And
 8   I'd be glad at this point to defer to the people that
 9   are more expert than I am on some of the particulars.
10             MS. PETERS:  Okay.
11             I'm going to turn back here to Virgin Mobile.
12             Do you want to add anything based on what
13   you've heard?
14             MR. LURIE:  Sure.  I'd like to respond to
15   Ms. Granick's questions for Virgin Mobile.
16             First, with respect to recycling, the idea
17   that our company is doing anything to inhibit recycling
18   specifically by Recellular is preposterous.  In fact,
19   the first deal that we had after we signed the handset
20   agreement or purchase agreement with the handset
21   manufacturer, was to go to Recellular and sign a
22   recycling agreement with Recellular.
23             And here's what we asked them to do, and they
24   do do this:  They take our trademark off the phone.  We
25   give the -- they reflash our phones.  They take all the
0164
 1   copyrighted content off, and they take the -- they may
 2   take the operating system off.
 3             They then, for whatever they have the right to
 4   do, whatever software that they have the right to put on
 5   the phone, and they can -- they either -- they wouldn't
 6   do that if they're recycling the phone and breaking it
 7   down -- or they can resell it to someone who wants to
 8   use it.
 9             That's the proper business model for
10   Recellular.  That's, in fact, what they do.  And nothing
11   that we do inhibits that model.
12             And as I've said, we were the first carrier to
13   offer prepaid packages.  We actually -- we were very
14   involved with teen homelessness in the country.
15             November was National Teen Homelessness Month,
16   because we lobbied Congress.  And one thing we do is we
17   redistribute refurbished handsets to homeless youth, or
18   a million homeless teenagers in the country, which is
19   also outrageous, but they actually have no -- this is
20   their best way of communicating -- communications
21   device.
22             So, we have been at the forefront of the
23   recycling efforts in the industry, and so we -- the
24   copyright -- the protections we put on the phones to
25   protect copyright and to protect use of the phones do
0165
 1   not in any way inhibit recycling in the country.
 2             Second, Ms. Granick discussed -- wondered why
 3   we've enjoyed such growth despite the exemption.  In
 4   fact, we didn't have the opportunity to, of course,
 5   participate in the first proceeding.
 6             When the exemption was granted, we were hit
 7   with a rash of bulk buying that decimated our earnings
 8   for the year.  They even had the -- or that year -- it
 9   would have exceeded our earnings for the year.
10             What happened was, people went out; they
11   bought ten handsets at Wal-Mart, ten handsets at Target.
12   They cleaned out the stores of our handsets so
13   legitimate consumers couldn't buy our handsets.  They
14   reflashed them and they shipped them overseas, and they
15   pocketed the subsidies that we invested.
16             They violated an array of rights.  It was an
17   expensive 40- or $50 million for us.  We then had to
18   increase our investment in software security on the
19   phone.  At that point we recovered our footing and
20   enjoyed the growth.
21             If that were to happen again, and these bulk
22   purchasers could rely on this exemption as to what they
23   were going to do, as Ms. Granick proposes it, this could
24   happen at any time.  It's simply a matter of -- it's a
25   race, it's a like an arms race where we are trying to
0166
 1   improve the software security faster than the unlocking
 2   software that gets released every month.  And we're
 3   totally vulnerable, primarily because of this exemption.
 4             Ms. Granick distributed this -- asked why some
 5   carriers will unlock.  Well, clearly, a more
 6   sophisticated handset that has a chipset that has four
 7   separate DRM where you can unlock the phone for purposes
 8   of the network without risking the copyrighted material,
 9   the carrier is free to do that.  We're not.
10             We may be -- you know, there may be different
11   circumstances, but other carriers that -- as I said,
12   they sell -- with a two-year contract, you can subsidize
13   very, very sophisticated handsets fully.  You can offer
14   it for free, and you can unlock it, because you're sure
15   that -- you're assured of your revenue.  And then
16   because the DRM is separate from the handset security,
17   you can be sure that the copyrighted content will be
18   protected.
19             This handout really is completely unrelated to
20   Virgin Mobile in the U.S.  Virgin Group is a federation
21   of companies.  We license the Virgin brand.  They're a
22   shareholder.  They're not a controlling -- they have a
23   minority stake in our company.
24             This is for a GSM.  These are for the GSM
25   network.
0167
 1             The GSM business model that exists overseas is
 2   very, very different.  Because almost all the carriers
 3   in a market will use GSM, the handsets are sold,
 4   generally, separate from the service, so the entire
 5   model is different, and this is actually what you have
 6   to do to activate the phone with a Virgin Mobile
 7   Australia service to begin with.  And it's a really -- I
 8   think it's totally inaccurate with what we're discussing
 9   now.
10             I think that -- I think that is the -- I'm not
11   sure if there was something else.
12             Thank you.
13             MS. PETERS:  Okay.  Thank you.
14             Do you want to say anything else?
15             MS. GRANICK:  Yes.
16             First of all, the problem with bulk purchase
17   and resale predated this 2006 exemption.  Virgin had
18   lawsuits against bulk purchasers and resellers before
19   the 2006 exemption, as did Tracfone.  So, it was not the
20   exemption that caused the problem.
21             The problem is caused by the fact that they
22   sell their handsets with a huge subsidy, and people find
23   that if they can technologically unlock those handsets,
24   they can sell them for more.  That's their business
25   model, and that's what the problem is caused by.
0168
 1             Now, if they have a higher quality TPM that's
 2   more expensive to break, that eats into the profit that
 3   the bulk purchasers can obtain, but it is not the -- and
 4   so, they find it useful in practicing that business
 5   model to invest money in the TPM.  But that is not the
 6   result of the 2006 exemption.
 7             So, my question to Virgin was whether or not
 8   they raised 1201 as a claim in their lawsuit against the
 9   bulk -- the bulk purchasers, and I don't think we got an
10   answer to that.
11             MR. LURIE:  We did not.  Because of this
12   exemption, we couldn't.
13             But I will say that --
14             MS. GRANICK:  But -- but -- you can respond,
15   maybe, to -- Tracfone raises the 1201 claim in their
16   cases against bulk resellers.
17             MR. LURIE:  Because of the exemption, we have
18   a stronger argument, we have stronger claims of
19   trademark and contract.  After the exemption, we would
20   have much stronger claims against the bulk purchasers.
21             But this entire proceeding is, in fact, about
22   a business model, because what Ms. Granick -- there's no
23   question that this is -- this unlocking the handset, as
24   the proponents want to do, is not about accessing
25   copyrighted content -- it is not about the copyrighted
0169
 1   material.  It is simply about a business model that
 2   allows people to free ride on an investment that other
 3   companies make.  That is what is at stake here.  It is
 4   not a copyright issue at all.
 5             Second, Ms. Granick discussed Section 117.
 6   117 does not apply.  117 requires the owner of the copy
 7   of a computer program -- allows them to make a copy, and
 8   that copy is an essential step in the utilization of
 9   that program.
10             And the CONTU report says that that essential
11   step has to be one that is necessary to enable the use
12   for which it was both sold and purchased.  So, here,
13   making a copy is not an essential step for legitimate
14   use of the program.  It's very clearly an illegitimate
15   use and an unlawful use of the program.  So, 117 is
16   clearly unapplicable here.  It doesn't provide
17   any protection -- it doesn't support that argument.
18             MR. CARSON:  Let me ask you about --
19             MS. GRANICK:  But -- I'm sorry.
20             MR. CARSON:  Just a moment.  I want to get
21   something out of the way.
22             You have filed a lawsuit.  You have not made
23   allegations under Section 1201.
24             You've made trademark allegations and what
25   else?
0170
 1             MR. LURIE:  Because of the exemption, we focus
 2   on the use of the trademark, because what happens is
 3   that our handset -- it says "Virgin Mobile" on it --
 4   again, we're not a manufacturer of handsets.
 5             We offer a service.  We offer the Virgin
 6   Mobile service.  It says "Virgin Mobile" on it.  It has
 7   our logo on it.  It's sold with enforceable Terms of
 8   Purchase, just like -- it's very clear.  It's written in
 9   very clear, large letters, and it's easy to understand,
10   and our customers certainly understand it.
11             And, in fact, it's not our customers who are
12   seeking to reflash our phones.  It's free riders who are
13   seeking to reflash our phones.  And what happens is, the
14   handset with the Virgin Mobile trademark gets used on
15   another network, and then it doesn't work, and then
16   the -- there's a fair amount of confusion about whose
17   phone it is, why doesn't it work.
18             It doesn't work because it wasn't designed for
19   use with that other service, or it doesn't work as well
20   as it should, certainly.
21             So, we make an array of contract and trademark
22   claims.
23             MR. CARSON:  Okay.
24             Which contract?
25             MR. LURIE:  We haven't lost a case yet, but
0171
 1   the exemption is -- has substantially weakened --
 2             MR. CARSON:  How has it weakened it, if you
 3   haven't lost a case?
 4             Why is it even relevant?
 5             Why is the exemption even relevant if you've
 6   asserted these other claims and apparently you've been
 7   successful?
 8             MR. LURIE:  Well, in fact, MetroPCS has now
 9   sued us.  They sued us about a month ago saying they
10   wanted an exemption -- that the exemption specifically
11   permits the use.
12             MR. CARSON:  Who cares?
13             MR. LURIE:  Well, we certainly care.
14             MR. CARSON:  Hold on.
15             If you're asserting suits, including trademark
16   claims and contract claims, and you're succeeding on
17   this, why does it matter if you've got 1201 claims as
18   well?
19             It's surplus; isn't it?
20             MR. LURIE:  Yeah.
21             As I said, MetroPCS is suing us claiming that
22   the exemption permits reflashing of our handsets.
23             MR. CARSON:  You can override the trademark
24   contract --
25             MR. LURIE:  I should say, actually -- I'm
0172
 1   sorry.
 2             In fact, we did well in an array of suits a
 3   couple of years ago.  Most recently, MetroPCS, in a
 4   lawsuit that they launched against Virgin Mobile, is
 5   seeking a declaratory judgment that the exemption at
 6   issue here prevents reflashing.  So, it is very much at
 7   the heart of the matter.
 8             MR. CARSON:  You're arguing an exemption
 9   preempting trademark and contract claims?
10             MR. LURIE:  There's a separate claim.  That's
11   what we've asserted --
12             MR. CARSON:  That's my point.
13             You've got separate claims that are viable
14   regardless of the exemption; isn't that true?
15             MR. LURIE:  Ideally, you'd be adjudicating a
16   case, but we don't know.  We don't know how we'll do in
17   that case.  It hasn't been decided.
18             MR. CARSON:  So, you're afraid that a court
19   might conclude that this exemption somehow misused your
20   claim to trademark and contract claims?
21             MR. LURIE:  Absolutely.  And that is exactly
22   what --
23             MR. CARSON:  And we should take that
24   seriously?
25             MR. LURIE:  We certainly take it seriously.
0173
 1             MR. CARSON:  Okay.
 2             MR. LURIE:  It's a critical lawsuit for us.
 3             MetroPCS certainly takes it seriously.  Those
 4   are the claims that they're asserting.
 5             MR. CARSON:  All right.
 6             MR. LURIE:  I appreciate the confidence in our
 7   position.  I wish I shared the confidence.
 8             MS. PETERS:  Okay.
 9             I'm going to start the questioning with Ben.
10             MS. GRANICK:  May I -- I asked him a question
11   and he kind took over, and if you don't mind, I will be
12   very brief.
13             MS. PETERS:  Fine.
14             MS. GRANICK:  The claim is that bulk unlocking
15   is the problem.  And they have trademark and copyright
16   claims against bulk unlockers.  The issue is, when the
17   customer wants to go to a MetroPCS and wants to sell the
18   phone to somebody else, can they unlock their phone and
19   use that phone on a different network.
20             And this is not infringing.  Virgin depends
21   upon the idea that that's somehow a contract violation
22   to make it infringing.
23             But as I said -- and I think everybody accepts
24   -- that this changing of the value in the registry is
25   not a modification of the binary in the vast majority of
0174
 1   cases.
 2             Now, Mr. Metalitz pointed out some technology
 3   specific to the iPhone and that we're going to talk a
 4   lot more about the iPhone later on this afternoon, so
 5   I'm not going to say too much about that, but that is a
 6   117, that that adaptation to use the firmware of the
 7   phone on a different network would be protected by 117.
 8             I don't even think that that adaptation occurs
 9   in most of the cases, because all you're doing is
10   changing the lock value, whether it be an SPC of the SIM
11   lock.  That's all you're doing.
12             And that allows you to change other data
13   variables so that you can use the phone on the network.
14   There is no adaptation, there's no copying, there's no
15   infringement.  There's nothing.
16             And to the extent that there is, as I said, I
17   believe that it's covered by 117 and Krause versus
18   Titleserv, which allows people to make those
19   adaptations, even when the original seller doesn't like
20   the use that the owner is making of them.  That's why we
21   have the 117 right.
22             So, in terms of the question of there being
23   access to works other than the firmware, we're just
24   talking about a circumvention for the purpose of
25   accessing that firmware so that you can connect it to
0175
 1   another network.  It's not clear to me from the
 2   testimony today how unlocking the phone so that it can
 3   go on another network and you can change something like
 4   the preferred roaming list gives you the ability or some
 5   kind of newfound ability to do any kind of infringement.
 6             But what is clear to me is that in the vast
 7   majority of cases with providers who have a much, much,
 8   much greater market share than Virgin -- is they don't
 9   have that concern, because they unlock their phones,
10   sometimes voluntarily.
11             And then just one comment about Mr. Metalitz'
12   point about sole purpose.  We agree with the idea that
13   the purpose should be to access a network.  It's just
14   that companies like mine that unlock phones, or
15   customers who unlock phones and also maybe are reselling
16   those phones or want to save money, or something like
17   that -- that that financial part of the transaction
18   doesn't mean that they don't enjoy the benefits of the
19   exemption.
20             What I think it is, is merely just clarifying
21   something about the 2006 exemption, as opposed to making
22   something different, and I think that the limitation of
23   saying it's not -- of mutating the exemption so that
24   it's not about the purpose of the exemption is to
25   connect lawfully to another wireless network, but that
0176
 1   that is the sole effect.
 2             Again, I would point out that the average
 3   consumer cannot know prior to the unlocking whether
 4   removing that lock or zeroing it out is going to allow
 5   access to other content on the phone.
 6             The customer is not even asking that.  They
 7   just want to know, What do I need to do to take my phone
 8   from one network to another network.
 9             So, that's why I think that the exemption
10   needs to be phrased in terms of the user's purpose and
11   activities, as opposed to what the technological effect
12   of that unlock might be.
13             MR. METALITZ:  Could I just add one point on
14   that?
15             Then that's a question of who should bear the
16   risk of the consumers' ignorance.  And I don't see why
17   the copyright folks should bear the risk if consumers
18   don't know, may not know, may find out later.  That,
19   again, if this testimony is to be credited, that this
20   whole -- you know, all of these ring tones and all of
21   these wallpaper and so forth, and games, is accessible
22   in a way that it was prior to circumventing.  If that's
23   the case, then I think -- I don't think it's
24   unreasonable to craft the exemption in the ways that
25   cover that.
0177
 1             MR. BUERGER:  I just have one comment on the
 2   technical aspects.  Most CDMA phones, as soon as you
 3   enter the SPC, if you try to reflash it working the way
 4   that's actually described in the Cricket testimony on
 5   page 7, it's updating the Preferred Roaming List and the
 6   memory locations of the phone.  So, you absolutely have
 7   access to all of the copyrighted works.  Period.
 8             MR. CARSON:  Can I follow up, then? because
 9   one thing wasn't clear to me.
10             I heard one statement that reflashing gets rid
11   of the software; is that right?
12             MR. BUERGER:  Not necessarily.
13             So, there are two methods for a binary
14   reflash:  One that will completely wipe out all of the
15   binary -- the code binary on the memory.  There are also
16   reflashing methods that actually keep the content in the
17   embedded file.  So, if you bought a game before or a
18   ring tone before, you can reflash it with a new binary
19   and keep the old ring tones that you bought.
20             MR. CARSON:  Okay.
21             So, at least one form of reflashing would
22   basically wipe out everything on the phone?
23             MR. BUERGER:  Yes.  That's one method.
24             MS. PETERS:  Okay.
25             Ben.
0178
 1             MR. GOLANT:  Okay.  Well, I have a number of
 2   questions, but first, I'll direct these Virgin Mobile.
 3             Are you a member of CTIA?
 4             MR. LURIE:  We are an associate of CTIA.
 5             MR. GOLANT:  I was just wondering, because
 6   they had submitted an exemption request, and we were
 7   wondering what you thought about that.
 8             MR. LURIE:  We are filing separately, because
 9   we don't agree a hundred percent.  We didn't resign from
10   the organization in protest.
11             MR. GOLANT:  Now, tell me, we've heard about
12   eBay today.
13             Have you read eBay's comments?
14             MR. LURIE:  I have not had the opportunity.
15             MR. GOLANT:  Because that was an interesting
16   argument that I heard that I'd like to --
17             MR. LURIE:  We'll respond in a written -- I'll
18   respond to that.  I'll look at that.  I appreciate the
19   opportunity to do that.
20             MR. GOLANT:  Thank you.
21             Now, as we've heard also, there was new narrow
22   language proposed by the proponents.
23             Do you have anything to add with regard to
24   that new language that we have before us now?
25             MR. LURIE:  We do not at this time.  Again, we
0179
 1   can submit -- we'll submit a written response telling
 2   our view of it.
 3             MR. GOLANT:  Thanks.
 4             Now, Jennifer, what are your views on early
 5   termination fees?
 6             So, in other words, if a request is granted
 7   and it's warranted, isn't it also true that in most
 8   respects -- that the consumer would have to pay the
 9   carrier for terminating the contract early if they
10   wanted to move to another carrier?
11             MS. GRANICK:  Yes.
12             Those contractual remedies that the carrier
13   has would remain intact.
14             MR. GOLANT:  In other words, they're bound by
15   the contract and they have to live with it, and once
16   they get done with that, they can go on to whoever they
17   want.
18             MS. GRANICK:  Yes.  The contract terms remain.
19             And nothing about this -- and I think there
20   might be a little bit of a misapprehension.
21             Nothing about this is saying that the carrier
22   cannot hold customers to contracts.  And I'm not even
23   saying that carriers are now hereby obligated to unlock
24   phones for their customers.  Just that customers -- or,
25   owners of the phones can unlock them for themselves.
0180
 1   And if I chose to go to a different carrier and breach
 2   my contract, then I'm liable for those contract remedies
 3   just the same as I would be normally.
 4             MR. GOLANT:  That would be a disincentive to
 5   some --
 6             MS. GRANICK:  I think it's a huge
 7   disincentive, and I think it's the appropriate
 8   disincentive, because the contract remedies are where
 9   the parties decide what the economic relationship is
10   worth to them.
11             And the problem with the DMCA applicability is
12   that there are statutory remedies that are separate from
13   that, and also potential criminal penalties, and that
14   adds an entirely different level of disincentive that
15   is -- that could very well be excessive, given what the
16   economic relationship is.  And that is one of the
17   reasons why maybe carriers like it, but it is one of the
18   reasons why it's not appropriate for this market.
19             MR. GOLANT:  Now, there's also other legal
20   remedies that could lead someone to bringing an
21   antitrust suit or a trade suit as well.
22             MS. GRANICK:  In terms of remedies for the
23   users?
24             MR. GOLANT:  For the users, exactly.
25             MS. GRANICK:  Yes.
0181
 1             And I think that the filing by the Public
 2   Interest Spectrum Coalition says that there are other
 3   things -- other policies, and perhaps other changes in
 4   telecommunications law that might be necessary to really
 5   bring United States policy into a situation where there
 6   really is a very open and vibrant market for these types
 7   of services.
 8             But this is not -- so, this is certainly not
 9   that.  This is simply one small aspect of giving
10   customers that kind of choice.
11             MR. GOLANT:  Well, speaking of the FCC, I know
12   that they recently opened for comment a proceeding --
13   it's -- it was filed by the Rural Cellular Association.
14             Are you familiar with that at all?
15             MS. GRANICK:  Is it the Carterphone for
16   wireless?
17             MR. GOLANT:  Yeah.
18             MS. GRANICK:  I'm mildly familiar.
19             MR. GOLANT:  I'll read it into the record.  It
20   says:
21                 "The Rural Cellular Association requests
22             that the commission initiate their rulemaking
23             to investigate the widespread use and
24             anti-competitive effects of exclusivity
25             arrangement between commericial wireless
0182
 1             carriers and handset manufacturers, and as
 2             necessary, adopt rules that prohibit such
 3             arrangements when contrary to the public
 4             interests..."
 5             So, my question to you -- so, if the
 6   Commission goes down that road, does that somehow moot
 7   any exemption we may get, or is it complimentary to --
 8             MS. GRANICK:  I think that the exemption
 9   leaves space for that agency to make those kinds of
10   rules.  I think that, you know, basically this is
11   clearing the way for that agency to make the decisions
12   about wireless competitiveness that are appropriate
13   given its jurisdiction and its purview, and that they
14   make those decisions because that's something that they
15   do all the time.  And I do think it's needed.
16             Just as an example, when AT&T took over
17   Cingular and absorbed all the Cingular customers, AT&T
18   would not let the Cingular customers unlock their
19   Cingular phones and put them on the AT&T network.  They
20   just simply refused to do so, because they saw the
21   merger as an opportunity for them to sell new phones to
22   the millions of Cingular people.
23             And it may very well be that this is contrary
24   to United States policy, and that we should have rules
25   and regulations that prohibit that kind of thing.
0183
 1             And I think that in the meanwhile, we
 2   shouldn't have rules that constrain those Cingular
 3   customers from exercising those kinds of self-help and
 4   unlocking those phones and then getting them on an AT&T
 5   network or leaving and going to a different network.
 6             MR. GOLANT:  Okay.
 7             Now, speaking about other factors that we can
 8   consider, I read recently that in France, the French
 9   Fair Competition Council had asked to initiate an
10   exclusive agreement between Orange and Apple.  And I was
11   wondering if that is something that we can consider as
12   factor, another response in relation to this case in
13   question --
14             MS. GRANICK:  I think that is another factor.
15             And what I would -- you know, I think it's
16   hard to give an exclusive list of what other factors
17   might be, but competition policy being formulated by
18   other United States agencies and by other governments is
19   certainly something, I think, the Copyright Office is
20   well entitled to consider when deciding what the scope
21   and purview of copyright regulation ought to be.
22             MR. GOLANT:  Okay.
23             And one last question.
24             Is it possible, if we granted the exemption
25   you've requested, that I could take my phone and use
0184
 1   Skype, and then avoid any kind of wireless charges all
 2   together?
 3             In other words, I can take my phone -- I
 4   bought my phone -- and I don't have to pay for service
 5   ever again.
 6             MS. GRANICK:  Not -- this exemption for
 7   unlocking to use on another network is -- would not do
 8   that in and of itself.  You would first of all have to
 9   have a phone that could run the Skype application on it,
10   which many of the CDMA -- the phones were talking about,
11   and --
12             MR. GOLANT:  The iPhone does that.
13             MS. GRANICK:  But the iPhone -- and this
14   exemption in combination, or even just the -- you know,
15   the jailbreaking exemption alone, which would allow you
16   to run applications on a phone that's capable of running
17   those applications, in that case, I could grant you that
18   exemption, would allow customers to put Skype on their
19   phone and use wireless, put Firefox on their phone and
20   avoid the Safari browser, put a different mail client on
21   their phone and avoid using Apple Mail and all of those
22   things.  And this exemption and the way that it's
23   phrased, I think, alone would not accomplish that.
24             MR. GOLANT:  And this question came up because
25   I read in The Wall Street Journal about using the iTouch
0185
 1   with Skype, and that was an interesting thing.  I don't
 2   know how many more people will start buying -- buy an
 3   iPhone if you can get communications going between
 4   friends and family.  That's great.
 5             MS. GRANICK:  Yes.
 6             And I think the iTouch has that capability.
 7             MR. GOLANT:  Well, thanks.  That's all the
 8   questions I have.
 9             MS. GRANICK:  Thank you.
10             MS. PETERS:  Okay.  Thank you.
11             MR. CARSON:  First of all, I think I misheard
12   something you said, but I want to make sure.
13             At one point did you say that your clients
14   purchased some of the phones for resale --
15             MS. GRANICK:  My clients are partners with
16   Best Buy and their recycling effort.
17             MR. CARSON:  Oh, okay.
18             Now, we've heard -- and this is a question for
19   anyone -- we've heard about the problem of some people
20   who actually do go to Best Buy and Wal-Mart and scoop up
21   the cheap phones that people like Virgin Mobile offer
22   for sale, and then strip them of what's on them and
23   resell them.
24             Assuming that's a problem that is the
25   consequence of the existing exemption that we'd like to
0186
 1   avoid, and if -- but assuming it is something we'd like
 2   to avoid, does anyone have any ideas on how, if we were
 3   to apply the continuing exemption along the lines of
 4   what we already have, we could we fashion it in such a
 5   way that it would not include that kind of conduct?
 6             MR. LURIE:  What you could do, you could allow
 7   the exemption -- and we would submit something in
 8   writing later.  But for legitimate customers who
 9   previously used the service for which the device was
10   intended, could themselves reflash the phone.
11             You know, and if they needed to go to some
12   type of other store to do so, that might be something,
13   but it has to be a consumer who has previously used that
14   service for some sufficient period of time, that the
15   carrier -- in our case, that would allow us to recover
16   our investment.
17             Once that consumer has used the phone in the
18   way that is clear, our -- whatever it might be, and we
19   have -- we don't have -- we haven't specified -- but
20   allows us to recover our investment, then that customer
21   might be able to.  But again, that's just not what's
22   happening.
23             What's happening is that bulk purchasers --
24   MetroPCS also is taking -- saying, Go buy a phone, don't
25   ever use it for the purpose for which it was intended,
0187
 1   and reflash it for this other purpose.  And that's, in
 2   fact, what's happening here.
 3              I also -- if that's a satisfactory answer, I
 4   would like to just address a couple of other issues that
 5   I think may be clouding the view.
 6             I think the idea that we're a reactionary,
 7   anti-open technology company, I think, is inaccurate.
 8   We view ourselves as one of the most entrepreneurial and
 9   innovative companies in the wireless field.
10             The discussion about open networks that
11   accompanies the new spectrum that the FCC is considering
12   opening, we don't have a problem with that.  We think
13   open networks -- someone should run an open network, and
14   people should sell open devices.
15             What we object to is taking -- or, forcing us
16   to sell open devices.  Again, open networks, that may
17   be -- it may be a great business to sell unlocked
18   devices.  We just haven't been able to make it work and
19   don't want to be forced to do so.
20             Also, the discussion about phones and the
21   exclusivity arrangement, we don't have a strong view
22   about that either.  If a -- whether a carrier and a
23   handset maker -- we won't read into it, frankly, but we
24   think that's actually a separate issue.
25             But in terms of exclusive arrangements between
0188
 1   a wireless provider and a manufacturer, we think they
 2   can be useful, and we think they can create marketing
 3   opportunities to drive down prices.  But again, it's not
 4   an absolutely critical issue for us.
 5             So again, open networks, the Carterphone
 6   proceeding, you mentioned the Orange and the Apple, none
 7   of those really -- even the use of Skype by a network,
 8   there will be a time when people will take data chargers
 9   for the use of Skype, rather than voice charges, for
10   example, for the use of minutes.  And if a handset is
11   Wi-Fi enabled, they may not need a cellular network.
12             Again, we think that those are separate issues
13   than what we're seeing here.  And we're not offering a
14   view.  We're not saying we're categorically against any
15   of those developments at all.
16             MR. CARSON:  Let me go back to your response
17   to my question.  I'm wondering whether that response
18   would mean that Ms. Granick's clients would be unable to
19   take advantage of the exemption.  I think the answer
20   would be yes, but I'd like your reaction to that.
21             MR. LURIE:  I'm sorry.  I didn't follow.
22             MR. CARSON:  Okay.
23             As I understand it, your response to my
24   question is, how might we refashion this exemption in a
25   way that prevents the bulk purchasers, slash, resellers
0189
 1   from going to Wal-Mart and just cleaning them out and
 2   reselling them -- was -- required -- the exemption, I
 3   think, to people who have actually purchased it and used
 4   the phone for some period of time.
 5             MR. LURIE:  Right.
 6             MR. CARSON:  I gather that would mean that
 7   Ms. Granick's clients would not be able to take
 8   advantage of the exemption; is that correct?
 9             MR. LURIE:  I'm not sure.  We are worried
10   about bulk purchasers.  But we're also very much
11   concerned about companies like MetroPCS who are
12   encouraging -- let's say, Buy this handset and repurpose
13   it; never use it for the purpose for which it was
14   intended.  That's not necessarily about bulk purchasing.
15   That is totally relying on this exemption.
16             And so, I think what we need to do is allow
17   customers who have used the phone legitimately for a
18   period of time that is acceptable to the seller as well,
19   and say, Now, if you want to take it with you, and
20   you've used it for a period of time, then that would --
21   and when you talk about her clients, I don't see how it
22   would -- it wouldn't be a problem for Recellular -- I'm
23   not sure I understand the Recellular issue, actually.  I
24   look forward to reading that brief in more detail.
25             MR. CARSON:  Let me ask Ms. Granick.
0190
 1             Do you understand what he just suggested?
 2             Would that work for you?
 3             MS. GRANICK:  No, because my clients are not
 4   customers of these providers.  And my clients haven't
 5   previously used these phones.  My customers get phones
 6   from a variety of sources.
 7             One of those sources is Virgin, but frankly,
 8   the amount of phones that Virgin provides to my
 9   customers or to my clients is a fraction of the total
10   number of phones that my clients process in a year.  And
11   it's an even a tinier fraction of the total number of
12   phones that are eligible or qualify for reuse and
13   recycling each year in the United States.
14             So, we need an exemption that allows us to get
15   phones from a church or a school or from a user that
16   just sends it in in exchange for a credit or for a
17   contribution to Cell Phones for Soldiers or any of the
18   other charities that Recellular or that my other clients
19   run, and not have to determine whether it's been
20   activated before and on what network, but we can just
21   refurbish that phone and make it available on the
22   secondhand market.
23             And that's the only thing that's economically
24   feasible that keeps the recycling companies as a
25   feasible business.
0191
 1             MR. CARSON:  Okay.
 2             Can you come up with any way that would allow
 3   your clients to continue to do what they are doing
 4   without also opening the door for these bulk purchasers,
 5   slash, resellers who are doing what they are doing?
 6             MS. GRANICK:  Well, first of all, I think that
 7   the bulk purchase is a concern, and is a concern I'm
 8   very sympathetic about.  I've written about the concern
 9   that, in particular, Tracfone has with the bulk
10   purchasers, and that I understand the position they're
11   coming from.
12             I don't think that is a copyright concern.  I
13   think it's a business model concern.  I think it's a
14   trademark concern.  I think it's a contract concern, and
15   an unfair competition concern, but I don't think it's a
16   copyright concern.
17             But I have spoken with a lawyer for Tracfone
18   who does their bulk lawsuits, Jim Baldinger.  We became
19   friendly after he deposed me in one of his lawsuits
20   where the defendant listed me as an expert in the case.
21             MR. CARSON:  It's a common way to make
22   friends.
23             MS. GRANICK:  You know, lawyers are weird
24   people, and that's how we get to know each other.  And
25   he and I, to be frank, before this Rulemaking, we talked
0192
 1   about this issue of whether there was some idea we had,
 2   and maybe more intelligent people than me can come up
 3   with.
 4             If the Office thinks that this is a copyright
 5   concern and wants to address it, maybe you can come up
 6   with something, but even I couldn't come up with
 7   something that helps people like my clients who get a
 8   phone in the mail, or more accurately, get tens of
 9   thousands or million of phones in the mail -- something
10   that works for them.
11             MR. CARSON:  Okay.
12             MS. GRANICK:  And I couldn't come up with a
13   solution to that problem.
14             MR. METALITZ:  It's possible that we could
15   help in this process in, I think, coming up with an
16   exemption that kind of walks that line.
17             But I think we're really getting into the
18   other point here which is it picks up on the whole
19   question of the other factors that you take into
20   account.
21             I think it's important to again look back at
22   the statute from time to time.  And the other factors
23   only enter into your determination of whether a
24   noninfringing use is being impeded.  And I'm
25   paraphrasing here, but it's not necessarily a warrant
0193
 1   for all the public interest --
 2             MR. CARSON:  Understood.
 3             I can see how a case can be made in the first
 4   place, but then if we had, it might be appropriate to
 5   try to make sure --
 6             MR. METALITZ:  Absolutely.  I mean, obviously,
 7   there's no way -- this isn't hermetically sealed from
 8   all these other issues, and perhaps there's some way to
 9   deal with it that would help to satisfy all concerns.
10             MR. CARSON:  I want to follow up on the
11   question that I asked earlier about the reflashing.
12             I gather there's, at least in some
13   circumstances, a way to deal with this by reflashing,
14   which basically wipes everything off the phone.
15             My first question is, if that's all you are
16   allowed to do, would this serve your purposes?
17             MS. GRANICK:  Um, no, it would not, because
18   for customers -- most directly for customers who want to
19   unlock their own phones and use them on a different
20   network, they have their music or ring tones, the
21   manufacturer operating system that they're a legitimate
22   licensee of, and the phone is designed to work on a
23   different network.
24             All they want -- instead of getting rid of all
25   of that stuff, all they want to do is change this one
0194
 1   parameter so that they can go on a different network.
 2             Same with the GSM phone.  I may love my phone
 3   here in the United States and want to maintain my
 4   relationship with my carrier, but I'm going overseas for
 5   a month, and I don't want to reflash my phone or get rid
 6   of everything.  I just want to unlock it so I can put a
 7   different SIM card in it so that while I'm in Europe, I
 8   can use it there, and when I come back, I will continue
 9   my contractual relationship with my regular provider.
10   So, that would not resolve the problem.
11             MR. CARSON:  All right.
12             Okay.  Steve, you may or may not be in a
13   position to speak for the copyright owner whose content
14   Ms. Granick just mentioned for -- she's speaking about
15   might want to take with them, but would your clients who
16   are the copyright owners of that copyright -- the ring
17   tones, whatever -- would they have a problem with
18   someone who decided to leave Virgin Mobile or Tracfone
19   or whatever, and take their phone to some other
20   carrier -- would they have a problem with that person
21   taking a ring tone or whatever it is with them -- beyond
22   having a problem, because that's only the first
23   question -- you'd also have to explain why they think
24   they have a legitimate right to right to complain about
25   it.
0195
 1             MR. METALITZ:  Yeah.  I think I'm going to
 2   have to get back to you on some of that, but my concern
 3   would be not so much, can you continue to use that ring
 4   tone on your phone on the new network, because
 5   presumably whatever the deal was between the copyright
 6   owner at the original network would kind of cover that,
 7   but my concern is this exhibit (Indicating), the
 8   "Embedded File System View," and whether this
 9   facilitates other uses of that that were not
10   contemplated when the content was behind the access
11   control and it could be used to generate the ring tone,
12   but not necessarily to send to 50 of your friends or
13   used for other purposes.  That's where I think the
14   concern will arise.
15             I don't know the answer as to whether this --
16   how much this increases the likelihood of that, but
17   that's the reason why we think that the record this time
18   actually has a little bit more to it perhaps for you to
19   look at as far as what the impact is going to be.
20             I think on the reflashing question -- I think
21   we did talk about this three years ago.  There's a
22   footnote in your recommendation that suggests that if
23   all you're doing is reflashing -- is wiping out the --
24   what's on there, that's not -- that's not an act of
25   circumvention.
0196
 1             By the way, we raised this argument three
 2   years ago in the Sony rootkit context, and you did not
 3   actually see fit to engage us on that or make a decision
 4   on that, but we still think if you're eliminating
 5   something, if you're eliminating the content, you're
 6   eliminating the copyrighted material, it's hard to see
 7   how that's actually an act of circumvention, because you
 8   haven't gained access to anything that you otherwise
 9   have.
10             The problem is, as I understand it from the
11   description in Exhibit A, what happens in reflashing the
12   Apple setting anyway is, yeah, they wiped out
13   everything, and then they put in a patched version which
14   is identical except for allowing access to things where
15   access wasn't allowed before.
16             MR. CARSON:  We'll worry about that in a half
17   hour.
18             MR. METALITZ:  The problem is that a
19   derivative work is being created and an adaptation is
20   being created, and then you get into whether or not
21   that's --
22             MR. CARSON:  Is there a consensus -- would
23   everyone agree that the kind of reflashing we've been
24   talking about does not involve circumvention, or does
25   anyone think it does?
0197
 1             MR. LURIE:  You are wiping out the entire --
 2             MR. CARSON:  Yeah.
 3             Is that circumventive to access control?
 4             You're getting rid of it, and you're getting
 5   rid of what it's protecting as well.
 6             MR. LURIE:  Well, I would need to give it some
 7   more thought, because I think that we've invested in
 8   this -- we've loaded copyrighted content and software on
 9   a device for a specific purpose.  If you're wiping it
10   out, then we sold it to no benefit; right?
11             MR. CARSON:  Well, you got the price for it,
12   presumably.
13             What other benefit were you expecting to get
14   from it?
15             MR. LURIE:  We were expecting our customer to
16   use it for our service.
17             MR. CARSON:  Okay.
18             You're operating system and your software.
19   Let's just move on to that, then.
20             I think, if I understand you correctly, you
21   said that while it's possible to have more sophisticated
22   access controls that might separately protect your
23   operating system, your firmware on the one hand, and
24   then separately protect things like ring tones and
25   audiovisual content and so forth, that's just not
0198
 1   feasible to your business model.
 2             Is that a fair characterization of what you
 3   said?
 4             MR. LURIE:  Mm-hm.
 5             MR. CARSON:  Okay.
 6             So, basically you're stuck with having this
 7   security software that protects everything, and you
 8   can't discriminate; is that the notion?
 9             MR. LURIE:  (Nonverbal response)
10             MR. CARSON:  Do you have the technological
11   ability with the software you have to put the part of
12   the firmware or whatever it is that controls access to
13   the telephone network on the other side of the security
14   software?
15             In other words, could you choose -- I know why
16   you wouldn't choose, but could you choose to have that
17   security software protect all the copyrighted content,
18   and, in fact, protect everything except what a person
19   would need to get to in order for them to say, I want to
20   switch from Virgin Mobile to another network?
21             MR. BUERGER:  So, in perpetuity, no, because
22   we don't know what other attack methods might be
23   developed in the future to create a fence now between
24   the copyrighted works and execution -- executable code.
25   We don't know how good that fence is going to be a year
0199
 1   from now or two years from now.
 2             And so, for our purpose, it's much easier to
 3   have one very, very strong protection mechanism that
 4   protects everything than to try to split it out.
 5             Also, if we start to develop different
 6   protection mechanisms by content type, which it would
 7   involve, it's hard to predict, you know, whether certain
 8   content type that might be more desirable, such as
 9   games, would become really the focus of the attack --
10   the group force attack to crack that protection
11   mechanism.
12             MR. GOLANT:  Are you the only company that
13   does this, or are there any other cellular companies
14   that also protect everything at once?
15             MR. BUERGER:  So typically, CDMA --
16             MR. GOLANT:  Verizon uses that; correct?
17             MR. BUERGER:  Yeah.  And Sprint works in
18   exactly the same way, so...
19             MR. CARSON:  You obviously don't protect
20   everything at once.  In other words, if I get a cell
21   phone from you, there's certain information I can put
22   into that cell phone, and your security software isn't
23   going to prevent me from doing that.
24             MR. BUERGER:  Sure.
25             MR. CARSON:  Why is it that your security
0200
 1   software necessarily has to protect me from punching in
 2   a new code so I can connect to another network?
 3             Why does it have to work that way?
 4             In other words, if you chose not to protect
 5   that ability, if you chose not to basically force me to
 6   stay on your network to operate that phone, what is it
 7   technically, if anything, that prevents you from letting
 8   me do that?
 9             MR. BUERGER:  So, there's also some
10   hardware-based limitations based on the chipset that we
11   use that are not capable --
12             MR. CARSON:  Okay.  I sort of understand what
13   you're saying, but you haven't given me enough
14   information to evaluate what you're saying.
15             MR. BUERGER:  So, typically the chipset that
16   we use are a different class than what you might get on
17   an Apple iPhone.  So, they're very low-end, inexpensive
18   chipsets that simply do not have any kind of secure file
19   or DRM mechanism.
20             MR. CARSON:  I'm not sure if what I'm about to
21   say is responsive to what you said, because I'm not sure
22   I entirely understand what you said, but I guess what
23   I'm saying is, if you chose not to make that secure, if
24   you chose not to secure the ability to switch to another
25   network, if you wanted to chose to, would you be
0201
 1   constrained from exercising that choice by the
 2   technology you're using?
 3             MR. BUERGER:  You know, it's going to be an
 4   engineering problem.  If you put enough engineers on it,
 5   you could probably resolve it over time.  But it's the
 6   cost of the chip and the cost of the engineering effort
 7   that would raise -- or, have an economic impact on our
 8   business.
 9             MR. LURIE:  We buy chips at a certain price,
10   and those chips are less sophisticated than maybe the
11   ones that Verizon uses, and they're more sophisticated
12   devices -- and we haven't -- it would be -- we'd have to
13   by a more expensive chip.  Handset prices would rise,
14   and that's not our customer segment.
15             MR. CARSON:  How much more expense would it
16   be?
17             MR. LURIE:  I'm not sure.
18             MR. BUERGER:  Double or more.
19             MR. CARSON:  Double or more the price of the
20   chip?
21             MR. LURIE:  Yes.
22             MR. CARSON:  Well, what's the price of the
23   chip right now?
24             MR. BUERGER:  It depends.  It might be
25   confidential information.
0202
 1             MR. CARSON:  Are we talking single
 2   digits? double digits?
 3             What?
 4             MR. BUERGER:  Double digits.
 5             MR. CARSON:  Ms. Granick, do you have
 6   anymore questions?
 7             MS. GRANICK:  Yeah.
 8             Just to point out, for example, Verizon
 9   doesn't lock its handsets.  Verizon no longer locks its
10   handsets.  Yeah, Verizon disabled certain functionality
11   like Bluetooth, and Verizon protects its content.
12             So, there's nothing special about network
13   locking that relates it necessarily in any way to
14   content protection.  And it is -- I still haven't heard
15   anything -- and that's the way it is for the vast
16   majority of phones.
17             I think that the -- there may be some
18   technological differences in the iPhone, which you'll
19   talk about later, and I can't compare to -- these guys
20   presume to be an expert on Virgin's engineering, but I
21   don't see any reason why they can't allow the customer
22   to change the Preferred Roaming List and a few other
23   variables that are required to connect a CDMA phone to
24   another CDMA network and yet have their Master
25   Subscriber Lock control access to the file system that
0203
 1   they showed in their demonstration.  It is what other
 2   CDMA and GSM providers do.
 3             MR. LURIE:  I think what is happening, just so
 4   you understand, there are customers who can't afford it.
 5   And Verizon offers sophisticated, unlocked devices with
 6   two-year contracts that it heavily subsidizes that are
 7   completely different from what we're talking about.
 8             You're saying, yes, the Mercedes has 16 air
 9   bags, but the Kia has 2.  And if you want us to put 16
10   air -- the customer might be safer, but it's a different
11   car, and the customer would be bicycling because they
12   can't afford that car.  That's really what we're talking
13   about here.
14             The other part is -- getting back -- I'm
15   thinking about where we might reach a compromise.  And
16   the idea that recyclers don't know where the handsets
17   are coming from is mostly -- is highly unlikely.  They
18   do know where the handsets are coming from, and they
19   know in good faith whether they're coming from people
20   who have reflashed the phones, whether they're coming
21   from bins where legitimate customers are depositing
22   them.
23             And something like a strong, good-faith
24   requirement might be a solution to some of Ms. Granick's
25   clients, because they do know.  They know when they're
0204
 1   getting handsets from us.  They know when they're
 2   getting handsets from a bin in the Best Buy store.  They
 3   know where they're coming from.  The origin is never --
 4   I would say, rarely unclear, and they know what to do
 5   with the handset --
 6             MR. CARSON:  Well, how do we know that,
 7   because Ms. Granick tells us they don't.  He's saying
 8   they can; he says they can't; and we're here saying, How
 9   do we know.
10             MR. LURIE:  We routinely get inquires from
11   people saying, There's a shipment out there, I'd like to
12   buy it.  And we know where those handsets are.
13             Handsets are very traceable.  They all have
14   security identifiers.  We know exactly where we shipped
15   it the first time, where it ended up, who bought it.
16   There's no mystery, actually, when people who make
17   handsets -- where it came from.
18             MR. CARSON:  So, if one of her clients told
19   you, "I've got the following 500 handsets.  Would you
20   please let me know if they're legitimate or not," how
21   are you going to know?
22             MR. LURIE:  I think what's actually occurring
23   is that you're trying to enable a free-riding scheme,
24   and they know that those handsets are coming from maybe
25   a company that is encouraging customers not to use -- to
0205
 1   repurpose the handsets for purposes on a network for
 2   which they're not intended.  Then they're getting the
 3   handsets from that carrier.
 4             And so, they know -- they know how old the
 5   handsets are, when they were sold -- it's highly
 6   unlikely they were ever used, for example, with the
 7   Virgin Mobile service.
 8             If it's an eight-month-old handset and it came
 9   from a network that actively encourages customers to buy
10   phones and repurpose them for a use for which they're
11   not intended, and then they get recycled, they get sent
12   to Recellular, they know that those handsets were never
13   used properly.
14             They're experts.  It's not a mystery.
15             MR. CARSON:  Okay.
16             Let's get to what this is all about, which is,
17   it's about Section 1201, and it's about technological
18   measures that control access to copyrighted works.
19             Now, my questions for the most part talked
20   about defending access to copyrighted works.
21             Let's focus on Virgin Mobile's copyright
22   issues here, because I'm not quite sure I know what it
23   is.  So, if you can tell me what copyright interests of
24   Virgin Mobile's are be being protected by your
25   technological measures, that would help me understand
0206
 1   the basis for your opposition to this exemption much
 2   more effectively right now.
 3             MR. LURIE:  We sell, for example, ring tones
 4   that we buy under license from a music company.  And we
 5   are required to protect those ring tones and make them
 6   not freely tradeable or copyable.  We've had a couple
 7   problems with piracy, and we don't want a piracy a
 8   problem in the mobile -- if the handset security is
 9   compromised, the security of the ring tone is
10   compromised, and will we be in violation of an
11   agreement.
12             Because we know -- see, it's not a mystery to
13   us.  We know that the handset is being repurposed.  We
14   know, for example, that if customers were -- we know
15   when we sell 10,000 handsets that don't get activated on
16   our network, the people aren't using them as
17   paperweights.  They're getting them repurposed.  We know
18   that it's happening.
19             And then we would know -- we would have to go
20   tell -- go tell the content owners that, Hey, it's open.
21   We can't protect it.  Those are -- that's one part of
22   the copyright interest that -- legitimate copyright
23   interest that we're trying to protect.
24             MR. CARSON:  Is there any of your own
25   copyright work that's being protected by this?
0207
 1             MR. LURIE:  Yes.
 2             The user interface we developed.  We also
 3   prewrote ring tones that we proposed, graphics that we
 4   design.  We have copyright interests, and when a
 5   security software is compromised, those are open and
 6   they can be copied.
 7             MR. BUERGER:  We also have applications that
 8   we wrote internally that run on the handset, like an
 9   address-book backup application.
10             MR. CARSON:  And obviously you've got a record
11   where a lot of people have gone ahead and cracked
12   through this stuff and resold phones.
13             Are you aware of any cases where there has
14   been, in fact, illicit copying of that content for
15   perhaps redistribution to other people, apart from just
16   the use of the copy on that particular handset?
17             MR. LURIE:  I'm not, but we haven't --
18             MR. GOLANT:  In other words, import it out to
19   something else that someone else would use for another
20   purpose.
21             MR. LURIE:  I'm not aware of specific
22   widespread trading, other than -- but it's certainly
23   possible.
24             MR. KASUNIC:  Is there any reason why you have
25   to preload it?
0208
 1             MR. LURIE:  Well, we don't want to sell -- we
 2   like to sell a product that's attractive.  You turn it
 3   on and it has a ring tone that someone likes to listen
 4   to without having to buy another one.
 5             MR. KASUNIC:  Without having service with
 6   Virgin?
 7             I mean, once you connected to Virgin service
 8   for the first time, couldn't you --
 9             MR. LURIE:  Could we -- if the question is,
10   could we configure -- like, put an over-the-air
11   configuration of the phone where we download over the
12   air, and we were talking about that earlier.
13             I think earlier we said it would cost 6
14   million dollars every time we did it.  So, the answer is
15   we could, but that's a different business model that our
16   customers couldn't afford.
17             I'm not even sure we could, but it seems
18   possible.
19             MR. CARSON:  Is it your position that when
20   someone does crack the security and takes the cell phone
21   and uses it on another network and continues to use your
22   user interface -- your ring tones or whatever -- that
23   they're infringing your copyrights?
24             MR. LURIE:  They are.
25             Are they infringing --
0209
 1             MS. PETERS:  Your copyrights.
 2             MR. CARSON:  Again, I'm trying to figure out
 3   what copyrights you have here, and so far I don't know
 4   what copyrights that you have.  I know that there are
 5   third parties that -- I'm trying to figure out yours.
 6             MR. LURIE:  Okay.
 7             They're ring tones.  They're graphics.  Some
 8   of which are designed by third parties.  Some of which
 9   we design.  Some of which are third-party -- like, we --
10   but just taking the ones we design, we sell it -- we
11   invest in that copyrighted content, we sell it.  If the
12   consumer doesn't use it with our service, they're
13   infringing on our copyrighted interests.
14             MR. CARSON:  Would that be exclusive rights
15   that they're infringing on when they do that?
16             MR. LURIE:  Well, they're not using the
17   content for the purpose that it was intended.
18             MR. CARSON:  Which of your exclusive rights
19   under Section 106 of Title 17 of the U.S. Code are being
20   infringed when the customer takes that handset, switches
21   to another service and uses the user interface, listens
22   to the ring tones, whatever?
23             MR. LURIE:  I'd like to have this filed under
24   written submission.
25             MR. CARSON:  Good idea.
0210
 1             MR. METALITZ:  I don't know the situation of
 2   Virgin Mobile, but in general, when you have a license,
 3   it covers use of the copyrighted material, reproduction
 4   right, usually in the case of the software, and your use
 5   of this in violation of that license.
 6             MR. CARSON:  I might have expected to hear him
 7   talk about a license, but I haven't so far.
 8             MR. METALITZ:  I don't want the record to show
 9   that if there's a use in violation of the license --
10   that that wouldn't necessarily --
11             MR. CARSON:  I can conceive of things, but I'm
12   trying to be told what they actually are in the real
13   world, as opposed to what I might imagine.
14             MR. KASUNIC:  Just picking up with that
15   question about the licenses, I have a couple questions
16   about your comment, or responsive comment related to
17   those licenses.
18             First of all, is it your position that this,
19   quote/unquote, Terms of Purchase agreement is a binding
20   contract?
21             MR. LURIE:  Yes.
22             The Terms of Purchase -- we use the term Terms
23   of Purchase to refer to the handset packaging, and the
24   Terms of Service -- and that's just a short statement
25   that says it's for use with our --
0211
 1             MR. KASUNIC:  And the difference between those
 2   two, the Terms of Purchase, is something that, again, is
 3   just on the packaging.  It doesn't have anything to do
 4   with any service, but in order to own that piece of
 5   hardware, no matter what you are doing with it, you're
 6   saying that you think this language of, This phone is
 7   sold exclusively for use with service with Virgin Mobile
 8   and not for commercial -- and you may not alter any of
 9   the hardware -- so, all of that language is imposed on
10   the purchaser just by purchasing that physical item.
11             MR. LURIE:  I think it's a sentence or two,
12   but yes.  It simply says that the handset is for use
13   with our service.
14             Again, we're not -- we don't manufacture the
15   handsets.  We provide a service.  And that's what it's
16   for.
17             MR. KASUNIC:  Well, then I'm confused,
18   because you also have the term "service agreement," and
19   you say that Virgin Mobile customers who activate their
20   handset with Virgin Mobile also agree to the Terms of
21   Service.  And then you go on to say that the Terms of
22   Service constitute a binding contract.
23             Well, that seems to suggest to me that wasn't
24   referenced in the first part, and I actually had some
25   questions about that in terms of the binding nature of
0212
 1   the purchase of the device.  I can understand the
 2   binding contract once you connect with the service and
 3   you click through or agree to that.
 4             And in relation to that, I guess one of the
 5   things that I wanted to address was that your way of
 6   limiting this exemption was that if -- that the user --
 7   it would have to be someone who had used your service
 8   before.
 9             Now, that creates the problem of once you use
10   the service, then you do have a binding contract, and
11   all of those terms of that contract then live with that
12   customer forever after in relation to that.
13             So, doesn't that create sort of a Catch-22 if
14   you force someone on the basis of the limitation to
15   actually connect with your service and use it, then all
16   of a sudden all of the licensing restrictions that you
17   may impose in that Terms of Service then become binding
18   on the user?
19             MR. LURIE:  Well, one, it's simply a shrink
20   wrap that's on the package.  It says if you are buying
21   the handset with the intent to use it, you must use it
22   with our service.  That's the purpose of the product.
23   And you can't alter it.
24             Once you've activated the service, at that
25   point you have an opportunity to read more detailed
0213
 1   terms.  And that's where the difference is.
 2             MR. KASUNIC:  Isn't that the same kind of -- I
 3   seem to remember another Terms of Purchase Agreement
 4   like that that was placed inside of a book a long time
 5   ago, and the Court in that situation found that you
 6   could not just impose based on purchase.
 7             MR. LURIE:  That's exactly why we don't.  The
 8   Terms of Purchase are very simple.  The device is
 9   intended for use with our product.  When you activate
10   the service, you have a more -- you're in a position
11   to -- your education about the service increases.
12             Our Terms of Service are mostly involved with
13   how the service offers work and the pricing and what
14   you're charged.  And at that point, when you activate
15   the service, you are -- you're agreeing to those terms.
16             I don't see any inconsistency.  I think we're
17   simply trying to make it very clear to the consumer
18   that -- on the package -- this is intended for use with
19   the Virgin Mobile product.  I just wouldn't put a more
20   complicated service agreement on the package.
21             MR. KASUNIC:  Jennifer, do you see any problem
22   in terms of those different contractual terms?
23             MS. GRANICK:  I think I briefly mentioned that
24   I have real questions about the enforceability -- about
25   the formation and the enforceability of contracts as a
0214
 1   result of this.  I mean, I think that if you look at the
 2   case law -- and the cases aren't coming to mind right
 3   now, but there are cases that say there's a real
 4   difference between box top or package terms and
 5   click-through licenses where the purchaser has the
 6   requirement of making a manifestation of a assent.
 7             And so, these terms that are -- I'm not clear
 8   whether they're on the box or in the box, or what the
 9   situation is, but there's no manifestation of assent,
10   and I think that you have a -- if you have a purchase
11   agreement that says when you purchased it, you agreed,
12   there's a real question -- I think under case law
13   there's a real question of whether that is a legitimate,
14   contract formation.
15             And then also, aside from -- aside from my
16   thought that that's not a real contract, I also --
17   looking at the Terms of Service, it's not clear to me
18   that the language in the Terms of Service that a user
19   might click through tells the user that they can't use
20   the phone on another service.
21             What this says to me is you can't use the
22   service with another phone.  And that is different --
23   that's -- you cannot use our service with any other
24   phone or device or on any other network.  That maybe
25   that means you can't use -- you can't use the service on
0215
 1   any other network.  I don't know what that means.
 2             But I do have some real questions about this
 3   being a legitimate contract and, you know, one sort of
 4   dragoons the person into something that they're not
 5   really aware of and they haven't really consented to.
 6             MR. KASUNIC:  Well, do you think when the
 7   consumer pays whatever the cost is of the phone, that
 8   they believe -- or, do you have any different view that
 9   the customer then owns that phone?
10             MR. LURIE:  Under 117, the customer is not the
11   owner of the software.  They have a license to it.
12             You know, I'm having a hard time correlating
13   two different aspects of this discussion.  On the one
14   hand we're being told that as long as we've got contract
15   rights, why are we worried about the exemption.  On the
16   other hand you're saying, That contract is no good
17   anyway.
18             Actually, it's a very simple Terms of
19   Purchase.  That's never been an issue for us.  It's
20   written -- it's one sentence.  I think it might be --
21   there might be two.
22             And the Terms of Service in the agreement are
23   not written in a lawyerly fashion.  I know, because I
24   wrote them.  And they're written in a very
25   conversational way.  And enforceability of those terms,
0216
 1   I hope, is not an issue, because we clearly don't
 2   have --
 3             MR. KASUNIC:  Those contractual terms would
 4   never apply to third parties who didn't have any
 5   relationship, because -- so, when David was asking the
 6   questions about, what are the remedies -- we were
 7   talking about trademark -- other kinds of remedies
 8   outside the contract, there's no privity between other
 9   parties who may end up with this device to these
10   particular contract provisions.  So, that was never an
11   issue in those particular cases.
12             But getting to the question -- leaving aside
13   the question of the analysis, then, of whether a -- this
14   is -- well, let me ask Jennifer, actually, just your
15   view of, do you think the purchaser of that phone has a
16   reasonable expectation of ownership of that device?
17             MS. GRANICK:  I think the purchaser is an
18   owner.  And the purchaser has the rights that are
19   associated with the control that owners have.
20             There is no requirement to return the device.
21   There's perpetual possession.  They may throw the device
22   away.  They have -- there's no -- there is no limitation
23   or continued relationship -- persistent relationship
24   between the licenser -- or, the seller and the
25   purchaser.
0217
 1             And if you look at Krause versus Titleserv and
 2   the kind of rights that the person had -- or, that the
 3   purchaser had there or -- you know, those are the --
 4   that's the language.  So, if you just -- pardon me for a
 5   second, and I can read what the case says.
 6             So, this is -- Krause is the case talking
 7   about what owner rights are under 117, and it is not
 8   whether or not a license comes along with the product or
 9   not, but what the nature of the rights associated with
10   the purchase are.
11             And in Krause, the Court says:
12                 "It's anomalous for a user whose degree of
13             ownership of a copy is so complete that he may
14             lawfully use it and keep it forever, or if so
15             inclined, dispose of it, throw it in the
16             trash, to nonetheless be unauthorized to
17             modify it under 117."
18             And this is the situation of a cell phone
19   owner.
20             MR. LURIE:  We agree with Krause, but that's
21   not what the case holds.  In Krause, the customer used
22   customized software that the customer needed to change
23   for it to be used for its intended purchase.  They paid
24   substantial consideration.  That's not an issue.
25             MR. KASUNIC:  Well, that's what I want to get
0218
 1   to, because you make in these responsive comments --
 2   make the point that 117(A)(1) entitles the owner of a
 3   computer -- copy of a computer program to make or
 4   authorize the making of another copy or adaptation
 5   provided that such a new copy or adaptation is created
 6   as an essential step in the utilization of the computer
 7   program.
 8             And then the argument is made in relation to
 9   the CONTU report that the key criteria is for an
10   essential step is whether the copy or adaptation was
11   necessary to enable the use for which it was both sold
12   and purchased.
13             Now, the question I have there, and what's
14   highlighted, is "the purpose for which it is sold."
15             Now, is -- you can go to different levels of
16   abstractions, I guess, and get to the point of what the
17   purpose is and what in specific for Virgin may have had
18   additional purposes, but isn't, in a general sense, the
19   purpose for which this computer program is sold and
20   purchased just to operate the phone?
21             MR. LURIE:  We respectfully disagree.  We are
22   not a device manufacturer.  Our phones bear two logos.
23   One is Virgin Mobile for the service, and one is
24   generally the logo of the manufacturer.
25             The purpose for which we sell the device is
0219
 1   for use with the Virgin Mobile service.  It is not an
 2   essential step -- 117 is not an essential step to make a
 3   copy to repurpose the device for use on another network.
 4   That's just not -- that's not an essential step.
 5             MR. KASUNIC:  It is an essential step to adapt
 6   it to put it to another network, though right?
 7             MR. LURIE:  But that's not the purpose.
 8             MR. KASUNIC:  That's not your purpose, but it
 9   may be the purpose for which the consumer bought the
10   phone.
11             MR. LURIE:  And that's why we, in bold letters
12   on the phone, say, The purpose of this phone is for use
13   with the Virgin Mobile service.
14             MR. KASUNIC:  Just one other thing.  I know
15   we're running into our time for the next panel, and
16   there may be some other questions.
17             MR. LURIE:  Can I -- there are open handsets
18   that consumers can buy that are sold by manufacturers.
19   If the consumer wanted to buy an open handset and use it
20   and activate it, they have every right to do so.  We
21   think that's wonderful.  We don't have any problem with
22   it.
23             What we object to is being forced to increase
24   the cost of our handsets to consumers who can't afford
25   it.  And, again, I still disagree that there is a
0220
 1   copyright interest in the proponent's case, because
 2   they're trying to defend a business model and not an
 3   interest in the copyrighted content.
 4             MR. KASUNIC:  Well, that's what we're trying
 5   to get to, as well as Virgin, is to whether some of this
 6   goes beyond a business model choice and actually
 7   involves underlying copyrighted work -- the copyrighted
 8   works that are there.
 9             And we're sort of operating in the blind here,
10   because I know that there are certain maybe trade secret
11   information and other which will prevent you from
12   exposing some of the prices of the chipset and some of
13   these other factors, but it makes it hard for us to
14   evaluate, then, what the additional cost is for
15   different ways of doing things, to evaluate to what
16   extent this business model is necessary to serve these
17   low-income, or whatever -- the people who are -- desire
18   this phone, as opposed to others.
19             But one of the main points that we need to
20   clarify, I think, is in relation to some of the
21   questions David was raising and whether these can be the
22   copyrighted work that may be contained on the phone or
23   other ones that may be downloaded onto the phone.
24             Is there any reason why these have to be --
25   aside from business model interests, costs, concerns
0221
 1   that you're trying to achieve -- why these have to be
 2   protected in a bundled form?
 3             And could they -- could the -- could the
 4   Master Subscriber Lock that's placed on there in terms
 5   of getting access to the network be protected in one
 6   bundle, and then have a protection for all the other
 7   potential copyrighted -- is it possible to do that?
 8             MR. LURIE:  If we bought more expensive
 9   handsets and had more expensive chips on the order of
10   double the -- again, we operate on margin of dollars.
11   We negotiate every last, literally, penny on the
12   per-unit handset cost.  So, a change of $20 in a handset
13   price on a per-unit basis is dramatic.
14             MR. KASUNIC:  Is that how much of a change it
15   would cost?
16             MR. LURIE:  We're talking about a point
17   where -- we said double digits, and it would be that,
18   so -- that's even at the lowest point.  But I really
19   can't talk about chipset cost, and I can't talk about
20   the wholesale cost and the --
21             MR. KASUNIC:  Well, you just have to
22   understand if we can't make progress to evaluate it,
23   then --
24             MR. LURIE:  My point is that if it's double,
25   and it's in the double digits, and the lowest change
0222
 1   might be $20, that is a dramatic difference for a
 2   business that negotiates handset prices by the penny.
 3             So, the answer is, we could buy more expensive
 4   handsets and more expensive chips and distinguish the
 5   DRM from the network lock, but that's a different
 6   product.
 7             MR. METALITZ:  Can I mention one thing?
 8             MS. PETERS:  Yes.
 9             MR. METALITZ:  I understand the thrust of this
10   question, but I think there would be a concern with
11   conditioning the degree of protection for --
12   technological protection measure on how expensive it is
13   and saying that the Cadillac is protected and the Kia is
14   not.
15             And I can understand.  It's certainly a factor
16   worth taking into account, because obviously
17   Technological Protection Measures may work in different
18   ways, and they may have different impacts as far as how
19   they impede noninfringing use.
20             So, that's certainly a legitimate factor here.
21   But I think Congress was pretty clear.  Again, it
22   resisted a number of efforts to say, Well, your
23   Technological Protection Measure has to meet this
24   certain standard.  It has to be effective, but that's
25   not a really demanding standard in terms of how robust
0223
 1   it has to be or how descriptive it is.
 2             MR. KASUNIC:  But we are operating in a
 3   situation where we had an exemption three years ago.  I
 4   think the testimony was that you had to change your
 5   system in order to have more robust DRM in order to
 6   protect it in light of that exemption.
 7             And in doing so, then you chose to do it in
 8   such a way that the only way that someone could get --
 9   move the phone to another provider, they would have to
10   expose the copyrighted content as well, that's contained
11   in that phone.
12             So, you've created the environment in which --
13   while you may have contractual provisions to protect
14   that, you're doing it in a way that seemed to have -- if
15   another exemption were to go forward, would necessarily
16   expose that other contract.
17             MR. LURIE:  I can say that none of the --
18   there was never a conversation between the engineering
19   team that developed the security lock and the legal team
20   that was examining the exemption to develop security
21   software that somehow got around the exemption.  That
22   never happened.  That conversation never took place.
23             MR. KASUNIC:  That was a mistake.
24             MR. LURIE:  But I think that's what the
25   implication is; right? -- that we're somehow putting
0224
 1   everything in one closet so we can make a clean argument
 2   for the U.S. Copyright Office.  That's not the case.
 3   What we're striving at is the technological capacity of
 4   the chipset and the cost of that chipset.
 5             MS. PETERS:  Okay.
 6             We are 55 minutes behind schedule.  I'm going
 7   to let Ben ask the final question.
 8             MR. GOLANT:  This is just a follow-up.  We
 9   were talking about SIM cards.  I read it in an article
10   from The Register when I came here on April the 24th.
11   It says:
12                 "T-Mobile USA has announced plans to use
13             embedded SIM chips in devices making use of
14             its GSM network, preventing punters from using
15             them on other networks by switching the SIM."
16             I'm just wondering if you know about this and
17   what your feelings are about it.
18             MS. GRANICK:  I don't know about it.  I'm not
19   familiar with what that Technological Protection Measure
20   might be where you would be unable to take a SIM out and
21   put another SIM in.
22             I know that many GSM phones are locked to a
23   particular SIM card and that you can unlock them and put
24   in any other SIM card, but this particular situation, I
25   don't know.
0225
 1             MR. GOLANT:  It seems like trying to obviate
 2   that ability --
 3             MS. GRANICK:  Yes.
 4             And I think these phone companies have a lot
 5   of reasons why they want to do it.
 6             They may want to lock people in to avoid bulk
 7   resellers.  They have legal remedies against that.
 8             They may want to lock people in because they
 9   don't want other companies like a competitor to get
10   their customers to buy a subsidized handset and then
11   move over without ever buying any kind of service.  They
12   have remedies against that in terms of competition law
13   and inducing breach of contract.
14             But that leaves the vast majority -- you know,
15   multiple, multiple times that a company's 5 million
16   users versus an industry where we have -- I don't know
17   how many we have -- at least 125 million cell phones
18   that are retired every year, and it leaves open the
19   question of what those owners and the recyclers who want
20   to do something productive with those phones can do.
21             MR. GOLANT:  Right.
22             MS. PETERS:  It does appear that we still have
23   some questions, so we may well be submitting some
24   questions to you after this.
25             We are going to, because we've been here for
0226
 1   quite a while, take a 15-minute break, and so, in 15
 2   minutes, we will start the last panel.
 3   
                               ---oOo---
 4   
 5   
     PROPOSED CLASS TO BE DISCUSSED:
 6   
     SECTION 1201(5)(A)
 7   
     PANELISTS:  CHARLES CARREON
 8               DAVID HAYES
                 GREG JOSWIAK
 9               STEVE METALITZ
                 FRED von LOHMANN
10   
11             MS. PETERS:  Okay.  We're starting.
12             It's all yours, Greg.
13             MR. JOSWIAK:  Thank you very much.
14             My name is Greg Joswiak.  People call me
15   "Jos."  If you hear David or somebody refer to me as
16   that, you'll know who they're talking about.
17             I'm the Vice President of iPods and iPhone
18   products and marketing.  And maybe to give you a little
19   snippet of what that means at Apple product marketing
20   is, we're the folks who work with our executive team and
21   our engineers on the products we're going to create, the
22   decisions we're going to make about those products, the
23   price points, feature sets, et cetera.
24             I'm responsible for the iPod and iPhone
25   business, and of course, as such, have a very senior
0227
 1   role in the App Store and the App Store's creation and
 2   the policies that are created.
 3             So, today, just to give you a bit of an
 4   overview of what all we discuss -- and of course, being
 5   an Apple guy, I'm going to use slides -- I want to talk
 6   about first of all, of course, what we've created with
 7   the iPhone and the App Store.
 8             (Showing slides)
 9             MR. JOSWIAK:  We've created a revolutionary
10   mobile platform and ecosystem.  We've unleashed
11   unprecedented creative development with the apps and the
12   App Store, and the iPhone is at the heart of this entire
13   ecosystem.
14             And jailbreaking hacks and modifies the OS,
15   and by doing such, infringes upon Apple and third-party
16   software.  And this destabilizes what is otherwise a
17   vastly beneficial ecosystem.  That's because when you
18   modify and hack the iPhone OS, anything can go wrong.
19             So, first of all, the iPhone, as a little bit
20   of background, is a revolutionary device.  It's been, of
21   course, a revolution in the aspects of being a great
22   phone, a great iPhone, and it puts the Internet in your
23   pocket.
24             And it's a phone that appeals to regular
25   people by allowing them to use a device without having
0228
 1   to be very technical, and allowing them to do things
 2   they never dreamed they could do on a phone before.  And
 3   this is a product that our customers love.
 4             In fact, we were just awarded the J.D. Power
 5   award for the phone with the highest customer
 6   satisfaction.  That was just awarded this week.  And
 7   that goes along with the award that we got from J.D.
 8   Power last year for the phone with the highest customer
 9   satisfaction in business.
10             So, indeed, it is the phone that has forever
11   changed all phones in lots of different ways.  And one
12   of those ways is the App Store.  And the App Store
13   provides a safe and reliable way for our customers to
14   extend the capability of the iPhone, and has become a
15   key part of the iPhone experience.
16             It is in and of itself a revolution.  It
17   provides a revolutionary way for developers to create
18   and then distribute applications, and, of course,
19   allowing our customers to do things with their mobile
20   device that they never dreamed they could.  And it,
21   again, has changed the industry.
22             As a piece of history, this all started a
23   little over a year ago in March of 2008.  That's when we
24   first launched our software development kit for the
25   iPhone OS.  And the iPhone OS, it's worth adding, is the
0229
 1   operating system that controls both the iPhone and the
 2   iPod Touch.  And this software development kit contains
 3   the same APIs and tools that Apple uses to create our
 4   applications for the iPhone and the iPod Touch.
 5             In July of this past year -- so, in the
 6   summer -- July 11th to be specific -- we launched the
 7   App Store.  A revolutionary marketplace for developers
 8   to distribute the apps that they were able to create
 9   with our revolutionary tools and APIs.
10             And this had a very innovative model.  This is
11   a model that existed for our developers.  One is, they
12   get to pick the price.  And 70 percent of that price
13   goes directly back to the developer.  And out of the
14   remaining 30 percent, we cover all other costs.
15             So, to the developer, there's no credit card
16   fees.  There's no hosting fees.  There's no marketing
17   fees.  And of course, we run the store out of the
18   remaining dollars that are left as well.  And free apps
19   remain free.
20             We wanted to have a provision so that if
21   developers wanted to deliver applications free to
22   their -- to our customers, that Apple would bear all the
23   cost of that.  There would be no cost whatsoever for
24   either developers or customers.  So, again, the App
25   Store has been quite the revolution.
0230
 1             So, we want to create a superb experience for
 2   our customers at the App Store.  And as such, there are
 3   certain things that we don't think belong within the App
 4   Store.  We think that a lot of them, you know, make a
 5   lot of common sense.
 6             We didn't want to have porn up there.  We
 7   didn't want to have illegal apps, apps that could
 8   violate a customer's privacy, et cetera -- or bugging
 9   apps, even for that matter.
10             The good news is that 96 percent of the apps
11   that are submitted are approved, in our most recent
12   data.  As a matter of fact, we've gotten faster than
13   ever in approving those apps.  A full 98 percent of
14   those apps are actually now approved within one week.
15             And we've allowed our developers, for the very
16   first time on any mobile platform, to reach every
17   customer.  And that's because the App Store exists on
18   the device.  It exists on the iPhone.  It exists on the
19   iPod Touch.  Every single device we sell has that App
20   Store, and that, then, gives the developers access to
21   every customer.  And it has produced absolutely historic
22   results.
23             We have had over 800,000 downloads of our free
24   software development kit in just the first year, from
25   March to March.  We have over 50,000 individuals and
0231
 1   companies in our iPhone developer program.  Obviously,
 2   this number speaks for itself.
 3             The developers love what we've created.  And
 4   that's further underscored by this number.  In nine
 5   months of having the App Store, there have been over
 6   35,000 apps created and posted in that App Store.  This
 7   makes it the world's largest application marketplace.
 8             And we just passed a very giant milestone.  We
 9   have had our one billionth customer download in just
10   nine months.  That's one billion downloads of
11   copyrighted software applications through the App Store.
12             Again, no one could have ever envisioned this
13   when we started this less than a year ago.  So, the App
14   Store, again, has been an historic and revolutionary
15   creation.
16             And of course, we've created a revolutionary
17   mobile experience for our customers as a result.  And
18   our competitors have been scrambling to emulate the
19   success that we've created with the App Store.
20             And we've removed the barriers of success for
21   our developers.  And this -- it's probably worth
22   adding -- has worked for both little developers and big
23   developers.  It levels the playing field.  Again, they
24   all have access to every customer.
25             And the tools that we've given them have
0232
 1   allowed them to create very innovative apps.  And as
 2   I've mentioned, we provide efficient distribution to
 3   every single customer.
 4             How did this all come about?  Well, Apple had
 5   a pretty ground-breaking idea, but we couldn't do it
 6   alone, quite honestly.  To do it, we had to establish
 7   trust.  We had to establish trust, first and foremost,
 8   with some of our key partners, which include the carrier
 9   partners around the world, because we were about to
10   unleash thousands of applications on their network.  And
11   without the trust that those applications that would be
12   running on their network would neither damage or cripple
13   their network, this would not have happened.
14             And of course, for our developer partners, we
15   had to create the trust with them that we would have a
16   secure and safe place for them to have their commerce to
17   sell their apps, and in order for them to create
18   business.
19             And of course, that trust also extended to
20   customers -- that they too, would have a safe and
21   trusted place to acquire their software.  And the
22   interactions between all these constituencies have to be
23   protected.  And we do that at the App Store.
24             So, the App Store, as I mentioned, has become
25   a key part of the iPhone experience.  The entire iPhone
0233
 1   experience, really, the heart of it is run through the
 2   iPhone operating system, the iPhone OS.
 3             In fact, the iPhone OS is at the heart of the
 4   entire iPhone ecosystem and experience.  The iPhone OS
 5   controls the interaction with the App Store, the user
 6   interface, the software development kit, the developers
 7   and theirs business, the applications they create,
 8   obviously the functionality of the product, the
 9   interactions I mentioned with the network, and the
10   interaction with iTunes and the media that our customers
11   own.
12             Jailbreaking attacks that OS at its heart.
13   And jailbreaking -- another way of saying it is hacking
14   the iPhone -- hacking the iPhone OS.  And those aren't
15   just our words.  These are their words.  This is a
16   snippet from a program recently held by the community of
17   hackers who hack the iPhone.  And you can see how they
18   refer to themselves.  And I'm going to come back to them
19   in just a minute.
20             So, why do we secure the iPhone?  Why do we
21   have these security mechanisms in it?  Well, one is we
22   want to protect the product from modification and
23   copying, protect our software from being modified and
24   copied, because these OS modifications can cause damage.
25   And we want to secure the user's data.  Again, their
0234
 1   E-mail, their context, their pictures, et cetera.  And
 2   we want to defend from piracy of both Apple and
 3   third-party software.  And ultimately, of course, we
 4   want to protect a very high-quality iPhone experience
 5   for our customers.
 6             So, how do we do this?  Well, it all starts
 7   with the secure ROM.  Secure ROM is, in and of its
 8   nature, read only.  It contains a lot of information
 9   that's necessary for starting up the iPhone, for
10   instance.
11             It also has some hidden keys down in it.  And
12   those crypto keys, which again are buried down into the
13   hardware, are obtained and used to validate and
14   establish a root of trust, which then allows us to load
15   in what's called a "boot loader."
16             A boot loader contains information necessary
17   for initializing the hardware, and maybe even more
18   importantly, is what validates the OS signature so that
19   we can actually load in a qualified OS, operating
20   system.  And that OS does everything to run the iPhone,
21   as well as to validate each of the apps through a
22   signature each time that they're launched.
23             I referred to that program a minute ago about
24   hacking the iPhone, and I thought it's worth -- provided
25   our audio agrees with us here.  We were having a few
0235
 1   technical issues earlier -- maybe to hear in their own
 2   words, a clip that shows a slide that they've presented
 3   in their own words about what their goals are when it
 4   comes to hacking the iPhones.
 5             (Showing clip)
 6                 (Voice from clip) "So, our goal here is to
 7             sort of subvert this and to, you know, modify
 8             the operating system so that we can run our
 9             own code."
10             MR. JOSWIAK:  Again, that entire presentation
11   they have, by the way, is available on the Web.  I
12   believe it's actually cited in the EFF papers, so you
13   can certainly, if you're so moved, go hear the whole
14   thing, but I think this says it pretty clearly as to
15   what their goals are.
16             So, how do they do it?  How do they hack the
17   iPhone and the iPhone OS?  Well, the first thing they do
18   is they trick the system so that they can bypass the
19   validation that comes from the secure ROM and in essence
20   severing that root of trust.
21             That then enables them to load a modified boot
22   loader.  They falsely sign it.  And again, the system
23   will load it.
24             That then gets them to what they want to do,
25   which is to install a hacked and unqualified version of
0236
 1   the operating system which gets them to their end-all,
 2   which is to disable the signature validations for apps
 3   so that they can run any app that they want.
 4             Well, what are the consequences of doing
 5   something like that?  Well, when you hack the OS and
 6   remove all protection, anything can happen.  As I
 7   mentioned, the OS runs everything.  And this allows any
 8   app, regardless of its functionality, its reliability,
 9   or even its safety, to run.
10             And this also, which has been a big issue for
11   our developers, allows pirated apps to run, because the
12   signatures are not checked when they're launched.  As a
13   matter of fact, there are far-reaching risks, and
14   threats, and damages that can be caused when this
15   happens.  And I thought it's probably worth mentioning a
16   few of those.
17             Now, again, I say "a few of those," because
18   when you do modify the OS, anything can happen, and
19   there are certainly things that can happen beyond what
20   I'll describe to you today, but I'll start by giving you
21   the risk and damages in each of the three key areas.
22             Number 1, let's start with consumers.  Crashes
23   and instability.  As I mentioned -- or, again, hacking
24   the OS, bad things can happen.  One of the things that
25   we've found is that jail-broken iPhones crash a lot.
0237
 1             As a matter of fact, jail-broken iPhones
 2   represent far less than one percent of all iPhones that
 3   are out there, yet they're responsible for the overall
 4   number-one crashing bug on the iPhone.  Imagine if that
 5   was allowed to be more widespread.
 6             Malfunctioning and safety.  The iPhone OS, as
 7   I said, controls everything, including things like how
 8   quickly you can charge the battery safely, the volume
 9   control.  And again, when you hack the OS, whether --
10   there are unintended consequences and there can be
11   intentional consequences that can cause safety issues
12   with the products.
13             Invasion of privacy.  One of the things we
14   check for in the App Store process is to make sure that
15   apps aren't violating customers' privacy.  For instance,
16   stealing customer data.  Again, whether that's contacts,
17   E-mails, pictures, et cetera.  To make sure it's not
18   turning the camera or the microphone on without the user
19   knowing, or even tracking the customer with the GPS.
20             Jail-broken apps wouldn't have those kind of
21   checks.  And again, it would run a very serious risk as
22   to violating the customer's privacy.
23             Exposing children to age-inappropriate
24   content.  We right now reject offensive content, and we
25   are continuing to enhance our parental controls on the
0238
 1   product.
 2             As a matter of fact, we have significantly
 3   enhanced parental controls with the iPhone OS 3.0
 4   delivering this summer.
 5             Jail-broken apps would, of course, bypass any
 6   of this process for these controls, which, again, would
 7   risk exposing children to age-inappropriate content.
 8             Viruses and malware.  No one likes viruses and
 9   malware, period.  You certainly don't want it on your
10   phone.  How bad would it be if you wanted to make a
11   critical phone call and you were denied service on your
12   phone because of some virus or malware you got from
13   downloading a software application for your phone.
14             Inability to update the software.  Again, when
15   you hack the software, you may, in fact, make it so that
16   we can no longer update the software, because it's been
17   damaged in some way that no longer allows it to be
18   updated.  This, indeed, has already happened.
19             Let's talk about now risks and damages to our
20   partners.
21             As I mentioned, we never could have done this
22   without the trust of our carrier partners around the
23   world.  And we currently work with about 30 of them
24   and -- and significantly more than that.
25             And again, unleashing thousands of
0239
 1   applications on that network without any concern as to
 2   how they might damage or cripple that network would be a
 3   huge issue, because this network isn't just a network
 4   that iPhones use.  This is a network that all phones use
 5   regardless of who the manufacturer is.
 6             Piracy of developer's applications.  As I
 7   mentioned, this has become a huge issue.  What happens
 8   in the jail-broken process is, again, they can run any
 9   apps without checking the signature.
10             And what happens is, there are a number of
11   people in this community who have taken apps; they're
12   able to strip the DRM off; they put it up on their Web
13   site; and then people who have jail-broken phones can
14   then download the software without any compensation back
15   to the developer.  And the jail-broken phone will run
16   it, because there's no validation check that it's indeed
17   a legitimately purchased app.
18             And, you know, I speak to developers all the
19   time.  For them this is a big issue.  And although there
20   may be others who can find exceptions, anybody who tells
21   you that the general developer community is in favor of
22   jail-broken phones is either misguided, misinformed, or
23   misrepresenting the situation.
24             Instability of developers' applications.  I
25   talked about the fact that jail-broken phones tend to be
0240
 1   very unstable phones.  And that can be reflected in the
 2   crashing of legitimate developers' applications through
 3   no fault of that developer, which, again, can create
 4   support issues for that developer, as well as, of
 5   course, you know, people just reflecting badly on that
 6   developer and their application.
 7             Finally, let's get to risks and damages to
 8   Apple.  I said earlier that one of the ultimate goals
 9   for us is to have a great iPhone experience for our
10   customers.
11             You've heard some of the risks and issues I've
12   mentioned just for customers and developers.  That, of
13   course, is very detrimental to the iPhone experience,
14   and ultimately, that's the value proposition we have for
15   our customers, is a great experience.  An experience
16   that we try to create better than anything they can get
17   anywhere else.
18             And of course, hand in hand with that, if you
19   damage the iPhone experience, you risk damaging Apple's
20   brand.  You risk damage that can go far beyond the
21   effect on the iPhone and the iPod Touch.
22             You certainly again can damage the goodwill
23   and reputation that we've built up with our customers
24   for years, if they start to have a bad experience for --
25   with our product.  And the sad thing for people who have
0241
 1   jail-broken phones, they don't even oftentimes realize
 2   that the problems that they have trace back to having
 3   jail-broken phones.
 4             Increased support burden.  As I mentioned,
 5   jail-broken phones represent far less than one percent
 6   of the iPhones that are out there, and yet they
 7   contribute to the overall number-one crashing bug, or
 8   they represent the overall number one crashing bug for
 9   iPhones.  And this one is a small niche.  Imagine if it
10   were to become widespread.  Imagine what would happen as
11   far as both customer problems, and of course, our
12   support burden and cost would just explode.
13             Partner relationships.  Again, both the
14   carrier relationships and the developer relationships,
15   the effect of bad applications on a network, the effect
16   of pirated apps from our developers are big issues.
17             And our partners in this, through that
18   established trust, look for us to manage the situation.
19   And if this, again, were to become widespread, these
20   would be very difficult relationships to manage.  As a
21   matter of fact, it would have a severe limitation on our
22   ability to innovate.
23             We never could have achieved the App Store,
24   the revolutionary way of distributing apps that we did,
25   without that trust from these partners.  If that trust
0242
 1   were to be eroded through allowing jailbreaking to
 2   become widespread, this would severely limit our ability
 3   to continue doing what we're doing, as well as, of
 4   course, innovating into the future.
 5             So, as I mentioned, the iPhone OS is at the
 6   core of what we do.  If the iPhone OS were to become
 7   compromised, then indeed, every single element of the
 8   iPhone ecosystem and experience would become
 9   compromised.  This would be a very, very bad thing.
10             And that's why I would urge you to please say
11   no to the request for the waiver to any exemption that
12   is being requested by the EFF.
13             MS. PETERS:  Thank you very much.
14             MR. von LOHMANN:  Thanks very much.
15             I know the hour is getting late.  I will try
16   to focus on the points that I think are likely to be the
17   core disputed points and leave a lot of the things I
18   might talk about that have already been raised in our
19   written submissions -- and I will try to leave that
20   there.
21             Let me just start by pointing out that I have
22   an iPhone.  I'm a big fan of Apple products and the
23   iPhone in particular.
24             This is not about trying to argue that point.
25   This is also not about arguing that anyone would be
0243
 1   forced to jailbreak their iPhone.  Many of the
 2   paternalistic concerns that you have just heard, if they
 3   are accurate, then great.  Many users will opt not to
 4   jailbreak their phones in light of the very concerns
 5   that have just been highlighted for you.
 6             No doubt Apple and its many partners can
 7   further highlight those concerns in the market.  No one
 8   is talking about hoisting jailbreaking on unwilling or
 9   uninformed consumers.
10             I will point out, moreover, that we have heard
11   arguments like this from incumbents in other contexts
12   many times.  Those who are familiar with the
13   telecommunications history, a lot of this should remind
14   you of the old pre-Carterphone debates, when AT&T told
15   you that consumers shouldn't be allowed to have any
16   equipment in their homes, because it would compromise
17   the network.  It might, in AT&T's words, electrocute
18   customers if shoddy equipment were used.  Again, it
19   turns out that wasn't the case once competition emerged.
20             Similarly, my auto manufacturer -- I have a
21   Toyota.  Toyota would, of course, prefer that I use
22   nothing but authentic Toyota parts and Toyota dealers
23   for service, and that they would also prefer that I not
24   modify my Toyota in ways that might be dangerous to me.
25   I appreciate all that, but it is my automobile at the
0244
 1   end of the day.  And we haven't in other contexts opted
 2   for a different legal regime, other than free-market
 3   competition and consumer choice.
 4             In 2006, the Librarian, on the recommendation
 5   of the Copyright Office, granted an exemption for phone
 6   unlocking.  We just obviously heard quite a bit about
 7   that.
 8             In that recommendation, the Copyright Office
 9   pointed out that, quote:
10                 When application of the prohibition on the
11             circumvention of access controls would offer
12             no apparent benefit to the author or copyright
13             owner in relation to the work to which access
14             is controlled, but simply offers a benefit to
15             a third party who may use Section 1201 to
16             control the use of hardware, which as is
17             increasingly the case, may be operated in part
18             through the use of computer software or
19             firmware, an exemption may well be warranted.
20             It's our view that this is exactly in that
21   wheelhouse.
22             So, the question here is whether, of course,
23   as you know, that prohibition has or is likely to have a
24   substantial adverse effect on noninfringing uses.  Not
25   whether it might undermine consumer experience for those
0245
 1   who unwisely chose to jailbreak and perhaps regret their
 2   choice.  Not other business model concerns, many of
 3   which were just discussed.
 4             Let me give you a few additional facts that I
 5   think may be helpful.  Contrary to the testimony you
 6   just heard, our facts submitted in the records suggest
 7   that there are at least 1.8 million jail-broken iPhones
 8   currently out there, constituting roughly 10 percent of
 9   iPhones in release.
10             These are numbers that have been submitted by
11   Jay Freeman who runs the leading independent App Store
12   called "CEDIA."  In his submission he said 1.6 million
13   iPhones.
14             I have since corresponded with him just
15   earlier this week to ask for updated numbers.  He said
16   just in those few months, based on his numbers, it's at
17   least 1.8 million iPhones, of which roughly 400,000
18   appear to be located in the United States.
19             Again, he gets these numbers, because when
20   someone jailbreaks an iPhone, generally one of the
21   pieces of software that they installed is this
22   alternative App Store, an alternative marketplace for
23   applications, again, known as CEDIA.
24             There continue to be apps that are excluded.
25   That's obviously not news.  We pointed out several
0246
 1   applications that have been excluded in our comments.
 2   Of course, we have now the support of Mozilla and Skype
 3   who have talked about why their applications either have
 4   been excluded.
 5             In the case of Mozilla, Apple does not permit
 6   alternate browser frameworks on the iPhone.  And in the
 7   case of Skype, they now have an application in the App
 8   Store, but it is not allowed to use the 3G data network
 9   in order to place calls.  That is also a limitation
10   imposed by Apple.
11             In February, some of you may have seen the
12   television show called "South Park."  It had its
13   application rejected from the App Store, because
14   apparently it was deemed to racy for the App Store.
15             I am not saying that Apple should be forced to
16   carry applications in its own Applications Store that it
17   finds objectionable, no more than I would suggest that
18   Best Buy should be forced to carry products it doesn't
19   want to carry.  That's not the point.
20             The point is that in the case of Best Buy, as
21   a consumer, I can go across the street if I want to find
22   an application, a product that Best Buy doesn't carry.
23   That's what we're talking about here.  Not forcing Apple
24   to carry Mozilla.  Not forcing Apple to carry "South
25   Park."  Not forcing Apple to carry the baby-shake
0247
 1   application that created such a controversy this last
 2   week, but rather allowing customers to have those apps
 3   if others would like to make them available.
 4             So, let me give you one other example that I
 5   discovered since we submitted our last written
 6   submission.
 7             This is an example that is on a blog called
 8   "Egopoly" that was brought to my attention by another
 9   independent app developer.  And here the title of it is
10   "iPhone Ring Tones, SMS Alerts and Physicians."
11             Quote:
12                 I'd like to buy an iPhone for my wife.
13             She has a RAZR, and it's such junk.  She
14             doesn't get very much E-mail, so the simple
15             iPhone E-mail app would be great for her to
16             get E-mail and check her voice mail.
17                 But there is one huge hurdle that is
18             blocking me.  It's a big problem and it's
19             extremely frustrating, because it could be
20             solved so simply.  It's really just a tiny
21             little thing, and it sucks that it's stopping
22             me from buying that shiny, shiny new phone.
23                 My wife is a physician, and part of that
24             means being on call.  What happens is this:
25             Patrons call the office at 2:00 in the
0248
 1             morning, they leave a message, and the phone
 2             system sends an SMS message to her phone.
 3             Currently it's her RAZR.  So, I set up her
 4             RAZR to have the longest, loudest possible SMS
 5             alert sound.  It's important, because if she
 6             happens to be at home and her phone is in the
 7             kitchen, and she's in the other room, you want
 8             to hear it so she can call you back and
 9             prescribe your meds.  But if she does happen
10             to be way down at the other end of the house
11             and the kids are yelling and she doesn't hear
12             the loud, long alert, the RAZR has a
13             persistent page.  So, five minutes later when
14             she's back near the phone, she'll hear a
15             little 'beep.'  Then she'll know she has a
16             page and she can return it.
17                 The iPhone fails this use case in two
18             ways:  First, the selection of tones is
19             pathetic.  Apple has decided that there are
20             only ten or so sounds that are suitable for an
21             SMS alert, and they are all quiet and short
22             little dings and beeps.  Second, there is no
23             persistence.  The iPhone won't beep every five
24             minutes until you at least look at the screen
25             and see the message indicator.
0249
 1                 I even bought a custom ring tone in the
 2             hope that it would be selectable as an SMS
 3             alert.  No dice.  Wasted 99 cents.
 4                 I don't see how any physician can use an
 5             iPhone as their sole device.  Apple has
 6             basically forced all of them to also carry a
 7             pager or RAZR or BlackBerry.  Why?  I don't
 8             get it."
 9             And it continues, and in the comments it's
10   pointed out that there are jailbreak applications for
11   jail-broken phones that cure this very problem.  That's
12   just one example of an enormous array of applications
13   the consumers want.
14             Now, don't get me wrong.  I think the 35,000
15   applications in the App Store are great.  It's an
16   enormous selection.  But there are a variety that are
17   not there because app developers are unable to write
18   them; they're not there because Apple's own arbitrary
19   terms prevent them from being there, either because they
20   find them objectionable, or in the cases that we point
21   out in our comments, they duplicate functionality,
22   quote/unquote.  In other words, Apple would prefer to
23   have the functionality to itself, or because they use
24   APIs that Apple reserves solely for its own code, but no
25   one else.
0250
 1             There are many reasons, many kinds of apps
 2   that we're not getting.  And again, I'll refer you to
 3   many that are referred to in our comments.
 4             Now, in addition, the iPhone is not all we're
 5   talking about here.  The Google Android T-Mobile G1
 6   phone has similar restrictions.
 7             And in fact, it's come to our attention that
 8   one great set of applications that is impossible to put
 9   on the G1 phone without a similar jailbreak is enabling
10   multitouch.  The same squeeze, pinch, drag that is
11   common on the iPhone can be enabled on the G1, but only
12   if you jailbreak that phone, presumably in part because
13   of T-Mobile's concerns about Apple's set the patents on
14   that technology.
15             But whatever the patent rationale might be,
16   there's clearly no copyright reason why multitouch
17   couldn't be enabled, other than those restrictions
18   imposed in the store and on the G1 phone.
19             So, let me turn to the legal aspects that I
20   think would be disputed, very quickly.  First, it's
21   undisputed that the iPhone is protected by an access
22   control subject to the 1201.  Now, obviously we have
23   general agreements on that point.
24             I will note that the Joint Commenters
25   suggested that 1201(F) may deal with this.  I think
0251
 1   that's flatly incorrect.
 2             When an individual end-user jailbreaks a
 3   phone, they are not identifying and analyzing those
 4   elements of the program that are necessary for
 5   interoperability.
 6             I do think 1201(F) may apply to the iPhone Dev
 7   Team, the so-called hackers that Apple mentioned.  They
 8   of course are doing exactly that, but I think there is
 9   no way in which a person who is jailbreaking their own
10   phone in order to run an application of their choice
11   could be deemed to be identifying and analyzing elements
12   of the software.  So, I don't think 1201(F) addresses
13   this area.
14             Even if it did, I don't believe that the
15   existence of a statutory exemption in the neighborhood
16   of what we're talking about should disqualify the
17   Copyright Office from considering something else.
18             This is what I would call the "Congressional
19   infallibility principle," that somehow in 1998, Congress
20   knew everything there was to know about these questions.
21   I believe the rulemaking is there specifically to allow
22   the Copyright Office to say, You know, Congress didn't
23   think about this thing back then.  It now appears clear,
24   and we can grant the exemption.
25             But in any event, I don't think 1201(F)
0252
 1   applies.
 2             So, it seems to me the core legal dispute
 3   we're going to have here is whether jailbreaking is
 4   noninfringing.  Let me run through quickly -- and we can
 5   follow this up with questions if you have additional
 6   questions that I don't answer here -- I have three
 7   answers to that.
 8             First of all, there's no reason to think that
 9   all jailbreaking would necessarily create a derivative
10   work in the first place.  I think the Pwnage Tool, which
11   we mentioned in our comments, that is currently the most
12   common and popular jailbreaking tool available -- it's
13   free, as these things so often are, and can easily be
14   downloaded.  I will concede that that does create a
15   modified version of the firmware, and, in fact, does so
16   in order to do exactly the process that was just
17   described.  And we described it in more detail in
18   Exhibit A.
19             They essentially -- because the boot ROM does
20   not do a signature check before loading the initial
21   boot-loader component, they basically go in there and
22   have an altered boot loader in that position.  The boot
23   ROM then loads.  And once you have an altered boot
24   loader, as the slides show, you can load altered
25   versions of the operating system itself.
0253
 1             It does not do signature checking, and that's
 2   the key to getting applications of your choice to run.
 3   So, that is a derivative work, or at least plausibly is
 4   a derivative work.
 5             But let's not make the mistake of assuming
 6   that's the only jailbreaking mechanism, or that that
 7   will be the exclusive jailbreaking mechanism for the
 8   next three years.
 9             So, it's easily possible that future
10   jailbreaking technologies could run by running separate
11   code and injecting different code into memory while it's
12   running.  And in fact, I say this because that's exactly
13   how the unlocking of the iPhone works currently for
14   these latest model Apple 3G iPhones, by, in fact, rather
15   than modifying Apple's baseband code, it instead runs a
16   separate piece of code essentially bedside it that
17   injects changes values in memory as the code is running.
18   And I would submit there is no derivative work there,
19   just as we were discussing in the last panel.
20             But -- so, let's take for a moment at least
21   the popular extant jailbreak code.  Let's say it does
22   create a derivative work, or at least arguably a
23   derivative work.  If that's the case, then I think
24   that's expressly covered by Section 117(A).
25             There's no contention -- in fact, Apple's
0254
 1   comments do not argue that iPhone owners do not own the
 2   code within the meaning of 117.  They appear to concede
 3   that point.  If they hadn't conceded it, I would have
 4   pointed out that their own license agreement says, You
 5   own the media on which the software is delivered, which
 6   is, I think, the definition of owner of a copy that is
 7   laid out in 117.  But in any event, it's not contested
 8   there.
 9             So, what Apple does say is, one, the 117
10   privilege can be negated by contract.  I don't agree
11   with that.
12             Apple in a footnote admits that there's no
13   case law to support that proposition.  They cite the
14   CONTU report.  I've read the CONTU report.
15             As I'm sure you all know, the entirety of the
16   discussion of this provision is contained on page 13 of
17   the CONTU report.  It's not terribly illuminating.
18   Nothing therein suggests that contracts can strip users
19   of their 117 privilege.
20             Perhaps more to the point, there is nothing in
21   the Apple contract that would appear to do that.  In
22   fact, I'm a bit confused about how a contract would
23   strip you of your 117 privilege, other than to say
24   something like, You are hereby licensed to use the code
25   on the condition that you waive any 117 or other
0255
 1   privilege you might have under existing law.
 2             I've never seen a license agreement say that,
 3   and certainly the iPhone software license agreement,
 4   which is publicly available if you want to read it,
 5   doesn't say anything like that.  So, I don't think we
 6   have a contractual negation of 117 here.
 7             Secondly, Apple suggests that the adaptations
 8   must be created by the user, rather than by third
 9   parties.  Fine.  If that's the case, still no problem
10   here.  That's exactly how the Pwnage Tool operates.
11             The iPhone Dev Team that created, again, this
12   most popular jailbreaking tool, built the tool very
13   specifically so that it does not contain any Apple code
14   period.  Modified or otherwise.  Not in there.
15             Every user, when they jailbreak their phone,
16   uses the Pwnage Tool to, on their own machine, compile
17   their own altered version of the code.  So, in other
18   words, it is precisely the user that is making the
19   adaptation just like 117(A) envisioned.
20             And finally, I guess there are two other
21   arguments Apple makes in their papers.  First, it says
22   that adaptations may not harm the copyright owner.  And
23   that is taken again from the CONTU report.
24             And if you look at the CONTU report, the gloss
25   in the report there really focuses on the private nature
0256
 1   of the use of any adaptations made under 117.  There,
 2   clearly CONTU envisioned that if you make an adaptation
 3   of a piece of software, you are not entitled to then
 4   redistribute it, go out in the market, and compete with
 5   the copyright owner.
 6             That's the kind of harm to the copyright owner
 7   that CONTU was concerned about and, frankly, that cases
 8   like Krause versus Titleserv have carried forward.  Not
 9   harm to a business model that the copyright owner might
10   have in which this is a component, but rather, harm in
11   the sense of the use -- the adaptation must remain a
12   private use.
13             And of course, again, that's exactly what we
14   have here.  When you've jail-broken your phone, there's
15   nothing about the process that requires or even
16   encourages you to distribute the resulting adaptation.
17   You put it on your phone.  That's the end of the story.
18             Finally, the -- Apple's submission suggests
19   that 117(A) requires that the adaptation must be used in
20   no other manner -- or, the copy.
21             Quote:
22                 As an essential step in the utilization of
23             the computer program in conjunction with a
24             machine, and that it is used in no other
25             manner.
0257
 1             Absolutely there is nothing in the case law
 2   that suggests that what we're talking about when a user
 3   jailbreaks their own phone, uses the code in any other
 4   manner than to run that machine.  Perhaps the running of
 5   that code results in your ability to then run other
 6   software, but that's not Apple's code.  That's not
 7   running it -- the firmware in a different manner.
 8   That's getting third-party software.
 9             So, I would again point the Court to Krause
10   versus Titleserv where in that case the Second Circuit
11   specifically said not only was using the software all
12   right for the Defendant, Titleserv in that case, but, in
13   fact, the Defendant extended that software to allow
14   dial-up access to their mainframe.  And the Court found
15   that too was all right.
16             So, the idea here is, is the code being used
17   to run the machine and in no other manner.  That's
18   exactly what the resulting adapted Apple firmware is
19   being used for here.
20             Finally, I'll say that I also believe that to
21   the extent it's not covered by 117, it would be covered
22   by fair use.  I'll not review that.  Obviously, you all
23   know the four factors.  We've laid out the argument in
24   our papers.  I don't have anything new to contribute on
25   that here.
0258
 1             The statutory factors, again, I think they are
 2   largely neutral just as they were in 2006 with respect
 3   to the unlocking exemption.
 4             I would point out that there's certainly no
 5   harm on the market for the firmware.  As Apple itself in
 6   its written submission points out, they do not view the
 7   firmware as being a separate product at all.  They view
 8   the firmware as being a necessary, constituent part of
 9   the hardware device.
10             And there's certainly nothing about
11   jailbreaking that makes the hardware less attractive.
12   In fact, if anything, jailbreaking makes the hardware
13   more attractive, at least to that small segment of users
14   who have -- like the user who has the physician as a
15   wife for whom the jailbreak actually makes the phone
16   more valuable.
17             And again, if a user decides that they jail
18   broke and they regret it, they obviously can return to
19   the original software, if they so choose.
20             So, finally, a couple of last points.  First,
21   nothing about granting this exemption will deprive Apple
22   of any legal or market lever that they might have to
23   protect their business model.  Obviously, they believe
24   that they can have some contractual claim just as we
25   heard in the last panel.  There's nothing about the
0259
 1   exemption that would strip them of any of their other
 2   legal rights that they could use to protect their
 3   business model.
 4             Apple is certainly not the first company, and
 5   the iPhone is certainly not the first product that has
 6   tried to build a closed ecosystem as a business model.
 7   It's been done before.  I'm sure it will be done again.
 8             The point here is I don't believe Congress
 9   meant, when they passed the DMCA, to somehow make the
10   fact that you use firmware in your device take you out
11   of the traditional legal world of building closed
12   ecosystems and put you into a new box where suddenly new
13   rules apply.
14             In fact, the case law, such as the Chamberlain
15   case and the Lexmark case, and the Copyright Office's
16   recommendation in 2006 regarding unlocking, all
17   underscore that point over and over again.
18             Let me briefly address the problem of
19   application piracy, something that Apple has raised
20   here.  That is certainly cause for concern, but I need
21   to emphasize, the applications are protected by separate
22   Technological Protection Measures.  The apps -- at least
23   the ones you pay for -- this is not true for the free
24   apps, but the paid applications -- the paid applications
25   are separately encrypted and have separate keys that are
0260
 1   tied to the particular phone in question.
 2             The iPhone couldn't be more different than the
 3   Virgin Mobile phones that you were talking about just a
 4   few hours ago.  We are not talking about a phone that is
 5   so primitive or a chipset that is so cheap that you
 6   cannot run multiple different Technological Protection
 7   Measures on it.
 8             In fact, Apple does exactly that.  The apps
 9   are separately protected.
10             Now, that protection has been compromised for
11   some applications and that is certainly a problem, but I
12   would submit that the fact that the lock on running
13   other applications happens to also block certain pirated
14   applications is really no different than a car
15   manufacturer saying, Well, the lock on the door of the
16   car happens to protect the CDs in the glove box, and
17   therefore, it's a DMCA protection and it deserves the
18   full protection of the law.
19             No.  The fact that no applications, other than
20   those approved by Apple can run on the iPhone, is the
21   result of Apple's desire to protect its closed ecosystem
22   as they mentioned.  It is not the DRM scheme used to
23   protect the apps.  As I said, there is a separate scheme
24   for that.
25             And finally -- I think you'll hear this next
0261
 1   week when you hear from an independent iPhone
 2   applications developer -- if you're worried about a
 3   security for the application, one of the best things
 4   that could happen is a world in which individual
 5   application developers can develop their own TPMs to use
 6   to protect their own applications, something that's
 7   already happening where independent apps are at stake.
 8   Right.
 9             People who sell applications -- and they do
10   sell applications through alternate marketplaces like
11   CEDIA -- are in the process of figuring out, how do we
12   do a better job protecting our apps than Apple has done
13   for the apps in the App Store.  And I think that's a
14   healthy process.
15             Some app developers may find other mechanisms
16   that protect their business interests.  Some sort of
17   authentication.  Who knows.  Let's let a thousand
18   flowers bloom.  If there's anything we've learned in the
19   last ten years, security flourishes when there are lots
20   of competitors trying to provide it, rather than one
21   provider that everyone has to count on together.
22             I think I'll leave it at that, and leave the
23   rest for questions.
24             MS. PETERS:  Thank you.
25             David.
0262
 1             MR. HAYES:  Thank you.
 2             I'm David Hayes from Fenwick & West, outside
 3   counsel to Apple.
 4             Can you hear me okay with this speaker?  Okay.
 5             I'd like to begin with just a word about the
 6   legal landscape in which this proposed jailbreaking
 7   exemption has to be judged.
 8             Fred wants a world in which all applications
 9   can be run on the iPhone, as opposed to some of them
10   needing to run on other phones.  I understand that
11   that's a world he would prefer for reasons that he
12   mentioned.
13             You heard a lot in his remarks about
14   competition, and he's concerned with what he believes
15   will enhance competition.
16             This exemption process was not designed to be
17   a free-wheeling forum for marketplace design or
18   restructuring of business practices or debates about
19   competition in the marketplace.  It has a very narrow
20   technical focus:  Whether an access control is at issue
21   at all, and if it is, whether it has a significant
22   adverse effect on noninfringing uses of a particular
23   class of works.  That is what the Copyright Office is
24   here to decide, and it's a very narrow focus.
25             Congress established, in Section 1201(A) and
0263
 1   (B), a clear right of companies to protect their
 2   copyrighted works with Technical Protection Measures,
 3   TPMs.  And it said in the legislative history, the
 4   reason it did that was to incentivize the creation and
 5   protection of works in a digital environment by allowing
 6   owners to protect them with TPMs.
 7             As Jos' presentation exemplifies, the creation
 8   of copyrighted works that's been enabled by the TPMs
 9   that protect the iPhone and its OS and its ecosystem has
10   done exactly that:  35,000 applications in nine months.
11   That's a lot of creative copyrighted works that have
12   been incentivized by the ecosystem protected by the
13   TPMs.
14             The fundamental rule here in the law is that
15   TPMs are protected against circumvention, unless the
16   proponent of an exemption meets a very heavy burden to
17   show specific harm, and even then only access controls,
18   circumvention, can be exempted, not circumvention of
19   copy controls.
20             Now, EFF has not put forth any specific
21   evidence of harm to meet that burden.  There's a lot of
22   talk about competition and so on.  No data, for example,
23   which or how many third-party applications outside the
24   App Store users would like to run on their own iPhone,
25   or whether those applications might be available to run
0264
 1   on other phones, which is something that in every
 2   previous hearing this Copyright Office has focused on.
 3             And you have said in your decisions that it
 4   may be true that it's more inconvenient for someone to
 5   use a copyrighted work in some other way, but that is
 6   not relevant, as long as that work can be used in some
 7   other way.  Fred would prefer that it be used on the
 8   iPhone, but that is not something that this exemption
 9   process requires.
10             So, that's the legal landscape within which
11   these exemptions must be judged.
12             Now, I'm going to draw on my high school
13   speech class, and I'm going to now tell you the first
14   fundamental rule of giving a speech; that is, tell them
15   what you're going to tell them, then tell them, and then
16   tell them what you just told them.  So, that's what I'm
17   going to do.
18             Here's what I'm going to tell you:  I want to
19   make three specific points.
20             By the way, the second rule from speech class
21   was never make more than three points in a speech.  So,
22   here we go.  Only three points.
23             First point:  The proposed jailbreaking
24   exemption that they are making is really an exemption
25   for circumvention of copy controls, not just access
0265
 1   controls.  Those are prohibited by 1201(B), and the
 2   Copyright Office and the Library cannot grant exemptions
 3   to the protections of 1201(B).
 4             Second point:  The proposed jailbreaking
 5   exemption is an interoperability exemption, and Congress
 6   has already comprehensively legislated the boundaries of
 7   circumvention for interoperability in 1201(F).  And so,
 8   the interoperability exemption should be an even higher
 9   burden in this process to be granted.
10             Third point:  Even if the jailbreaking
11   exemption is deemed to be properly considered under the
12   process of 1201(A)(1), it has to be denied, because the
13   uses that would be allowed by the exemption are
14   infringing.  Each of these three things is a fundamental
15   show-stopper.  So, now let me elaborate on it.
16             As a footnote, by the way, the third and final
17   rule from high school speech class:  Never make a
18   presentation without graphics and visuals.
19             I wanted to do that.  I asked Jos if I could
20   use his Mac.  He said, "Nobody touches my Mac or my
21   iPhone."  So, here we go.  Sorry.
22             Okay.  So, let me elaborate now on the first
23   point.  Exemptions cannot be granted for the
24   prohibitions of Section 1201(B) that relate to copy
25   controls.
0266
 1             The EFF is really asking for an exemption that
 2   would allow circumvention of copy controls under 1201(B)
 3   under the guise of the 1201(A) exemption process that's
 4   for access controls.  This is not permitted by the
 5   statute.
 6             EFF's submission -- and Fred said just now
 7   that he characterizes these TPMs solely as access
 8   controls, that there's no debate about that apparently
 9   on the ground that they prevent access to jail-broken
10   applications running on an iPhone.  That's an incorrect
11   characterization of what these TPMs are.
12             Access controls are technical measures that
13   prevent the use of a copyrighted work in its unmodified
14   form in which it was distributed.  For example,
15   encryption that requires a password to unlock access to
16   a movie that the user has paid the usage fee.  That's an
17   access control.  You use the work in its unmodified form
18   once you gain access to it.
19             The TPMs on the iPhone do more than this.
20   Jos' testimony makes clear that the iPhone TPMs are
21   essentially, quintessentially copy controls.  They were
22   designed to prohibit modification of the OS.  That's why
23   he spent so much time in his slides describing to you
24   the role that the OS plays in the iPhone and why it is
25   the central heart of the iPhone -- its functionality,
0267
 1   its ecosystem, and the App Store.
 2             And those TPMs were put in place from the very
 3   beginning.  The engineers designed them into the phone
 4   from the very beginning, long before the App Store was
 5   online or the SVK was released publicly.  Why?  Because
 6   they were concerned with modifications to the OS, so
 7   they protected it in a way that it could not be
 8   modified.  Those copy controls are protected by 1201(B),
 9   and this process under 1201(A)(1) cannot grant
10   exemptions for copy controls protected by 1201(B).
11             Now, there's really two devices here that the
12   EFF, I believe, would like to see protected by this
13   exemption process, both of which fall under 1201(B).
14   The first one is Pwnage Tool itself and similar tools
15   like it.  If those tools cannot be distributed for end
16   users to use, then obviously the exemption does not
17   achieve what Fred would like to see, which is to
18   jailbreak the iPhone.
19             And the second thing that this exemption would
20   permit is a device to be established in the iPhone
21   itself in the form of a modified boot loader, which is
22   also a 1201(B) device.  Now, let me just elaborate very
23   briefly.
24             First, with respect to the Pwnage Tool itself.
25   You heard Jos play an example from that hackers'
0268
 1   convention.  These were the authors of the Pwnage Tool,
 2   and they said in their own words the tool was designed
 3   specifically to circumvent the security on iPhone and
 4   create a modified OS.  That's what they said was their
 5   purpose.
 6             So, distribution of that tool is trafficking
 7   in a copy control circumvention that is prohibited by
 8   1201(B).  And it cannot be exempted under 1201(A)(1).
 9             Jos, would you bring up that slide that you
10   had on the jailbreaking phone?
11             MR. JOSWIAK:  Yes.
12             (Showing slide)
13             MR. CARREON:  The second thing that this
14   exemption device -- that would be permitted under
15   1201(B) -- it's improper -- is the -- you see in the
16   red, the boot loader.  It's red because it's been
17   modified.  And that boot loader has -- that modified
18   boot loader has only one purpose, and that's to bypass
19   the copy controls on the OS that prevent it from being
20   modified.
21             1201(B) says that no person shall manufacture
22   a device whose purpose is solely or primarily to
23   circumvent copy controls.  That's what that modified
24   boot loader in red is, and it is a violation of 1201(B)
25   that cannot be exempted under 1201(A)(1).
0269
 1             Thank you, Jos.
 2             So, the fact that the TPMs at issue here are
 3   there to protect against modifications is what
 4   distinguishes this requested exemption from the one that
 5   you just heard on the previous panel, and that was the
 6   subject of your 2006 decision with respect to unlocking.
 7   Those unlocking exemptions were all argued in terms of
 8   access to the software to make use of it in its
 9   unmodified form.
10             Ms. Granick from EFF made that point several
11   times in her presentation, that we are not asking to
12   modify the binary code.  This is just to modify a piece
13   of data and get -- allow binary code to run as it would
14   normally run.
15             That is not what is going on here.
16   Jailbreaking modifies the OS.  End of first point.
17             Second point:  Congress has already
18   comprehensively addressed interoperability issues in its
19   statutory provision, so this exemption process isn't the
20   appropriate forum to address those issues.  The EFF's
21   proposed exemption is worded as, quote, For the sole
22   purpose of enabling interoperability.
23             If you look at 1201(F) and its legislative
24   history, its literal language says it addresses acts,
25   quote, necessary to achieve interoperability.
0270
 1             Now, this reflects Congress considered
 2   decision about interoperability issues, and so, the
 3   Copyright Office needs to be extremely cautious in
 4   recommending an exemption that is in the
 5   interoperability area when Congress has already spoken.
 6             There is a high burden on anyone for an
 7   exemption.  And in fact, you said in your 2006 decision
 8   that the granting of an exemption is extraordinary.  It
 9   is unusual.  I think the burden is even higher when
10   Congress has spoken.
11             Now, Fred referred to the Congressional
12   infallibility principle.  I'm not arguing that just
13   because we're in the zone, Congress is infallible and
14   they can never do wrong.  We all know better than that.
15             However, Congress did, as the result of a very
16   hotly contested legislative process, consider a number
17   of exemptions which people were proposing to be written
18   right into the statute.  And some of them they wrote in,
19   and some of them they didn't.
20             They wrote one in for interoperability.  They
21   wrote one in for law enforcement.  They wrote one in for
22   security study.  And they addressed this very carefully
23   in several areas.  So, the Copyright Office needs to be
24   very careful about acting in an area where Congress made
25   these balanced choices.
0271
 1             End of second point.
 2             Third point:  Even if this exemption is
 3   properly considered under 1201(A)(1), it has to be
 4   denied, because the proposed uses that would be enabled
 5   by the exemption are infringing.  As you saw from Jos'
 6   testimony, this tool -- Pwnage Tool creates an
 7   unauthorized, modified version of Apple's copyrighted
 8   boot loader and the OS.
 9             Now, you had heard Fred say it's possible that
10   there are other methods coming that will work
11   differently and will not be infringing, will not create
12   modifications to the OS.
13             Well, first of all, those are not before us
14   now.  The ones that they have rested their exemption on
15   are Pwnage Tool and Quick Pone and some of the others
16   that are in the marketplace, about which EFF says in its
17   submission, page 7, and I'm quoting:
18                 "Decryption and modification of the iPhone
19             firmware appears to be necessary for any
20             jailbreak technique to succeed on a persistent
21             basis."
22             That's their words.
23             Well, it looks to me like what's going to be
24   enabled by this -- in their own words -- is tools that
25   will be necessary to modify the OS.  These modifications
0272
 1   are not covered by Section 117 or the fair use doctrine.
 2             I'm going to go through this briefly, because
 3   our submission elaborates more, and so I'm not going to
 4   spend time to do every point.
 5             First of all, Section 117 rights, I do
 6   believe, can be negated by contract.
 7             The CONTU report, there are about 10 or 12
 8   decisions which we've cited in our papers that have
 9   faced the question of whether the CONTU report is the
10   legislative history of the DMCA.
11             And all but one of those decisions have said
12   either that it is the legislative history, or they have
13   looked to it to interpret it -- the DMCA.  And two of
14   those decisions have quoted the passage on page 13 that
15   Fred referred to in the CONTU report that says, If
16   copyright owners are concerned about these rights to
17   make modifications and adaptations, they can address it
18   by contract.
19             I think it's pretty clear that CONTU had in
20   mind that you could take this right away.  Fred says he
21   doesn't know how you would do it.
22             It's very simple.  Apple has done it.  In
23   their iPhone license agreement it says it prohibits
24   modification of the software.  How else would you say
25   it?
0273
 1             We want to prohibit modification for any
 2   purpose.  Not just for Section 117 purposes.  Not just
 3   because, you know, you want to do something else with
 4   it.  It's prohibited.  And that's what it says.
 5             Fred raised the 2005 Second Circuit case of
 6   Krause versus Titleserv.  I'm glad he raised that,
 7   because we think that case actually strongly supports
 8   us.  That case says that modifications under Section 117
 9   are permitted only so long as they don't harm the
10   interests of the copyright owner and are used as
11   intended in the creation of the program.
12             Now, Fred said the Court there found, Hey,
13   these were not harming the copyright owner, and intended
14   within the original use.  That's true, because that was
15   a program that was custom created for a particular
16   business to operate its business.  And it was very clear
17   that the purpose for which that program had been created
18   was to run that business.
19             And so, when a dispute arose between the
20   original author, there was a question about whether the
21   person who paid all this money could enhance it in a way
22   that they needed to do to keep running their business
23   while they tried to recover from the dispute.  For
24   example, by writing their own replacement.
25             It's not surprising that the Court said that
0274
 1   was clearly contemplated within the original uses.
 2   Here, Apple put out a phone that they intended to have
 3   integrity in the operating system, and not be modified
 4   for all of the reasons you heard from Jos.  And this was
 5   very important to set up this level of trust that you
 6   saw in the diagram among the consumers, the partners,
 7   and Apple.
 8             This ecosystem wouldn't have existed if the
 9   carriers had not been comfortable that these bad
10   applications would not be out there to run free rein on
11   their networks.
12             So, there is clearly harm to the owner of the
13   operating system here in a way that was not present in
14   Krause v. Titleserv.
15             In addition, you heard Jos talk about crashing
16   the applications, increased support burdens, piracy.
17   Those are all things that are going to flow from
18   jailbreaking the OS, and they certainly have a
19   tremendous effect on the value of that copyrighted work.
20             All right.  Fair use.  Let me just say
21   briefly -- and I also will refer you primarily to our
22   papers for this, as did Fred -- the burden of
23   establishing fair use is on EFF, not on us.
24             Congress gives us the right to put these
25   anticircumvention measures in, and if they want to claim
0275
 1   that these uses are blessed by the fair use doctrine,
 2   the burden is on them.
 3             They've submitted no specific data to carry
 4   that burden as to why Apple's copyrighted OS or the
 5   market for developers' applications would not be harmed
 6   by jailbreaking.  That's their burden.
 7             By contrast, Jos gave you a host of reasons
 8   why Apple will be harmed as the copyright owner by these
 9   jail-breakings:  Problems with safety, security,
10   operation of the iPhone, pirating of Apple's own
11   applications and its developers' apps.
12             EFF argues in its papers there's no harm to
13   the market for the OS, because Apple makes this
14   available free and it does not sell it separately.
15             That's an incorrect characterization.  The OS
16   software is not free, first of all.  Apple sells the
17   iPhone, and the price of the iPhone covers the hardware,
18   it covers the OS, it covers the updates of the OS.  And
19   they certainly don't give it away for free.
20             Second, the value of the OS cannot be assessed
21   independently of the iPhone itself.  The fact that
22   people don't buy the iPhone OS without buying the iPhone
23   doesn't mean that it has no independent value.  Of
24   course it has value.  Its value is it's the center of
25   the iPhone.
0276
 1             The OS, as Jos showed you, is the center of
 2   the ecosystem, and the value of the iPhone is directly
 3   dependent on the value of the OS.  It certainly has
 4   value.  So, under the fourth fair use factor, that harm
 5   is enough to stop the fair use analysis.
 6             As to the other three factors, I will just
 7   refer you to our papers.  I'm also going to refer you to
 8   our papers on statutory factors, because I suspect -- I
 9   mean, the debate is very clearly laid out there.  I
10   suspect you're going to have a lot of questions about
11   those.
12             Okay.  So, I've told you what I was going to
13   tell you.  I've told you.  I'm now going to tell you
14   what I told you.
15             In conclusion, the jailbreaking exemption is
16   really about circumvention of copyright controls on the
17   iPhone -- sorry -- copy controls on the iPhone, which
18   the Librarian has no statutory authority to grant
19   exemptions for.  So, we're out of that process.  That
20   alone should stop the show.
21             We've seen from Jos' presentation that those
22   copy controls protect many copyrighted works from
23   unauthorized modification, copying, and piracy.  This is
24   not just about protecting a business model.  What you
25   may believe or not believe about those arguments in the
0277
 1   unlocking panel, whether you accept them or not, that is
 2   not this case.
 3             This is a case about protecting the OS and the
 4   boot loader and Apple's copyrighted applications against
 5   modifications.  It's not just protecting a business
 6   model.
 7             And that protection against modification is
 8   the very thing that Congress intended in setting up the
 9   anticircumvention provisions.  They in turn have enabled
10   an engine of innovation that you saw Jos describe --
11   35,000 new works in nine months, tens of thousands more
12   to come in the next nine months.
13             If jailbreaking is approved as an exemption,
14   serious, harmful consequences are going to flow, not
15   just to Apple, also to its consumers and its developer
16   partners and its carrier partners.  We urge the Register
17   to reject this exemption.
18             Thank you.
19             MS. PETERS:  Okay.
20             Steve.
21             MR. METALITZ:  Thank you very much.
22             In view of the time, I was inspired by David
23   to try to come up with three points, but actually, I
24   think I have only one point that I wish to make very
25   briefly, and then we can open it up to questions.  1.2
0278
 1   intensifiers, so I guess it adds up to three.
 2             Here's my point:  You have seen all of this
 3   before.  This is not a new exemption proposal by any
 4   means.  This is the same proposal basically that you
 5   have rejected at least 15 times in the previous three
 6   rounds.  You rejected it, I believe, five or six times
 7   in 2006.
 8             Some people want to be able to run certain
 9   applications on a particular platform.  A platform is
10   not designed to do that through a business choice that
11   was made by, in this case -- well, Apple, but this isn't
12   just about Apple.  There's obviously a lot of other
13   phone systems to which this applies.
14             But they're frustrated.  They want to run it
15   on this -- perhaps they think that their spouse would be
16   better off having it run on a different platform so that
17   they can hear the alarm.  I noticed it was the husband
18   who thought that the RAZR phone was a piece of junk, and
19   not necessarily the wife.
20             But in any case, they want this to run on
21   different platform.  And the only way they can do it is
22   to circumvent.  And you have told them time and time and
23   time again that that is not a sufficient reason to
24   recognize an exemption.
25             You told them in 2006 -- you know, when you
0279
 1   granted six exemptions, you rejected eleven, and most of
 2   them fit this description.  What you call "space
 3   shifting" was exactly an example of this.  They wanted
 4   to run it on different platforms, different formats.
 5   DVDs cannot be viewed on a Linux operating system.  This
 6   is almost exactly the same point.  It's not exactly the
 7   same, and I'll get to why in a minute.  Region-coded
 8   DVDs.  We want to run it on a Region 1 machine.  It
 9   won't run on a Region 1 machine.  You said that's not
10   sufficient because you can find another way to run it.
11             Computer programs protected by mechanisms that
12   restrict their full operation for a particular platform
13   or operating system.  Is that a good, capital summary of
14   what we're talking about here?  I think it is.  You
15   rejected it, because you said there were alternatives
16   for making this noninfringing use.
17             And there are several other examples here, but
18   my point is, this is not a new claim.  This is the same
19   type of claim that you have rejected several times
20   before.  It's not exactly the same for two reasons, and
21   they both are reasons why you should definitely reject
22   this proposal.
23             The first one, which David has mentioned, is
24   that -- the situation with 1201(F): the existence of a
25   statutory exemption that Congress adopted to
0280
 1   comprehensively regulate the circumstances under which
 2   circumvention would be allowed for the purposes of
 3   interoperability of computer programs.  That's what this
 4   is about.  Interoperability of computer programs.
 5             Congress explained when it should be allowed,
 6   when it should not be allowed.  And at the very least,
 7   the burden has to be on the proponent of the exemption
 8   to demonstrate to you that they're not asking you to
 9   permit something that Congress specifically chose to
10   outlaw, or that they're not asking you to make a
11   decision that would in effect outlaw something Congress
12   simply chose to permit.  If this is already covered by
13   1201(F), then obviously you can't grant an exemption
14   here, because there's no -- the basis for granting the
15   exemption would be absent.
16             Now, you have grappled with this before in
17   1201(J), context in the security testing field.  I think
18   this is actually a much clearer case, because Congress
19   really set out to resolve the problem that we're talking
20   about here and decided the ground rules under which
21   circumvention would be allowed for purposes of
22   interoperability.
23             So, at the very least, it's the burden of the
24   proponents to demonstrate that they can't bring their
25   conduct within the scope of Section 1201(F).  If they
0281
 1   can do that, then you can start to consider whether
 2   there should be an exemption recognized.
 3             So, today for the first time, seven months,
 4   eight months after you began this proceeding, EFF has
 5   given its analysis, I guess, of why 1201(F) doesn't
 6   apply, but I think the burden is on them to show that it
 7   doesn't.
 8             And that distinguishes it from many of the
 9   proposed exemptions that you rejected in the past,
10   because they didn't deal with interoperability of
11   computer programs.  They didn't deal with issue that
12   Congress had already thought about and decided and set
13   the ground rules for in 1998.
14             And the second intensifier that I would point
15   out is -- really has to do with the effect of the
16   circumvention that we're talking about here.  No one
17   seems to contest that one thing that will happen if this
18   circumvention is allowed is that a very widespread
19   platform would become a venue for infringing activity
20   through playing pirated applications, pirated games
21   which can't be run on the iPhone today, can't be run on
22   a lot of these other phones that are using Technological
23   Protection Measures, but will be able to be run on those
24   platforms if the exemption is granted.
25             So, basically, the impact is going to be to
0282
 1   open up vast new fields for the manufacturers and
 2   purveyors of pirated software, pirated games of other --
 3   pirated forms of other copyrighted materials.
 4             That in itself seems to me is a pretty strong
 5   argument that it's going to be very difficult for the
 6   proponents to overcome that burden to show that not only
 7   is the use that they want to make it noninfringing, but
 8   that what they want you to accept is not going to lead
 9   to a proliferation of platforms for piracy.
10             And I think -- I don't believe they've met
11   that burden.  But that, again, perhaps more than some of
12   these other exemptions that you considered and rejected
13   in 2006 and 2003 and in 2000, is another reason to
14   reject this proposed exemption.
15             Thank you.
16             MS. PETERS:  Okay.  Thank you.
17             MR. CARREON:  Thank you.
18             I'd like to address this -- I don't have three
19   points; I don't have one point.  I have two points.  And
20   my two points are that -- addressing the issue of
21   whether the exemption would enable noninfringing uses.
22             And I am going to argue that copying the
23   iPhone boot loader and making changes to the iPhone OS
24   are, neither one, infringing.  And I'd like to address
25   this from the viewpoint of how reasonable consumers
0283
 1   expect their machines and their media to work and to be
 2   regulated.
 3             There's a common-sense distinction between
 4   products that do things -- like garage-door openers,
 5   printer/toner cartridges, computers, desktops, laptops,
 6   notebooks, handheld -- and protectable expression --
 7   visual art, music, books, motion pictures, graphic
 8   designs.  And as Judge Merritt observed in his
 9   concurring opinion in the Lexmark case, auto
10   manufacturers could control the entire market for
11   replacement parts by using lock-out chips.
12             We're well accustomed to the idea that there's
13   a distinction between the brand of a computing machine
14   that we buy and what we see when we turn it on.  We like
15   that distinction.  We fought hard to have it.  You turn
16   on an Acer, an HP, you get access to Windows or Linux.
17   You can launch your Web browser.  You can launch
18   Firefox.  You can launch Explorer.  You can launch
19   Opera.  And there was a time when you might launch
20   Netscape.
21             Software straddles the line between machines
22   and media.  There was a time when there was a big
23   question about whether software was copyrightable.
24             At the most fundamental level, software
25   programs are written in machine language.  Binary code
0284
 1   that only machines can read.  And, of course, machines
 2   do not read.  Machines execute.  Execution is action.
 3   Not understanding.  Not comprehension.
 4             The only people who read machine code are
 5   people who write instructions to control program
 6   execution.  They are computer engineers who create
 7   digital machines that operate logic gates on microchips.
 8   They are engineers, and they can be creative.
 9             They can create -- engineers create in two
10   ways:  Engineers may create devices of metal, plastic,
11   genetic materials, and they can obtain patent protection
12   for that.  And if they use linguistic tools to create
13   original, tangible expressions that control electronic
14   logic gates on microchips, they can obtain copyright
15   protection for those works.
16             From a common-sense perspective, the idea
17   behind a program cannot be copyrighted.  To shoot a
18   basketball through a hoop on a screen, to cause a guitar
19   cord to play, to steer the image of a car around the
20   image of a racetrack, those are concepts.  Those are
21   ideas that cannot be copyrighted.
22             When it comes to the iPhone, the idea that
23   cannot be copyrighted is:  Turn on the phone, run an
24   application.  Any alternative way of doing those
25   functions, of performing those activities would be
0285
 1   noninfringing, if there were an alternative way of doing
 2   them.
 3             But suppose there is no alternative way of
 4   doing it because of external factors.  The operating
 5   system itself with which the boot loader must interact;
 6   the applications; the APIs that must be activated -- if
 7   there is no alternative way to do it, then the Lexmark
 8   Court says -- and of course, all of the cases that it
 9   cites, saying that idea and expression have fused, and
10   to copy that work is not infringing.  Instead, it is
11   simply the legitimate opening of a lock-out code.
12             Now, I am depending, for my argument, on the
13   assertion by Apple that the boot loader is a,
14   quote/unquote, small program.  This is relevant.  I
15   don't have a copy of the program.  I didn't think to
16   request a copy of the deposit in time to get one, and
17   other efforts to obtain a deposit from other sources
18   were unsuccessful.
19             However, if a program is small, the Lexmark
20   Court said -- and it has a limited number of ways of
21   doing a function -- that all goes toward the conclusion
22   that idea and expression are beginning to fuse, and if
23   they fuse, then you do not have -- even though it may
24   have been issued -- and it certainly has been issued --
25   a registration by the Office, still, it is not
0286
 1   protectable.
 2             So, the boot loader on the iPhone, if it is
 3   indeed just a small code that can only perform this
 4   function in one way or in a very small number of ways,
 5   if the variations of which wouldn't constitute real
 6   varied expressions, then we have a machine powered by an
 7   unoriginal expression:  It's just a lock-out code, and
 8   to copy the boot loader is not infringing.
 9             And the next topic, because I only have two,
10   is changing -- making changes, derivative versions, to
11   the operation system.
12             Now, it was interesting listening to the
13   Virgin folks talking about how they wanted to separate
14   the piece of plastic and metal that was the medium for
15   the display of images and ring tones, and suggesting
16   that somehow -- that the sale of that object did not
17   also result in the sale of those copyrighted works.  It
18   struck me that it was kind of like the publisher saying,
19   You own the paper.  You own the ink, but the
20   significance of these words is not yours.
21             I see no distinction, because it is the medium
22   in which the expressions was fixed.  It seems to me
23   absolutely clear that if the operation of the iPhone is
24   dependent -- it is just a machine.  It is an -- it
25   doesn't have an operating system.  If the operation of
0287
 1   it is essential, and the only reason you would buy that
 2   machine is to buy its operation, then you own the
 3   operating system as well.
 4             17 USC 117(A)(1) allows the owner of a program
 5   to change a program if it is an essential step in the
 6   utilization of a computer program in conjunction with a
 7   machine.
 8             Again, looking at the reasonable expectations
 9   of consumers and protecting the copyrights of creators,
10   we can see how the dividing line -- examine how the
11   dividing line between the executable versus the
12   expressive characteristics of software can help the
13   Office to make a decision that's an appropriate
14   assertion of its authority.
15             117(A)(1) reflects Congress' decision that
16   people and companies buy programs to run machines.  Not
17   to appreciate the artful composition of hexadecimal
18   code.  And the machines are meant to be altered,
19   adapted, improved, and developed further.
20             To freeze a program's function at the original
21   level of expression does something that is, excuse me,
22   un-American.  It stops progress.  The idea that the
23   right may be relinquished, that what is stated in the
24   CONTU report is that the right may be altered, that the
25   relationship between the purveyor of a copyrighted work
0288
 1   and the consumer -- that that can be altered by
 2   contracting, exactly what that means, we're not sure.
 3   But we can be absolutely sure, A, that the Apple license
 4   is to be interpreted under California law, and, B, that
 5   under California law, there cannot be the implied
 6   removal of a statutory right by implication.
 7             Contracts are not written so that one party
 8   can read an unexpressed intention into it later.  The
 9   only way you can get an implied right out of a
10   California contract is if that implied right is, quote,
11   indispensable to effectuating the expressed intentions
12   of the parties.
13             And the intention to relinquish the right
14   under 117(A)(1), which is very, very fundamental, is
15   certainly nowhere expressed there, and it would not be
16   necessary to effectuate the intentions of the parties,
17   one of whom only wanted to get a phone.
18             Nor is this a hobbyist exemption, which I
19   think Apple argues in its papers.  I would just call it
20   a "hobbyist exemption," because if I understand them
21   correctly, they say that the 117(A)(1) exemption is
22   confined to people who retool their software personally.
23   That's how they would interpret Krause.
24             And I have two reasons for why that does not
25   work.  One, there is no rational place to draw the line.
0289
 1   Everyone uses tools to deal with software.  Software
 2   owners should be able to use tools obtained from third
 3   parties to make planned, tested changes in software to
 4   enhance the operation of the machine.
 5             They shouldn't have to find some way to hook
 6   up their iPhone, see the machine language, make
 7   alterations in it, and then repackage it up however
 8   people do that sort of the thing.  Nobody knows how.
 9   You have to use tools.
10             It's -- and so, there's really no place to
11   draw the line.  As Apple says, they've created the SDK,
12   the Software Developers' Kit.  They have to give you
13   tools.  So, in order to make those changes, it's not
14   just rational, because the rational process for deciding
15   what would be too much tool-making can be used.
16             A person should be able, if they desire -- the
17   question is, do they desire to make a change to their
18   operating system so that they can alter the operation of
19   their machine.  And the idea that this is a copying --
20   that this is copying protection does not seem right to
21   me, because as the Panel -- I forget which member of the
22   Panel, and maybe it was more than one of you -- pointed
23   out, and Virgin was arguing, is there any market for
24   cell-phone operating systems free from cell phones.  Is
25   there any market for ring tones free from the individual
0290
 1   machine.
 2             No.  Nobody is going to say, I made 35,000
 3   iPhone operating system copies today, and I'm selling
 4   them, and I'm going to make a lot of money.  And they
 5   only want the one that runs their machine, and they have
 6   a right to change it.
 7             And the second reason why I would argue
 8   against a hobbyist exemption under 117(A)(1) is because
 9   quite simply, it grants more rights to corporate owners
10   of software than it grants to people, because a company
11   like Titleserv, in Krause versus Titleserv, can own vast
12   numbers of machines, vast numbers of programs, and they
13   can hire as many people as they want to make changes.
14   In other words, a corporate owner can bring in employees
15   and contractors to make these changes to the software
16   that it owns, but an individual -- a poor, unfortunate
17   individual who only has the protection of the Fourteenth
18   Amendment, they cannot clone themselves and create
19   another self that is smart enough to work on software.
20             So, it's just one of those things that if you
21   try and apply it, it doesn't work in the first place,
22   because there's no rational place to draw the line.  How
23   many tools do you get to use.  And then if you apply it
24   that way, it's -- it's going to give corporations more
25   rights than people, and I think that's unfair.
0291
 1             Finally, I think that the term "ecosystem" is
 2   a very, very misleading term.  But if we examine it, it
 3   shows us exactly what is not happening in the iPhone
 4   development unit, because an ecosystem is not the
 5   product of a single command and control, brilliant
 6   top-down insight about what kind of life forms are going
 7   to appear in an ecosystem.
 8             An ecosystem appears from the wild
 9   collaboration and competition among all kinds of
10   organisms operating in an environment that they actually
11   have an effect on.  They enrich it.  They change it.
12   They deplete it.  They consume it.  They consume each
13   other.  That's an ecosystem.
14             It is messy, but it isn't the purpose of
15   copyright law to impose order on that.  The purpose of
16   copyright law is to protect the rights of the creators.
17   And in this case, I think, again, just to return to my
18   original idea, if we look at that dual nature of the
19   executable nature and the expressive nature of software,
20   you can see the line.
21             And it is expressions that are to be
22   protected.  And that is -- and executable is protectable
23   only to the degree that it's also original and not fused
24   with its purpose, or that Congress, with respect to
25   117(A)(1), has given the owners thereof the right to
0292
 1   make changes to.
 2             Thank you.
 3             MS. PETERS:  Thank you very much.
 4             Mr. Hayes, I'm going to ask you -- I'm not
 5   going to ask about Section 117, because the case law is
 6   what it is, and I know that.  But could you respond to
 7   Charles' allegations that the work that was registered
 8   in the Copyright Office may not be original or
 9   expressive or entitled to protection, and also the
10   argument about the license and the fact that under
11   California law, you really can't basically suggest that
12   a license can override what law may provide?
13             MR. HAYES:  Sure.
14             Well, first of all, on the boot-loading point,
15   the answer is pretty simple.  He referenced Lexmark v.
16   Static Control and that a program there was found not
17   protectable.  And that was the toner-loader program.
18   I'll refer you to 387 F 3rd of page 529 where the Court
19   says:
20                 "The toner-loader program for one of the
21             printers that was at issue comprises 33
22             programming instructions and occupies 37 lines
23             of memory.  The other one for a different
24             printer was 45 programming instructions and 55
25             lines of memory."
0293
 1             If you know anything about programming, that
 2   is a less-than-miniscule program.  The boot loader is
 3   10,000 lines of code.  So, there's no question this
 4   is -- has originality here.  It controls a number of
 5   functions.  It is not merged with its functionality.
 6   It's a million times the size of the programs, or
 7   whatever the math works out to be, that were at issue in
 8   Chamberlain case.
 9             With respect to the California law point that
10   was raised, first of all, I don't share his
11   interpretation of California law, and I think an awful
12   lot of licensing lawyers would be very surprised by that
13   interpretation, and do indeed believe that prohibitions
14   on modifications can eliminate the Section 117 rise.
15             But the broader point is, this exemption
16   process is not here to argue about what California law
17   is or what Kentucky law is or what New York law is.
18             What the process is about is that they have --
19   the proponent of the exemption has to satisfy a burden
20   that the uses that would be enabled by the exemption are
21   noninfringing.  We think they are not under 117 and
22   under fair use.
23             They have argued it's why they are, but at a
24   minimum, this is a very contested issue.  And the Office
25   should be granting exemptions only where it is very
0294
 1   clear that the uses that are being prohibited are
 2   noninfringing.  It is far from clear here that these
 3   uses are noninfringing, and that should stop the
 4   inquiry.
 5             MS. PETERS:  Okay.  Thank you.
 6             David.
 7             MR. CARSON:  One question.
 8             Explain to us why you believe we are, in fact,
 9   talking about an access control followed by 1201(1)(A).
10             MR. von LOHMANN:  Yes.  This is simple.
11             I think, quite frankly, David has misconstrued
12   what it is we're asking -- what the Technological
13   Protection Measure that we are asking to circumvent
14   protects.  We are not saying that we need to circumvent
15   in order to access applications.  This is circumventing
16   access controls that apply to the firmware.
17             So, the simplest answer to your question:
18   Apple's firmware is encrypted when it is distributed.
19   It uses an archetypal access control measure.
20             In order for the Pwnage Tool to create altered
21   portions that can then be loaded in order to allow the
22   phone to use other applications, it must decrypt the
23   firmware, which again is distributed in an encrypted
24   block, in order to make the modifications.  That
25   decryption is obviously not authorized by Apple.
0295
 1             This is obviously a 1201(A)(1) issue.  I think
 2   the notion of this copy control is a complete red
 3   herring.  That's for starters.
 4             And then, of course, more to the point -- to
 5   pile on top of what should already be obvious, of
 6   course -- then each key-checking operation of the chain
 7   controls access to the next layer of code.  If that key
 8   check is not performed, the firmware is not decrypted
 9   and made available to the iPhone itself.
10             So, we are not talking here about a
11   CD-copy-protection situation where the material is made
12   freely available.  There's just a measure that prevents
13   copying or, you know, something that would stop
14   performing, or something like that.
15             We're talking about a work that starts its
16   life encrypted, and to which keys must be applied in
17   order to decrypt it, both to adapt it and, in fact, to
18   load it into memory.
19             So, in my view, that's straightforward, you
20   know, getting a red herring here.  So, creating the
21   modified firmware requires access, and it's encrypted.
22             Yeah.  I guess that's the clear answer.
23             MR. CARSON:  Okay.
24             David or Jos, is there anything to add here to
25   help us?
0296
 1             MR. HAYES:  Well, it's just incomplete.
 2             How do people usually protect works against
 3   modification?  They encrypt them.  They put a password
 4   on them.  They put a handshake on them.  There's all
 5   kinds of different methods.
 6             We're not saying this is not -- that it's only
 7   a copy control.  Things can be both copy controls and
 8   access controls.  But the way you prohibit modification
 9   is you encrypt something or you put a password on it,
10   and that's exactly what Apple did.
11             Fred himself in his explanation just now said,
12   What we want is to gain access to the operating system
13   so we can modify it.
14             That's the whole point.  These things are
15   encrypted so they can't be modified.
16             MR. CARSON:  Well, then anytime you use
17   encryption at least in part to prevent people from
18   modifying your code -- then would anyone who hacks
19   through that encryption be violating Section 1201(B),
20   regardless of whether their ultimate intent was to
21   modify it?
22             MR. HAYES:  I wouldn't go that far, but in
23   this particular instance, what is being requested is
24   jailbreaking.  And what that necessitates -- in their
25   own papers they admit -- is modification.
0297
 1             So, the reason they are gaining access to this
 2   OS, and the reason they have proposed an exemption for
 3   Pwnage Tool, is so that they can gain access to that OS
 4   to modify it.  That is clearly a copyright issue.
 5             MR. CARSON:  Well, then were we wrong -- have
 6   we been wrong for the past several years, that this --
 7   this is an access control? because I believe probably
 8   every use that anyone has come to us about with respect
 9   to circumventing ultimately ends up being copied -- I
10   mean, most of them have been anyway.
11             So, by your reasoning, I would gather, it was
12   wrong for us whenever -- when we -- where we have come
13   up with an exemption for the contents on DVD, we have
14   enabled people to make copies.  I gather by your
15   reasoning we were wrong to do that, because that, in
16   fact, was stripping the copy control and the purpose of
17   the people who wanted a -- who wanted to make copies --
18   I -- I guess we were wrong.
19             MR. HAYES:  Well, I was not involved in the
20   CSS copy control hearings.  I don't know exactly how
21   that was argued and whether 1201(B) was even raised.
22   So, I didn't come in fully prepared to say you got that
23   wrong.
24             I just say if you grant something here that
25   was put in place from the very beginning -- that's the
0298
 1   reason it was there -- it -- Apple's concern is that
 2   this OS get modified in ways that cause all of these
 3   things to happen.  In the case of VCSS, there's content
 4   out there that people want to use and unlock.  That's
 5   ultimately what they're trying to get.  And that's sort
 6   of a quintessential access control, because ultimately
 7   they want to make a copy of something.
 8             Apple put this here because this is an OS.
 9   Your average purchaser of the iPhone is not interested
10   in taking a look at the OS and saying, "God, what a
11   beautiful thing.  I want to copy this."  That's not what
12   they're interested in doing.
13             What the exemption is orienting toward is
14   modifying it.  Changing the way it behaves, the way it
15   functions, and that's why it was encrypted in the first
16   place.
17             It's an OS.  We don't want to have its
18   functionality be changed.  It's the heart of the phone.
19             When its functionality gets changed, lots of
20   things happen.  The phone gets gripped sometimes.  That
21   has happened.  It crashes in ways that people don't
22   understand.  It's the number one cause of crashes in
23   Apple's log support system right now.  And so, that's
24   why they set it up as a copy control.
25             MR. von LOHMANN:  And of course, they use an
0299
 1   access control to accomplish that.
 2             Just to clarify here, there's a little bit of
 3   confusion as well.  We are not with this exemption
 4   seeking to legalize Pwnage Tool, the trafficking of
 5   which may argue -- we certainly -- I'm sure, Apple would
 6   argue -- would violate the trafficking issues which the
 7   Copyright Office is not entitled to grant an exemption
 8   to.
 9             I personally think the tool is probably
10   covered by 1201(F), and therefore can be trafficked, but
11   none of that is with the Copyright Office.
12             We are asking that end users who use tools
13   like Pwnage Tool not be exposed to circumvention
14   liability for doing so.  And that is a very different
15   question.
16             As you all know, there is no bar on a user
17   circumventing a copy control.  Congress deliberately
18   left no prohibition on circumventing a copy control.
19   There's only a prohibition on circumventing an access
20   control.  That's what we're talking about.
21             The work is encrypted.  That's an access
22   control.  Certainly that's what everyone who's told you
23   this has assumed.  It is encrypted exactly the same way
24   DVDs are.  So, we're talking about users' ability to use
25   the tools, and that's precisely what this exemption
0300
 1   would be necessary for.
 2             And to the question which I think David sort
 3   of touched on, that, Well, but the tools are illegal, so
 4   an exemption would be useless, because the tools are
 5   illegal, of course, that argument didn't stop the Office
 6   from granting an exemption for the film professors, nor,
 7   in my opinion, is it illegal to download and use -- or,
 8   to be clear, it is not a violation of 1201(A)(2) to
 9   download and use a circumvention tool.  That is not
10   trafficking a circumvention tool.
11             So, it is not, I think, obvious that users are
12   not allowed to have tools without violating the law,
13   even if it may be illegal for people to distribute tools
14   in a similar circumstance.
15             And in particular, many members of the iPhone
16   Dev Team are not located in the United States.  And so,
17   if they are distributing the tool from abroad, they may
18   not be violating any laws.  Even if they're distributing
19   here, I think they may not be violating any laws in
20   light of 1201(F).
21             But in any event, the user does not violate
22   any law by simply using the tool -- or, doesn't violate
23   1201(A)(2).  The question before us is whether they need
24   an exemption under 1201(A)(1).
25             MR. HAYES:  So, can I just make two responses?
0301
 1             First of all, we are concerned that the
 2   granting of this exemption will lead to massive
 3   infringements to 1201(B) in the form of users who say,
 4   "Great, I can jailbreak my phone," and so it's going to
 5   result in the trafficking of something that's illegal.
 6             But let me make a more important point.  Fred
 7   is very focused on the end user and the end user having
 8   the right to do this stuff.  As I argued, that the
 9   modified boot ROM that the user creates in the phone is
10   itself a device that is there only for the purpose of
11   circumventing the copyright controls on the OS.  The
12   user is doing activity in 1201(B).  Not just the makers
13   of the Pwnage Tool.
14             MR. von LOHMANN:  But there is no bar in
15   1201(B).  1201(B) only prohibits trafficking.  Nothing
16   we're talking about -- a user won't be trafficking, and
17   therefore that question --
18             MR. HAYES:  That's missing the point.
19             1201(B) prohibits the manufacturer of the
20   device whose sole purpose is to circumvent.  This was a
21   prophylactic measure.  It's the same kind of
22   prophylactic measure Congress puts in in all of the
23   piracy statutes.  They want to reach not only the act of
24   the distribution and the trafficking, but also the
25   manufacturer that leads to the trafficking.
0302
 1             So, if somebody does the manufacturing, even
 2   if they never distribute it, they're still in violation.
 3             And this is not the only case where Congress
 4   has set something up that way.  You know, they've done
 5   it in the movie space.  They've done it in the recording
 6   space.  Those industries have urged them to outlaw
 7   manufacturing as well as distribution.  So, distribution
 8   it not the only thing that triggers 1201(B).
 9             MR. CARSON:  To be clear about what you're
10   saying, you're saying that when an individual
11   essentially creates these circumvention tools solely for
12   his own use -- he never gives it to anyone else; creates
13   might even be an overstatement -- gets some help in the
14   software; when he loads it, it does it -- that's a
15   violation of 1201B.
16             MR. HAYES:  When it creates -- when it does it
17   in this way and creates that modified boot log, the user
18   is creating a circumvention component.  If you look at
19   1201(B), it talks about devices, technology, and
20   components.  They're creating a component whose only
21   purpose is to then circumvent copy controls on the OS.
22             MR. KASUNIC:  But that just doesn't really
23   fit, because the problem -- I'm trying to put this in
24   some perspective.  1201(B) would only cover the
25   trafficking services of circumvention that protect the
0303
 1   rights of the copyright owner.
 2             So, in this situation, the only things that
 3   could fit that situation -- and the individual user who
 4   wanted to hack that is free to, because Congress left
 5   that space open.  So, the only person who could be
 6   liable then would be somebody trafficking in a device or
 7   service.  And in this case, perhaps that could be Pwnage
 8   as the tool.
 9             Have there been any lawsuits against devices
10   or services that circumvent this use -- or, use of these
11   access controls?
12             MR. HAYES:  Have there been lawsuits under
13   1201(B) against services?  Yeah.  In the phone industry.
14             MR. KASUNIC:  Is it true that Pwnage is the
15   most widely used tool specific to jailbreaks?
16             MR. HAYES:  (Nonverbal response)
17             MR. KASUNIC:  And so, has there been any
18   action against that device?
19             MR. HAYES:  I didn't come prepared to answer
20   that.
21             MR. KASUNIC:  And then -- because then -- the
22   harder question, then, is, if under something like that,
23   a particular tool is created that falls within
24   1201(B) -- if that is then used by an individual to
25   accomplish what is not prohibited by an individual act
0304
 1   of circumvention, so the space that the individual act
 2   of circumvention of a use control, is -- there is no
 3   prohibition on that.  If that was the only problem, then
 4   if there was nobody to stop the tool, then that tool
 5   could get out to an individual, and the individual could
 6   use that to hack through the measure that protects the
 7   rights of the copyright owner.
 8             But what it can't do, is it can't -- it can't
 9   protect access to the copyrighted work.  And so, the
10   question here is, What kind of tools are these?  What
11   kind of Technological Protection Measure is it that it's
12   protecting?
13             And I heard that you were at least willing to
14   say that this is -- and as the question that David
15   asked -- that this is perhaps both, in your view, like
16   some -- it has the purpose of protecting the rights of
17   the copyright owner by encrypting, by essentially being
18   an access control.
19             MR. HAYES:  Well, I'm not saying that this is
20   an access control that happens to protect the rights of
21   the copyright owner.  I'm saying that this thing was
22   designed from the very beginning to be a copy control.
23   That's why it was designed into the iPhone.  Prohibit
24   modification.
25             Let me just -- I don't think we should get too
0305
 1   lost in this 1201(B) label of trafficking, and so maybe
 2   it's not useful.  Let me just be clear to the point that
 3   I'm making.
 4             The point is that when you use the word
 5   "trafficking," if what you mean by that is just
 6   distribution, then I would say that 1201(A)(2) and
 7   1201(B) both prohibit more than just distribution.  They
 8   also prohibit manufacture.  Now, I'm not aware of any
 9   cases that have construed the term "manufacture" under
10   1201(B).
11             MR. KASUNIC:  But the individual who uses a
12   device that was manufactured is not trafficking -- or,
13   manufacturing.  They're just using that to accomplish
14   circumvention.  But maybe we shouldn't get too caught up
15   in that.
16             MR. von LOHMANN:  Let me just point out that
17   this is frankly irrelevant to the question before the
18   Copyright Office today, because obviously the Copyright
19   Office cannot grant exemptions to a nonexistent
20   prohibition on circumventing copy controls, nor can it
21   grant an exemption to 1201(B), the actual 1201(B) we
22   have.
23             MR. KASUNIC:  Because if there isn't any
24   access control, then we shouldn't even be sitting here.
25             But we're assuming now that there is an access
0306
 1   control, that this is protecting access to the
 2   copyrighted work, and that then the question is, if
 3   somebody's using another tool to do that, there isn't
 4   a -- Congress did create a bar of prohibition on
 5   circumvention of an access control.
 6             So, that would be a problem within the scope
 7   of this Rulemaking, of whether an individual could use
 8   something like Pwnage or some other tool to circumvent.
 9             One other --
10             MR. HAYES:  Can I just make one last point?
11   Then I will stop.
12             What I don't want to get missed here is that
13   the way the exemption is worded, it could cover activity
14   by the end user that is prohibited by 1201(B), and the
15   Office is not empowered to do that.
16             MR. KASUNIC:  We wouldn't purport to.
17             MR. von LOHMANN:  And nor are we asking you
18   to.
19             MR. KASUNIC:  In terms of -- well, let me ask
20   one basic question.
21             Fred, do you believe that once someone
22   jailbreaks a phone -- that Apple should still respect
23   the warranty?
24             MR. von LOHMANN:  No.  And I don't believe
25   they owe them any support, nor do I believe people what
0307
 1   make apps in the App Store owe them any support.  None
 2   of that is at issue here, just as I wouldn't expect my
 3   Toyota dealer to respect a warranty after I added a
 4   turbo charger to my car.
 5             MR. KASUNIC:  So, essentially, users are on
 6   their own if they jailbreak their phone, and Apple owes
 7   them no further duties or obligations.
 8             MR. von LOHMANN:  And in fact, Apple has made
 9   that repeatedly clear.  In fact, it's well known that
10   Apple stores will refuse to service or replace iPhones
11   that have been jail-broken.  That's a standing policy.
12             MR. KASUNIC:  There was some question -- I saw
13   some discussion in a comment that this was creating a
14   substantial financial problem for Apple, because, I
15   guess -- is there not a way to quickly be able to
16   identify a jail-broken phone?
17             MR. JOSWIAK:  There's not.  That's why that
18   may work if somebody can actually walk in the store and
19   see that.  It's not always clear.  It's not always clear
20   to the customer why they're having a problem either.
21             And the phone doesn't filter whether
22   they're -- you know, the telephone call to Apple doesn't
23   have any way of filtering whether that phone was
24   jail-broken.
25             It's still a support call.  And that customer
0308
 1   expects support, because again, they have no idea that
 2   what they did has made their product as unstable as it
 3   is.
 4             Why should they?  There is nothing that came
 5   from the Pwnage people that said, By the way, your phone
 6   is going to crash a lot when you do this.
 7             MR. KASUNIC:  But just one thing.
 8             It may fail to -- you may not be able to
 9   update the iPhone after, but wouldn't maybe one step be
10   to just verify that it was -- before going any further,
11   verify that is was -- there was a problem or the
12   integrity of the system had been compromised?
13             MR. JOSWIAK:  Well, that can happen at the
14   time of the software update, if the software was damaged
15   by the tool. Pwnage wasn't a specific example I was
16   referring to for the damage.  That was done by some
17   other software that actually, you know, in trying to
18   unlock the iPhone it damaged the software, again, in a
19   way that couldn't be updated.
20             But again, Pwnage is just an example of
21   software that goes through these types of steps to hack
22   the iPhone and modify the OS.  Once you modify things,
23   again, anything can happen.  And it's hard enough when
24   we modify.
25             This is, as you know, a very sophisticated
0309
 1   product.  It's hard enough when we modify things in a
 2   very intended way to make sure that we're managing and
 3   not regressing and not causing problems in other areas.
 4   There's a lot of work necessary to do that.
 5             As soon as hackers start doing it, all bets
 6   are off, and that's why the phone becomes as unstable as
 7   it does.  And again, there's just no denying that.  And
 8   customers don't realize that.
 9             It still looks like an iPhone to them, but
10   they've damaged it in some way that certainly affected
11   the performance and stability of that phone.
12             MR. KASUNIC:  So, if there's no denying that,
13   do you deny that?
14             MR. von LOHMANN:  No one accidently jailbreaks
15   their phone.  So, the users are well aware that they
16   have jail-broken their phone.  And Apple and everyone is
17   welcome to explain to them the risks.
18             MR. KASUNIC:  But can Apple find out easily
19   and quickly if a phone has been jail-broken?
20             MR. von LOHMANN:  Apparently they can, because
21   in their own comments they point out, The following
22   number of calls have been from jail-broken phones.  The
23   following number of crash reports have been from
24   jail-broken phones.
25             MR. KASUNIC:  Although it may take them a very
0310
 1   long time --
 2             MR. JOSWIAK:  Exactly.  Exactly the right --
 3   it takes a lot of cost to get that.  And again, these
 4   are disproportionately high rates of crashing.
 5             And the customer doesn't realize that that's
 6   why the problem they have is the problem they have.  "My
 7   phone crashes a lot.  Damn Apple."
 8             That goes back to the whole point of
 9   damaging -- they have no idea that what they did just to
10   install this app to get this SMS to ring multiple times,
11   which by the way, we do.
12             (To Mr. von Lohmann)  I think you should
13   update your user.  We actually have that functionality.
14             But anyway, they don't realize the problems it
15   causes.
16             MR. von LOHMANN:  So, you just heard the basic
17   point.  This is about protecting a branding concern, not
18   about saying that this is infringing, not about
19   protecting the copyright interest in the firmware.  This
20   is about a branding concern, and frankly not relevant to
21   the DMCA.
22             Apple has many other avenues available to it.
23   In fact, when asked about this very issue, Steve Jobs,
24   the CEO of Apple, answered, Well, you know, we play a
25   cat-and-mouse game with the folks who develop these
0311
 1   things.  We update the code.  It disables versions that
 2   are jail-broken.  This has happened repeatedly.
 3             So, it's not as though Apple is left powerless
 4   to control their support costs.  They, in fact, are
 5   engaged in very real efforts to, you know, minimize
 6   this.  And I don't -- you know, again, let's have that.
 7   That's the traditional market when you try to create a
 8   closed ecosystem.
 9             MR. KASUNIC:  But that wasn't what I heard.  I
10   think what I heard was that they currently don't have an
11   easy way of identifying that.
12             So, if we put these together, that, okay, you
13   admit that they should be able to jailbreak and that
14   would void the warranty -- if we could have that clear
15   at that point and Apple knew they wouldn't have to touch
16   it anymore, then perhaps that would simplify this
17   problem and some of the other concerns, because there
18   are a lot of other concerns.
19             Cash and instability, the malfunction, safety
20   and privacy, offensive content, viruses, the inability
21   to update may affect copyright.  But many of those other
22   ones, while laudable goals, are probably not
23   copyrightable interests in terms of those do have more
24   to do with the market.
25             But if Apple has no way of identifying that
0312
 1   that is -- then there is significant cost to the
 2   copyright owner in terms of continuing to try to service
 3   what they only much later on identify as a jail-broken
 4   phone.
 5             MR. von LOHMANN:  Yeah.
 6             The simplest way to determine this is ask the
 7   user, "Did you jailbreak your phone?"  No iPhone owner
 8   accidentally jailbreaks their phone.  It's a relatively
 9   involved process.
10             So, if the owner lies to the support call,
11   then I don't really have an answer to that.  But that's
12   no different than if you ask the person whether or not
13   their phone was still in warranty and they lied to you.
14   Right.
15             The quickest way -- if you can physically
16   examine the phone, that's easy.  You will see there are
17   applications that are not from the App Store -- CEDIA
18   being the most obvious one, the alternative App store.
19             If the person is calling, you can just ask
20   him.
21             MR. KASUNIC:  But there are easy ways to find
22   out whether something is still under warranty; right?
23             MR. JOSWIAK:  If it's under warranty, sure.
24   We know that.  That part being, you're saying, aside
25   from being jail-broken, absolutely.
0313
 1             MR. METALITZ:  Can I add one point on this
 2   about whether these are copyright injuries or market
 3   injuries or all the other things that were mentioned
 4   there?
 5             I think maybe we just haven't gotten to this
 6   yet, but it's clear what Congress was intending to do in
 7   enacting 1201, was to encourage copyright owners to use
 8   Technological Protection Measures in order to, among
 9   other things, increase the -- promote of development and
10   dissemination of copyrighted works.
11             I think the evidence you've heard from Apple
12   is that it is succeeding in that role, and some people
13   don't think 35,000 applications is enough, or that it's
14   the wrong application, or something like that, but I
15   think if you look at it in the broader context, is this
16   market developing the way Congress intended and wanted,
17   facilitating Technological Protection Measures to be
18   promoted, and did it direct the Copyright Office to
19   allow the exemption to allow the circumvention of these
20   highly successful, if you accept this evidence, use of
21   facilitated Technological Protection Measures...
22             So, you can characterize that as protecting
23   the brand and the ecosystem, and so on and so forth, but
24   those don't necessarily sound like copyright terms.
25             But if you look at the intent of the statute
0314
 1   and what Congress asked the Copyright Office and the
 2   Library to do with it that fits it pretty well, that
 3   this type of harm, this type of injury, may be a strong
 4   argument against recognizing the exemption.
 5             MR. KASUNIC:  Well, since this is an operating
 6   system essentially in this device, would any computer
 7   company be able to prevent somebody from putting
 8   particular programs that were not preapproved on their
 9   computer or not be able to utilize some --
10             MR. METALITZ:  Can they do that
11   technologically, or can they do that legally?  The
12   answer is yes in both cases.
13             MR. KASUNIC:  Legally and technologically.
14             Then why is it different?
15             This is a modified -- on the iPhone is a
16   modified Apple OS operating system; right?
17             So, really, we have a little computer.  And
18   why is a phone more vulnerable to all these problems
19   that computers and laptops are pretty robust as well,
20   and could cause many of these other problems?
21             If it's all legal to do on a computer, why is
22   it illegal to do on a computer that's --
23             MR. METALITZ:  Well, if it impacts -- that's
24   what the practical impacts have been.  That's the way
25   that marked was developed.
0315
 1             But the real question is, Did Congress intend
 2   when it adopted the DMCA and gave you authority to
 3   recommend exemptions that it was hostile to the idea
 4   that a copyright owner would be allowed to determine
 5   which applications could interoperate with its software?
 6   To the extent it was concerned about that, it enacted
 7   1201(F).
 8             MR. KASUNIC:  But could they -- you said it
 9   was legal and technologically feasible to do that with a
10   laptop, so is it only legal because there's no
11   Technological Protection Measures that's preventing
12   people from doing it on laptops or --
13             MR. METALITZ:  If I wanted to come up with an
14   operating system for a laptop today that did not open
15   and did not allow a lot of interoperability, I could
16   certainly do that if I wished.  But it might not be a
17   very smart market position, but I certainly could do it.
18             Is there a legal impediment to my doing it?
19   No.  There might be a marketing impediment, something
20   that would make it a bad idea the way the market for
21   computers has developed.
22             Well, I agree that it's been a little harder
23   to draw the line between the phones and the computers,
24   and we talked about this earlier -- in your earlier
25   session, but the fact is, the markets are different.
0316
 1             MR. JOSWIAK:  And protecting the OS from
 2   modification is not unique to the iPhone.  Again, PCs,
 3   other phones protect their OS from modification.
 4             MR. HAYES:  And I want to make a point that I
 5   hope isn't getting lost.  Apple did not put these
 6   measures in simply to protect their brand.
 7             I mean, this is not all about protecting a
 8   brand or something.  Somebody has said that.  We put up
 9   those as examples of damage that is going to flow from
10   undoing the protection that Congress entitled us to
11   have.  Those are examples of what's going to ensue.
12             And you, in your Notice of Inquiry and every
13   hearing that you've had, have said we have to balance
14   the benefits of the protection measure against the harm
15   and the benefits of the exemption against the harm.  All
16   of those were in play.
17             We're trying to let you know there's some real
18   harms here that you need take into account.  That does
19   not negate the fact, though, that there's still a
20   modification going on here.  That's a copyright
21   interest.  It's a derivative work.  It's an unauthorized
22   modification that we believe is infringing.  It is a
23   copyright issue.
24             MR. CARREON:  Only if 117(A)(1) is not, in
25   fact, to protect the owner from making the modification.
0317
 1             MR. KASUNIC:  One other thing we have to look
 2   at is what the likelihood that during the next
 3   three-year period, is this going to be a problem.
 4             To what extent have problems existed that --
 5   or, that the desires that people had, are they affected
 6   by the market in terms of somebody wants a particular
 7   feature on an iPhone within some period of time, and
 8   perhaps within a three-year period of time that feature
 9   becomes available on the iPhone?
10             Does that happen?
11             MR. JOSWIAK:  Do we introduce new features
12   that customers want?
13             MR. KASUNIC:  Right.
14             MR. JOSWIAK:  Clearly, and in Fred's example,
15   we've addressed that customer's need of having the
16   repeating SMS.  And actually, it was written by doctors
17   who requested that.
18             We've added literally, you know, hundreds of
19   features since we've introduced the iPhone.  The iPhone
20   OS 3.0 that we're introducing this summer has over a
21   hundred customer features.  It has over a thousand
22   developer APIs coming out this summer.  So, clearly we
23   keep moving this forward and addressing the needs of our
24   partners and our customers.
25             MR. HAYES:  And a larger point here is that
0318
 1   Fred had some anecdotes of some people who wanted a
 2   particular feature, but he hasn't satisfied the showing,
 3   is this widespread?  Are there tens of thousands of
 4   people, you know, that want --
 5             MR. von LOHMANN:  There are hundreds of
 6   thousands.  We have a showing in the record.  There are
 7   1.8 million jail-broken phones, over 400,000 in the
 8   United States.  There are obviously a large number of
 9   users involved here.  That's in the record.
10             So, sure, Apple does introduce new features.
11   Some of those features they reserve solely for their own
12   software in order to prevent competition on the iPhone.
13             Some of the new APIs -- there may well be over
14   a thousand APIs for developers coming out this summer.
15   There will, however, continue to be other APIs that will
16   only be available to Apple developers.
17             This is -- you know, again, it's not directly
18   copyrighted.  I think the thing to underscore here is,
19   what are we talking about.  Unlike what Mr. Metalitz
20   suggested, this is not the "you want to play your DVD on
21   a -- in a toaster problem," as he suggests.
22             The work that is being protected by the access
23   control is the firmware.  Are there alternatives to the
24   firmware on the iPhone?  No.  There is not a, "I can go
25   find a firmware somewhere else to use on my iPhone."
0319
 1   You can only use the firmware that is available,
 2   particularly the boot loader and all, you know, all the
 3   OS components that Apple has provided.
 4             So, there is not an alternative in the sense
 5   that you could play your DVD on a different player.  You
 6   could go get the same movie on VHS.
 7             The work that is being protected is the
 8   operating system, and there is not -- there are not
 9   other alternatives for the operating system.  There may
10   well ultimately be applications that are available on
11   other things, but that's not what this exemption is
12   about.
13             We're not asking for an exemption to
14   circumvent access controls on applications.  We're
15   asking for an exemption to circumvent access controls on
16   the operating system.
17             MR. METALITZ:  The only reason we're asking --
18   I mean, it's to run applications on this platform.  You
19   could play your DVD on -- if you can't play your DVD on
20   Linux, you can play it on a CSS-compliant machine.
21             MR. von LOHMANN:  Okay.
22             MR. METALITZ:  Every time -- every three
23   years, people come in and say, "We should be allowed to
24   circumvent so we can run applications on the platform we
25   want to run it on instead of the platform it's designed
0320
 1   for."  That's what this is about.
 2             MR. von LOHMANN:  That is not true.
 3             All of those exemptions have sought exemptions
 4   to circumvent access controls on those copyrighted
 5   works -- the movies, the video game.  That is not what
 6   this exemption is about.  This exemption is about
 7   circumventing access controls on the operating system.
 8             MR. METALITZ:  So, you would presumably
 9   support the exemption if it was conditioned so that it
10   didn't apply to running any applications on the
11   operating system that you --
12             MR. von LOHMANN:  Absolutely.
13             I don't need an exemption to run applications.
14   The applications don't have access controls on them.
15             MR. METALITZ:  But in other words, if you
16   circumvented for the purpose of running an application,
17   that would be outside the scope of the exemption.  So,
18   if that's the case, then that probably would be
19   acceptable.
20             MR. von LOHMANN:  We're not asking -- the
21   exemption process is not about the purpose.  It is about
22   the access control on the work and whether there are
23   alternatives.
24             MR. JOSWIAK:  I'm a little confused as to
25   Fred's point that there is no alternative for the
0321
 1   customers on the operating system.
 2             We represent less than two percent of the
 3   market share of phones in the world.  Customers have
 4   other choices.
 5             We are abundantly clear as to what the rules
 6   are on the iPhone and how we've gone to market.  There
 7   are alternatives.  It seems to be working for a lot of
 8   customers.
 9             And again, the iPhone, as I talked about, is
10   number one in customer satisfaction.  It seems to be
11   working, but they do have alternatives.
12             MR. HAYES:  And let me just follow up.
13             Fred just justified to you his showing of harm
14   by saying there's 1.2 million or -8 million, or whatever
15   it was, customers who have jail-broken their phone
16   because they want to run apps on the iPhone.  That was
17   the whole showing he said they've made.
18             This is being justified on the ability to run
19   the apps on the iPhone as opposed to another phone.
20   That's where the 1.8 million comes from.
21             And in all of the -- and Steve is correct.  In
22   the other exemptions that you guys have considered, you
23   have noted that if the ultimate use, the noninfringing
24   use of the work that someone wants to make can be done
25   on another platform, that inconvenience is not a reason
0322
 1   to grant an exemption.  They've said that many times.
 2             And the same applies here.  There are other
 3   phones on which these apps can be run.  It's just that
 4   Fred would prefer, and many of the people out there
 5   would prefer a world where they can run those apps on
 6   the iPhone.
 7             But nothing -- nothing about copyright policy
 8   or the DMCA policy says that a copyright owner is
 9   required to open up the use of its copyrighted work to
10   the entire world, if -- to use it in ways that were not
11   intended requires you to infringe the copyright, that's
12   why the DMCA exists.
13             MR. von LOHMANN:  And if it were the case that
14   this were infringed copyright, Mr. Hayes, would be
15   correct.
16             This is not infringed copyright, and the whole
17   purpose of the Rulemaking is to permit exemptions where
18   noninfringing uses -- in this case, the creation of an
19   adapted version of the operating system for an obviously
20   noninfringing purpose.  No one here has suggested
21   running legitimately acquired software from
22   unauthorized -- you know, from places other than the App
23   Store is somehow infringing.
24             So, I'm happy to engage on this question of
25   whether or not jailbreaking your iPhone infringes.  I
0323
 1   think we've already talked about this in the context of
 2   117, but from my perspective, it is noninfringing.  We
 3   disagree about that.  But assuming that that's the case,
 4   it's exactly in the heartland of what the Rulemaking
 5   process is.
 6             MR. HAYES:  But you made a point about, it's
 7   not infringing for the end user to make the mod.  We
 8   disagree on that.  But then the end user has to take the
 9   modified OS, load it into RAM, and run it.
10             And I can cite you a slew of cases that have
11   said it.  Let's start with MAI versus Peak.  There's a
12   whole lot of authority that says when you load a copy --
13   an unauthorized copy into RAM and run it, you are
14   copyright infringing.
15             MR. von LOHMANN:  That would make 117(A) a
16   dead letter, because every time you adapt code under
17   117, you --
18             MS. PETERS:  We will analyze it --
19             MR. HAYES:  Of course.  Of course.
20             MS. PETERS:  -- the cases in Section 117.
21             Unless you want to dedicate yourself to
22   spending Friday evening with us, I think Rob has one
23   more question and Ben has one more question.
24             MR. KASUNIC:  And just to follow up.  Last
25   question.
0324
 1             You can be rest assured that you will, without
 2   question, get further questions.
 3             That the -- in terms of 117(A), Fred, just
 4   explain to me how this works in terms of this situation,
 5   because the way I read that is that in terms of making
 6   the adaptation of that computer program, that such a new
 7   copy or adaptation of that program is created as an
 8   essential step in the utilization of the computer
 9   program -- that computer program in conjunction with a
10   machine, and is used in no other manner.
11             So, this would be adapting the program so that
12   it would work on the machine; right?
13             And it's not a question of whether it would
14   work on a -- it would make other computer programs work
15   on the machine.  It's to -- if you purchase --
16             MR. von LOHMANN:  Right.  That's absolutely
17   right.  I agree.
18             The point here is, the adaptation is made in
19   order to run on the machine with which it was originally
20   intended to run, namely the iPhone.  And that right
21   there --
22             MR. KASUNIC:  What is the computer program?
23             MR. von LOHMANN:  The operating system.  The
24   firmware.
25             MR. KASUNIC:  Okay.
0325
 1             And how does the other app fit into this
 2   equation that's created by the third party?
 3             MR. von LOHMANN:  It doesn't.  It's not
 4   relevant; right.
 5             The point is, the only arguably infringing
 6   event occurring here is the creation, possibly, of a
 7   derivative work from the operating system, as you saw on
 8   the screen the creation of a modified boot loader and a
 9   modified version of the operating system.
10             That is the only arguably infringing act
11   involved here, and so 117 excuses the creation and use
12   of the adaptation of the operating system.  There is no
13   infringement when you go and purchase an application
14   from an independent app store.
15             MR. KASUNIC:  But that doesn't envision the
16   fact that the computer program would not work with that
17   machine or device in the first instance, which is why
18   you have to adapt it.  So, here, the operating system
19   and boot loader works perfectly well with the machine or
20   device.  It's just that you wanted to do other things.
21             MR. von LOHMANN:  Right.
22             And 117(A) is intended to accomplish exactly
23   that, as Krause versus Titleserv makes clear.  They had
24   software that they needed to adapt to do other things,
25   and that's what the Second Circuit said was all right.
0326
 1             MR. HAYES:  Yeah.  Obviously, we disagree with
 2   that interpretation in Krause versus Titleserv.
 3             The whole -- Fred's initial argument proves
 4   way too much.  He said, Look, as long as you're adapting
 5   this thing to work on the same machine for which you
 6   purchased it, it's under 117.
 7             Well, if that was true, we wouldn't have had
 8   Krause v. Titleserv.  That's not what the Second Circuit
 9   held.
10             There are some boundaries around the scope of
11   the adaptations you can make under Section 117.  And
12   just because you're using it on the same machine is not
13   a talisman that says, I'm in 117.  End of argument.
14   That's not --
15             MR. von LOHMANN:  And I don't dispute that,
16   and I'm sure you will all read pages 13 and 14 in the
17   CONTU report as we both have, and I trust you'll come to
18   your own conclusions.
19             MR. CARSON:  Everyone agree that Krause is
20   good law, whatever it is?
21             MR. von LOHMANN:  Yes.
22             MR. HAYES:  Yes.
23             So, less than four years old now and --
24             MR. von LOHMANN:  For that matter, you know,
25   sort of the only case to fully ventilate those sections
0327
 1   of the statute, so we don't really have much else to go
 2   on.
 3             MR. GOLANT:  Let me ask you -- I'll direct it
 4   to Apple.  This is about your relationship with AT&T.
 5             I would just like to know, does AT&T require
 6   you to prohibit certain applications?
 7             MR. JOSWIAK:  They do have certain rules to
 8   their -- they do have certain rules to their customers
 9   in their Terms of Service and what kind of applications
10   are allowed.
11             We have tried to be sensitive, certainly, to
12   our partners.  And again, as I mentioned, there's 30 of
13   them, at last count, around the world.  So, again, make
14   sure that the applications that we're allowing in
15   continue to allow their networks to be viable.
16             For example, you saw in my slide that we don't
17   allow bandwidth box.  Well, generally the nice thing is,
18   what that results in when we find an application that
19   gets submitted that is using too much bandwidth, most of
20   those are fixed in conversations with the developer as
21   to how to use things more efficiently.
22             But again, the important part to realize is
23   these networks are shared by everybody, whether you have
24   an iPhone or not, and we have to be sensitive to how the
25   phone uses and the iPhone applications use that network.
0328
 1             MR. von LOHMANN:  Can I just point out that
 2   there are plenty of GSM networks that permit mobile
 3   devices that are capable of running any application.  It
 4   is not the case that GSM operators live in fear of
 5   general-purpose computing devices that happen to have
 6   mobile phone radios built into them.
 7             One need only look at the BlackBerry, all the
 8   Windows mobile devices, none of which have the same,
 9   "You must only run approved applications requirements."
10   And those phones run fine on other GSM networks.
11             Obviously, the G1 phone is much more open --
12   not as open as we'd like, but much more open, and
13   T-Mobile doesn't appear to have a problem with that.
14             So, there are -- those are --
15             MR. JOSWIAK:  The big difference is -- and
16   again, why this has been such a revolution, as I've
17   mentioned, is the fact that we deliver the App Store on
18   every single device through every single carrier, you
19   know, whether it's an iPhone here in the U.S. or in
20   Europe or in Asia, and that delivers -- has the ability
21   to deliver those applications to every customer the
22   developer as access to.
23             Before the iPhone and the App Store, what had
24   happened is that applications were very difficult to get
25   through the carriers, because carriers are the gateway
0329
 1   to what can run in their network.
 2             When you bought a phone, you know, completely
 3   unlocked and away from their network, then certainly,
 4   yeah, there were things you could do.  But the phones
 5   that were delivered through that carrier, it was very
 6   difficult to get applications.
 7             But again, it was us establishing that trust,
 8   that we could deliver this App Store without them being
 9   the gatekeeper, because they are not the gatekeeper, we
10   are.  We control the product.  We control the products
11   that we sell through the App Store.  Not the carrier.
12             That, again, has been very different than what
13   has existed in the mobile industry before the iPhone and
14   the App Store.
15             MR. GOLANT:  Tell me this:  I read somewhere
16   that you can't get an iPhone in Vermont or in Alaska.
17             Is that true?
18             MR. JOSWIAK:  Vermont and one of the Northeast
19   states doesn't have a GSM network, doesn't have the
20   towers.  I'm not sure if that's still the case or not.
21             MR. HAYES:  Now that Justice Seuter retired,
22   he'll have it.
23             MR. JOSWIAK:  If that's important, I can
24   follow up.
25             MR. GOLANT:  All right.
0330
 1             You also said that Apple gets 30 percent of
 2   the revenue from the apps that are sold.
 3             Do AT&T or any of your other partners get any
 4   cut in what's sold?
 5             MR. JOSWIAK:  No.
 6             MR. GOLANT:  And this is a three-part
 7   question, then I'll concede my time.
 8             Tell me the process of approving --
 9             MR. JOSWIAK:  And part of that, I'll tell you,
10   there's not a whole lot left over by the way.
11             MR. GOLANT:  -- the process of approving an
12   application, of rejecting an application, and of
13   removing an application.
14             MR. JOSWIAK:  Say that again.
15             MR. GOLANT:  So, approving an application, do
16   you tell your people you have a standards and practices
17   manual that --
18             MR. JOSWIAK:  Yeah.  We have reviewers that
19   have a checklist of the guidelines as to what can be
20   approved and what's not.
21             MR. GOLANT:  And that goes through the chain
22   of different people to make sure that people make the
23   right decision?
24             MR. JOSWIAK:  It does.
25             MR. GOLANT:  And so, when you reject an
0331
 1   application, you said that you accept 96 percent.  So,
 2   you reject 4 percent.
 3             But can you tell me in real numbers how much
 4   is 4 percent?
 5             Is it a million?  Is it 100,000?
 6             MR. JOSWIAK:  Well, if you do the math, we
 7   have 35,000 up there.
 8             Now, certainly again, we -- you know, one of
 9   the important parts to add, by the way, that is the fact
10   that when we reject an app, oftentimes -- or, one of --
11   the number one reason, by the way, is it crashes, but in
12   nearly every case, we try to figure out how we can get
13   that application approved for the developer.
14             The developer will go back to the developer
15   and tell them why it's denied, and we're willing to work
16   with them to figure out what do they have to do to fix
17   that application to get that application approved,
18   because again, it's in all our interests to get
19   applications up on the App Store.  It's in our
20   customers' interest.  It's in our developers' interest.
21   It's in ours.  We just got to make sure that it adheres
22   to the rules.
23             MR. von LOHMANN:  Let me just point out, there
24   are a number of rules that mean certain categories of
25   applications don't get submitted at all, because it's
0332
 1   clear from the rules, Apple will not accept them, and
 2   that's part of what prompted Mozilla and Skype to file
 3   on our side.
 4             MR. GOLANT:  So, I've read somewhere in an
 5   article in one of the journals that you have
 6   nondisclosure agreements for people who get rejected,
 7   that they're not supposed to say anything about why they
 8   got rejected.
 9             MR. JOSWIAK:  Well, the program itself has a
10   nondisclosure rule, but I don't have anything specific
11   to a rejection letter.
12             MR. GOLANT:  I have an article.  That's why I
13   was asking.
14             And lastly -- and this is a three-part
15   question -- are removing -- how do you determine when to
16   remove a program?
17             I'm speaking about the controversy from last
18   week about the shaking-baby application.
19             Who decides that and how --
20             MR. JOSWIAK:  Well, again, it's a similar
21   process.  Obviously, there's escalation when something
22   has been found to be approved, you know, and it
23   shouldn't have.
24             That was a good example last week.  You know,
25   it was something that we regretted having seen get
0333
 1   approved.  It was -- we were unaware of it at a -- at
 2   senior levels, until we became aware through the press.
 3   Of course, we immediately had that withdrawn.
 4             There aren't many cases of removal.
 5             MR. GOLANT:  So, if there's consumer anger,
 6   then you take a look at it a second time?
 7             MR. JOSWIAK:  There could be multiple reasons.
 8   I think one of the things that EFF cited in their paper
 9   was that somehow we were giving Google preferential
10   treatment.  They were using a private API, which is
11   probably worth even another quick aside.
12             Private APIs -- generally, our APIs that we're
13   still working on, they're not done, and we haven't
14   published them.  And the reason for that, again, is, you
15   know, we test our APIs, you know, under lots of use
16   cases.
17             When we're developing an API for a developer
18   and it's not fully tested or not fully -- we don't
19   release it.  If a developer uses that private API,
20   that's against the rules.
21             They cited that there was a Google application
22   that had used the private API, and somehow that was
23   okay, because they were a friend of ours.  It wasn't
24   okay.  Unfortunately, we didn't realize that when the
25   app was approved.  We went back to them, they fixed it,
0334
 1   and resubmitted the app in a way that everybody was
 2   happy.
 3             MR. GOLANT:  And this is just an overall
 4   thing, and I'll follow up later.
 5             Is there any First Amendment issues that we
 6   should be concerned about in the sense that if we
 7   granted an exemption to these applications --
 8             MR. HAYES:  Well, I didn't come here prepared
 9   to engage you on the First Amendment or constitutional
10   issues, but what I would say is that that has nothing to
11   do with the criteria that Congress has told to you --
12             MR. GOLANT:  Well, we should consider other
13   factors such as --
14             MR. HAYES:  Yeah.  Bit the primary criteria
15   is, Are these uses infringing, and, Are they even --
16             MR. METALITZ:  And is that question whether
17   they're a --
18             MR. GOLANT:  No.
19             I'm saying, we -- right now there's no
20   constitutional issues, because there's no government
21   involvement.  But we are now in the steps of, you know,
22   approving or rejecting an exemption, and I was wondering
23   if that step that we take has something to do with
24   speech involved in --
25             MR. METALITZ:  Well, there is a speech
0335
 1   provision in the DMCA, and that would be applicable to
 2   this case, so if there were some First Amendment problem
 3   with a 1201(A)(1) case that, let's say, Apple brought, I
 4   think that you would look to that to see whether -- it's
 5   not a question of the exemption.  It's just a question
 6   of the underlying laws.
 7             MR. HAYES:  Ben, if you do have a specific
 8   question on that, seriously, I didn't come in to talk
 9   about the First Amendment.
10             MR. GOLANT:  I see.
11             MR. HAYES:  So, I'm unprepared to answer that.
12             If you have a question about that, and you
13   think it's relevant to the decision, and can tell us
14   why, well, put it to us and we'll respond in writing.
15             MR. von LOHMANN:  Let me just point out on
16   your last question about the APIs that was brought up
17   here, while it may well be the case that Apple sometimes
18   holds APIs until they're fully tested, that's certainly
19   not always the case.
20             One API that independent developers and
21   authorized developers have complained about from the
22   outset is Apple reserving the right to run applications
23   in the background solely for its own application.
24             So, I'd encourage you -- next week, you'll
25   have the opportunity to talk an actual app developer who
0336
 1   can answer some of those questions.
 2             MR. JOSWIAK:  And since you brought that up,
 3   I'll address that, if that's okay.
 4             We hate background applications in general,
 5   because they suck battery life from the product.
 6   Background applications can take as much as 80 percent
 7   of your standby power away, not to mention they compete
 8   for performance with the foreground applications, again,
 9   in a way the customers don't understand.
10             One choice to answer that is to present
11   customers with a task manager, some way for them to
12   manage the applications they're running.  But as I've
13   said earlier, we try to create product that's for
14   regular people.
15             So, we've given another way to solve that with
16   our iPhone OS 3.0, which again is to give them what's
17   called "push notification" systems so that the developer
18   can solve 80 percent of their needs at the very least
19   with this system, and again, notify customers through a
20   much more battery-efficient single pipe that we provided
21   to the iPhone.
22             MR. von LOHMANN:  Until then, only Apple
23   applications will have the right to run in that mode,
24   and that's the problem.
25             MS. PETERS:  Okay.
0337
 1             Well, this has been the end of a very long
 2   day.  And you're the last panel, and I thank each and
 3   every one of you for helping us try to get through with
 4   the proposed exemption.
 5             I think you will be getting questions, and
 6   especially -- even maybe not right away -- after next
 7   week when we learn more and crystalize our thoughts a
 8   little bit more.
 9             But again, thank you, and enjoy the rest of
10   the evening.
11               (Whereupon, at 6:57 p.m., the Rulemaking
12                Hearing was concluded.)
13   
14                           ---oOo---
15   
16   
17   
18   
19   
20   
21   
22   
23   
24   
25   
0338
 1               CERTIFICATION OF COURT REPORTER
 2   
 3   
 4           I, KATY LEONARD, hereby certify that said
 5   Rulemaking Hearing was taken at the time and place
 6   therein stated; that the testimony of said
 7   panelists/witnesses was thereafter transcribed by means
 8   of computer-aided transcription; and that the foregoing
 9   is a full, complete, and true record of said testimony.
10           I further certify that I am not of counsel or
11   attorney for either or any of the parties in the
12   foregoing Rulemaking hearing and caption named, or in
13   any way interested in the outcome of this cause named
14   in said caption.
15   
16   
17   
18                               ___________________________
19                                 KATY LEONARD, CSR 11599
20   
21   
22   
23   
24   
25