Statement of Maria A. Pallante
Register of Copyrights and Director
United States Copyright Office
before the
Subcommittee on the Legislative Branch
Committee on Appropriations

United States Senate

May 7, 2013

Fiscal 2014 Budget Request


Madam Chair, Senator Hoeven, and Members of the Subcommittee:

I appreciate the opportunity to submit the fiscal 2014 budget request of the United States Copyright Office. This is an important period for the Copyright Office. As Register, I have recently testified about the need for major updates to the copyright law, so as to ensure the law remains effective and flexible in the 21st century. I further testified that because a 21st century law will also require a 21st century agency, the Copyright Office itself must evolve to meet the needs of the American public.

On April 24, 2013, the Chairman of the House Judiciary Committee announced that he will commence a comprehensive overview of copyright law, including the Copyright Office itself. More generally, it is a very busy time in copyright policy, both domestically and internationally, and the Office works very closely with Senate offices as well as across the greater U.S. government, on a routine basis. In doing so, it draws upon a small, expert staff that has been increasingly called upon to do more with fewer resources. However, because many American businesses rely upon the services of the Copyright Office, and because copyright transactions form a major portion of the national and international economies, the Office will be unable to keep pace with technology, user demand and, more generally, the state of the digital economy, without sufficient future resources.

Program Summary

The Copyright Office plays a major role in facilitating both the commercial and noncommercial markets of copyright transactions, by administering the national registration and recordation systems and by providing expert policy advice to the Congress and to other federal agencies, including the Office of the U.S. Trade Representative and the Department of Justice. With respect to operations, it has become clear to me, and to many who interact with the Office, that both business and technological improvements are necessary. I have therefore spent much of my 23 months as Register administering a series of special projects that are designed to evaluate and inform the future Copyright Office and the 21st century copyright system.

To this end, the Office has engaged stakeholders of all kinds, from copyright owners to users of copyrighted works, technology experts, consumer groups, legal scholars and others, both through targeted meetings and through opportunities for the public to submit written comments. 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. The role of the government in collecting, maintaining and making available copyright data cannot be underestimated. These services fuel any number of major sectors in the national and international economies.

FY 2014

The Copyright Office, which is already operating leaner than in previous years, needs to maintain existing spending levels to ensure adequate staffing in the short term. The Office has a relatively small workforce in proportion to its duties, but like all agencies it must compete with the private sector for the most highly-skilled members of its workforce.

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 fiscal 2013 for Copyright Basic 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 ($100,000) over fiscal 2013 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;

    • A 2.2% increase ($32,000) over fiscal 2013 for Copyright Royalty Judges to support mandatory pay-related and price level increases; and

    • $737,000 to restore the Copyright Office's base funding1

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 20102 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. Moreover, these numbers do not account for the many American businesses that rely on information about fair use, the public domain and other provisions of law, for example, in some information and technology sectors.

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. From 2010 to 2013, the Office has absorbed a 20.7% reduction in its appropriation. The overall effect was a 8.5% 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.  It is quite possible that shortfalls could create a backlog of copyright claims.  However, more to the point, the growth and migration of the registration system is essential in the current digital environment.  The system must get much better.

  • 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.

Reserve Fund

The Copyright Office budget authority includes the ability to spend or invest the fees it collects from services, e.g. for registration of copyright claims. Title 17 provides that "such fees that are collected shall remain available until expended." 17 U.S.C. §708(d) (1).

Approximately two thirds of the budget comes from said fees. In some fiscal years, fee collections exceed the spending authority granted for that particular year, while in other years fee collections fall below the spending authority. Fees in excess of expenses are collected and maintained in a reserve fund to be used by the Office in years during which fee collections fall short. Given the unpredictability of fee receipts from one year to the next and the possibility of unplanned expenses occurring during any given year, it is critical that the Copyright Office maintain sufficient reserve funds to deal with contingencies effectively. The reserve is often under $5 million; this may seem a relatively small figure but these funds may nonetheless mean being able to patch a technology system or staff an important study for Congress.

In recent years the Office's request for appropriated dollars has been reduced in proportion to the amount of money it has in the business reserve fund at the end of the year. Appropriated dollars are essential to fund the many activities that serve the general American public and American commerce that cannot reasonably be funded by fees for copyright registration and other services for copyright owners. We therefore respectfully submit that the Copyright Office budget includes sufficient spending authority as to fees collected, and sufficient appropriated dollars, but that a reserve be available to meet shortfalls in protected receipts so that public services do not suffer.

Law & Policy

The Register of Copyrights is the principal advisor to Congress on issues of domestic and international copyright policy. The Copyright Office prepares major studies for Congress on highly complex issues, presides over administrative hearings and public roundtables, testifies before the Congress and coordinates with intellectual property offices in the executive branch. The Office works 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. As noted above, the Register and the Copyright Office are now involved in a multi-year effort to update the copyright law and to improve Copyright Office services.

The Copyright Office participates in important U.S. negotiations relating to intellectual property, for example, treaties and free trade agreements, at both the bilateral and multilateral levels. The Office also works with the Department of Justice on critical copyright cases.

Fiscal 2012

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 were part of 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 participate on U.S. delegations to WIPO regarding a variety of global issues.

Registration and 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 six 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 directly related to loss of staff to process these claims. 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. The Register will release a major update to the Compendium of Copyright Office Practices no later than October 2013. The Compendium is the major resource for the examining staff, the public and the courts when it comes to questions of registration practice and related legal issues.

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.

Licensing

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.

Acquisitions

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.

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 the Congress in the coming months, with expected implementation later this year

When a new fee schedule is implemented, the Office historically sustains a decrease in fee receipts for up to six months. This anticipated decrease along with unanticipated fluctuations in fee revenue throughout the year, make the Copyright Office's prior year receipts a critical tool for managing a fee based budget. In the short-term, expenses are very difficult to adjust, so the Office occasionally has to rely on prior year receipts to fund ongoing operations, when fee receipts unexpectedly decline.

Conclusion

Madam Chair, 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.


1 The enacted budget for fiscal 2012 directed the Copyright Office to use reserve funding (collected from fees for services) to offset expenses, effectively reducing our spending ratio of appropriated dollars to fees at the same time that fees and receipts were lower than anticipated. This offset was partially restored in fiscal 2013. The Office is requesting a restoration of the balance to its base appropriations to ensure sufficient funding for operations in fiscal 2014, including the ability to cover necessary staffing and critical technology upgrades when fees fluctuate. As outlined in Priorities and Special Projects of the United States Copyright Office: 2011-2013 (www.copyright.gov/docs/priorities.pdf), the Office is in the midst of a multi-year evaluation of fees, services, technology and other issues that will inform its future management strategies.

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), available at http://www.iipa.com/copyright_us_economy.html.