Statement of Maria A. Pallante
Register of Copyrights and Director
United States Copyright Office
Subcommittee on the Legislative Branch
Committee on Appropriations
United States House of Representatives
113th Congress, 1st Session
February 27, 2013
Fiscal 2014 Budget Request
Mr. Chairman, Ms. Wasserman-Schultz, and Members of the Subcommittee:
Thank you for the opportunity to present the fiscal 2014 budget request of the United States Copyright Office.
The U.S. Copyright Office is keenly sensitive to its legal and fiscal responsibilities under the law, including its mission to operate more efficiently and more effectively in the 21st century. Over the past year, the Office of the Register has been engaged in a series of special projects to shape the future operations and public services of the Office. This undertaking has engaged staff of all levels and stakeholders of all kinds, from copyright owners to users of copyrighted works, technology experts, consumer groups, legal scholars and others.
Historically, the U.S. Copyright Office has played a critical role in ensuring that copyright law can function in the marketplace. Its copyright registration and recordation programs together constitute the world's largest database of copyright information, in turn facilitating copyright transactions large and small, and helping to fuel the greater intellectual property economy. The role of public records has become more important than ever in the digital age. In short, stakeholders are extremely supportive of the forward-looking groundwork the Office is doing, but they rightly want a better, stronger, and more technologically nimble Copyright Office as soon as possible. The Office can fund some improvements with the fees it receives for services, including the fees it charges authors and other copyright owners to register their works. However, not all of the services of the Office are for copyright owners. If its databases are to be fully indexed, freely searchable—and most importantly, functional in the digital environment—the Office will continue to require appropriated dollars.
For fiscal 2014, the Copyright Office requests a total of $52.952 million, offset by fee collections of $28.029 million, and licensing royalty collections of $5.590 million, applied to the Office's Licensing Division and the Copyright Royalty Judges. Specifically, our requests are as follows:
- A 2.4% increase ($1.071 million) over FY13 to support mandatory pay-related and price level increases affecting administration of the Office's core business systems and public services;
- A 2.0 % increase ($0.100 million) over FY13 in offsetting collection authority for the Copyright Licensing Division to support mandatory pay-related and price level increases affecting the administration of the Office's licensing functions; and
- $2 million to restore the Copyright Office's base funding.1
As noted above, the U.S. Copyright Office plays a critical role in securing necessary legal protection for American works of authorship and in sustaining large and small businesses in the information, entertainment, and technology sectors. It administers the national copyright registration and recordation systems and exercises associated regulatory authority in accordance with Title 17 of the U.S. Code. The Office's registration system and the companion recordation system constitute the world's largest database of copyrighted works and copyright ownership information. These systems are of increasing interest and importance in the digital age, not only within the United States but throughout the world. Several foreign governments have sent representatives to Washington in recent years to assess whether a registration or recordation system may be feasible in their own country.
Copyright and the Economy
In terms of the larger U.S. economy, authors, songwriters, book and software publishers, film, television and record producers, and others depend on the copyright registration and recordation systems to protect their creative works and business interests. Based on a study released in 2011 using data from 2010,2 these core copyright sectors—whose primary purpose is to produce and distribute creative works—accounted for more than 6.36% of the U.S. domestic gross product, or nearly $932 billion. The core copyright industries also employed 5.1 million workers (3.93% of U.S. workers), and that number doubled to over 10.6 million people (8.19% of the U.S. workforce) when those who support the distribution of copyrighted works were added into the equation. In its administration of the copyright system, the Copyright Office plays a key role in the healthy functioning of this segment of the national economy.
Challenges of the Current Fiscal Environment
The Office is navigating an increasingly challenging budget environment at the very time it must improve aging technology systems and upgrade business processes to meet the demands of the digital age. Since fiscal 2010, it has absorbed a 7.3% reduction in its appropriation. The overall effect was a 4.6% reduction in total budget authority, which takes into account offsetting collections. In fiscal 2012, the combination of the reduced appropriation and fees that were lower than expected required the Copyright Office to make significant cutbacks. The Office substantially reduced its information technology budget, indefinitely postponing critical upgrades to the Office’s electronic registration service that directly supports copyright commerce and affects both authors and users of copyrighted materials. The Office also reduced its workforce by 44 staff members—over 10% of the entire staff—through Voluntary Early Retirement Authority and Voluntary Separation Incentive Payments programs.
The accumulated results of budget cuts have taken a toll, and the threat of further cuts through sequestration only exacerbates an already difficult situation. Declining budget support has impacted or will impact the Office in the following ways:
- Although the Office is currently understaffed, it has reduced new hiring and reduced training, travel, supplies, and new equipment expenditures. These cuts have very real and negative impacts on the Office’s ability to meet its current demands, and having already made significant and repeated cuts to non-personnel spending leaves precious little flexibility to absorb future cuts.
- The Office is concerned that continued funding reductions will have an adverse impact on the Office's registration program, potentially leading to another backlog of copyright claims awaiting processing. The Office successfully eliminated a claims backlog in fiscal 2011 that had accumulated as a result of the transition to electronic processing in 2007. Although the volume of incoming claims rose only slightly, the Office experienced a 20% increase in unprocessed claim holdings throughout fiscal 2012 and the growth in unprocessed claims has continued in fiscal 2013. The growing backlog of unprocessed claims, which is caused by staff reductions owing to budget cuts, will reach pre-2011 levels again if current staffing levels are maintained.
- Further reductions will lead to an adverse impact on the Office’s ability to participate in international negotiations and other policy efforts that are important to U.S. trade interests. It has already declined participation at major international meetings.
- Cuts in IT investment and contract support would delay planned releases for the Office’s electronic registration system, eCO, including mandatory updates to address security issues. The Help Desk for internal and external stakeholders who use eCO would be further scaled back, increasing wait times and user dissatisfaction. While the Office is unlikely to be able to support all anticipated technical upgrades within its base budget, further decreases to IT contract support will indefinitely postpone the Office’s planning for new IT systems deemed critical to the future of Office, including:
- An online system for filing and processing copyright-related documents submitted for recordation. Records of such documents are essential to stakeholders who need to determine who owns copyrighted works.
- A searchable online catalog of pre-1978 digitized copyright records. Making these records widely available will help address the problem of works whose owners are unknown (often referred to as orphan works).
- An online registry that identifies the designated agents of internet services for receipt of takedown notices so the services can limit their liability for user-posted content.
- The Office has already implemented significant cuts in training to cover budget gaps in recent years. A dramatic long-term decrease in training funds will severely hamper the Office’s ability to develop and retain the highly-skilled staff it must have to ensure continued delivery of quality public service.
Law & Policy
The Register of Copyrights is the principal advisor to Congress on issues of domestic and international copyright policy. She prepares major studies for Congress on highly complex issues, presides over administrative hearings and public roundtables, testifies before Congress and coordinates with intellectual property offices in the executive branch. The Register’s legal and policy offices work closely with both copyright owners and users of copyrighted works to sustain an effective national copyright system that balances interests on both sides in issues ranging from enforcement to fair use.
Through its policy work, the Copyright Office provides leadership and technical expertise to ensure that the copyright law stays relevant and up-to-date, not only to protect authors in the 21st century but also to ensure appropriate protections for users of copyrighted works. These include not only improved access for those seeking permission, but also appropriate exceptions for libraries, persons who are blind, and certain noncommercial educational activities. FY 2012 studies are listed below.
The Copyright Office participates in important U.S. trade negotiations relating to intellectual property, for example, treaties and free trade agreements, at both the bilateral and multilateral levels. It also works with the Department of Justice on critical copyright cases. Earlier this year, for example, the Copyright Office assisted the Solicitor General’s Office in two cases before the Supreme Court, providing advice on drafting the government’s brief and in preparing the Solicitor General for oral argument. In addition, the Office has assisted the Department of Justice in defending the constitutionality of the Copyright Act in proceedings before the Court of Appeals for the First Circuit, the Eighth Circuit, and the DC Circuit.
In fiscal 2012, the Office provided ongoing support to Members of Congress upon request and through formal assignments. The Office prepared a major report on federal copyright protection for sound recordings fixed before 1972 and published a nuanced analysis and discussion document on issues relating to the mass digitization of books. In addition, the Office completed the fifth triennial rulemaking proceeding pursuant to 17 U.S.C. § 1201 to designate certain classes of works as exempt from the prohibition against circumvention of technological measures that control access to copyrighted works (see www.copyright.gov/1201). The Copyright Office is currently presiding over a formal study of the challenges of resolving small copyright claim disputes and possible alternative adjudication systems. A final report on this study is scheduled to be delivered to Congress by the end of September 2013. On another Congressional matter, the Office is preparing a study of how current copyright law affects and supports visual artists and how a federal resale royalty right for visual artists would affect current and future practices of groups or individuals involved in the creation, licensing, sale, exhibition, dissemination, and preservation of works of visual art.
On the international front, the Register and a senior member of her staff joined the U.S. delegation to the World Intellectual Property Organization's diplomatic conference that resulted in the signing of the Beijing Treaty on Audiovisual Performances in June 2012. The Office continues to work with the World Intellectual Property Organization on a variety of global issues.
Registration & Recordation
Registration Program: In fiscal 2011, the Copyright Office reduced the backlog of unprocessed registration applications that accrued following the Office’s transition to electronic processing in 2007. The Office ended fiscal 2012 with approximately 195,000 claims on hand, of which approximately half were on hold awaiting further action by the filer. As the backlog of claims on hand diminished, the Office also experienced faster processing with the average processing times for claims filed online falling to 2.5 months, and for claims filed on paper applications to less than 6 months.
Although the improved processing times have held firm thus far for claims that do not require correspondence with the filer, the Office experienced a steady growth of unprocessed claims throughout fiscal 2012 that has continued through fiscal 2013. The growth is due to reduced program-wide productivity that is directly related to loss of staff. At current staffing levels, the growth in unprocessed claims will likely continue unabated and lead to increased processing times and other problems the Office experienced during the previous backlog.
Ultimately, the Register is aware that the United States certificate of copyright registration must be accurate and has taken steps to ensure that the copyright owner, that person’s licensees, and courts throughout the world may rely upon it. The registration program will increasingly require attention, to ensure that both the registration certificate and the public record are sound.
Document Recordation: In keeping with the Register’s plan in Priorities and Special Projects of the United States Copyright Office: 2011-2013, efforts to reengineer the document recordation function commenced in early fiscal 2012. Throughout 2012, the Office engaged in a series of stakeholder meetings and other forms of outreach, including user surveys, to gather feedback that will serve as the foundation for developing business and technical requirements in fiscal 2013. The Office’s goal is to build an online filing and processing system for document recordation that will provide much enhanced convenience and improved processing time for document filers. Document recordation is of paramount importance to the copyright community and providing electronic and fully searchable functionality is a major goal. To be clear, recordation is the public system by which licensees and assignees of copyrights, for example, rights holders or heirs to a copyrighted work, may assert their ownership and make themselves findable. Unlike registration, recordation permits the updating of ownership information over time and plays a major role in providing a useful chain of title for individual copyrighted works.
The Copyright Office helps administer certain statutory license provisions of the U.S. Copyright Act, which involves setting royalty rates and terms and determining the distribution of royalties for those licenses. These licenses cover activities including the making and distribution of phonorecords of musical works, secondary transmissions of radio and television programs by cable television systems and secondary transmissions of network and non-network stations by satellite carriers. The licenses also encompass the import, manufacture and distribution of digital audio recording devices and media. The Office’s primary clients with respect to the statutory licenses are the copyright owners and users of copyrighted works that are subject to statutory copyright licenses. For some statutory licenses, the Office is responsible for collecting and investing royalty fees for later distribution to copyright owners, examining accounting documents, and providing information to interested parties; for others, the Office records the license as part of the public record and the royalties are handled by outside parties.
In fiscal 2012, the Office’s Licensing Division collected nearly $312 million in royalty fees and distributed approximately $835 million in royalties to copyright owners, according to voluntary agreements among claimants or as a result of determinations of the Copyright Royalty Judges. The Division also began a multiyear business process reengineering program designed to decrease processing times for statements of account, implement online filing processes, and improve public access to Office records. The new processes will be implemented and refined throughout fiscal 2013, 2014 and beyond.
In addition to the registration program, whereby works deposited through the registration program are made available to the Library of Congress, the Copyright Office also administers the mandatory legal deposit of works published in the United States, whereby certain publishers must deposit two copies of published works with the Library of Congress. In fiscal 2012, the Office managed the combined deposit of more than 636,430 copies of books, motion pictures, and other creative works for the Library’s collection, valued at approximately $30 million, which the Library would otherwise have had to purchase.
Because more and more journals, magazines, and newspapers are "born digital," the Copyright Office is working with the Library and with publishers to obtain and manage serials that may only appear in electronic formats. The Office's current work sets the stage for the Library's broader electronic acquisition strategy, which will ultimately enhance and diversify the Library's collections to capture and reflect American digital culture.
The 21st Century Copyright Office
For nearly 18 months the Copyright Office has been engaged in a wide variety of activities outlined in the Register’s Priorities and Special Projects of the United States Copyright Office: 2011-2013. Staff throughout the organization have been heavily involved in various working groups tasked with studying and developing recommendations for addressing an array of policy and administrative challenges. The recommendations developed through those projects will inform the Register’s strategic plan that will be announced in October 2013. The Register’s Office also launched a major training initiative in 2013—the Copyright Academy program—by which staff of all levels take targeted classes on copyright law and office operations. The Register’s Office also continued the highly successful Copyright Matters lecture series. Launched in 2011, the series is designed to educate staff on the practical implications of copyright law and provide a free and balanced community forum for discussion. Administration of these programs has zero budget impact, yet they serve to provide staff with an outstanding education in copyright law, policy and practice.
Substantive progress has been made on many of the projects and policy studies. Highlights include:
- Significant progress on the comprehensive revision of the Compendium of Copyright Office Practices. Publication of the revised version remains on schedule for October 2013.
- Business process reengineering planning for the document recordation function is moving from the information gathering and analysis phase to the development of business and technical requirements that will inform the design of an online filing and processing system.
- The Office continues to move forward on its multiyear effort to digitize the entire inventory of paper copyright records for works registered between 1870 and 1977. At the beginning of fiscal 2013, over 22 million cards from the Copyright Card Catalog had been imaged, processed through two-step quality assurance, and moved to long-term managed storage. The Office has also engaged in research on innovative data capture models such as crowdsourcing and advanced character recognition software in planning for building a searchable index for the digitized records.
- The Office has made significant progress in evaluating its current technical processing capabilities and gathering feedback from experts and stakeholders from across the copyright community to develop a strategy to upgrade its existing systems and extend its capabilities, including in the area of business-to-business connectivity.
- The Office is partnering with the Library’s Office of Strategic Initiatives to implement a new information architecture for the Office’s website, www.copyright.gov. The revised website, which will launch in late 2013, will feature improved searching and a modernized design.
- The Office has issued two notices of inquiry soliciting comments relating to its study of alternative remedies for small copyright claims. A final report will be delivered to Congress by September 30, 2013.
As work on the special projects continues in fiscal 2013, the Office is simultaneously embarking on a strategic reorganization to better align its business functions and management structure with long-term business needs. Implementation of the reorganization plan will occur later this year.
Fiscal 2013 and Beyond
Fiscal 2013 will be an extremely important year for the Copyright Office. The Office will continue its implementation of the Register's priorities and special projects; the research and analysis phase of many of these projects will conclude by or before October 2013. Some of these projects relate directly to the stewardship and effective operation of the Nation's copyright registration system in the 21st century, and will yield important data to inform the Office's focus and strategies for fiscal 2014-2018.
The Office will address the implementation of its fee schedule and associated practices early in fiscal 2013, following research in fiscal 2011 and 2012, and public consultation and delivery of a major study to Congress on the topic in fiscal 2012.
The Office will also conclude a major analysis of the technical aspects of registration and recordation in fiscal 2013, including crafting a strategy to address certain technology, portal and processing issues about which it is studying and consulting with stakeholders and experts in fiscal 2012. It will continue the critical work of ensuring standards for repositories of electronic works of authorship, and digitizing historic copyright records from the period of 1870 to 1977 and making them searchable online.
The Office will continue its work on major negotiations for intellectual property protection in the Asia-Pacific rim and other regions of the world, and continue major work on the implementation of worldwide protection for performers in audiovisual works. It will work with Congress on a number of major studies and policy developments, including orphan works, revisions of certain exceptions to copyright (including for libraries), mass digitization policy, and final work on small claims solutions for copyright owners (with a major study due to Congress in October 2013). The Office will publish portions of a major revision of its lengthy Compendium of Copyright Office Practices during fiscal 2013, and release the final publication in October 2013.
Fees for Services
On October 1, 2011 the Office commenced a study of the costs it incurs and the fees it charges with respect to the registration of claims, recordation of documents, and other public services, pursuant to its authority under 17 U.S.C. § 708(b). The statute requires that the Office establish fees that are "fair and equitable and give due consideration to the objectives of the copyright system." 17 U.S.C. § 708(b)(4). The Office is following two guiding principles for determining fees—the establishment of sound fiscal policies and a budget derived largely from offsetting collections, and the pricing of services at a level that encourages participation in the registration and recordation processes.
The Office will deliver the fee study to Congress in the coming weeks, with expected implementation later this year.
Mr. Chairman, I want to thank you for your consideration of our budget request today and for the Committee's past support of the U.S. Copyright Office. Thank you in particular for considering the funding we require to sustain a first-rate staff and meet necessary expenses, enabling us to perform our core duties under the law and build the infrastructure necessary to support America's copyright system in the years ahead.
2 Stephen E. Siwek, Copyright Industries in the U.S. Economy: The 2011 Report, prepared by Economists, Inc. for the International Intellectual Property Alliance (2011).