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
Fiscal 2015 Budget Request
March 5, 2014
Mr. Chairman, Ranking Member Wasserman-Shultz, and Members of the Subcommittee:
I appreciate the opportunity to submit the fiscal 2015 budget request of the United States Copyright Office. This is an exciting and busy period for the copyright system and for the Copyright Office. Throughout 2012 and 2013, the Copyright Office worked toward the goals outlined in the Priorities and Special Projects of the United States Copyright Office via a public process that engaged the Office’s stakeholders and the general public. A consistent theme echoed throughout our public processes is that both the copyright law and the Copyright Office itself must evolve to meet the needs of the marketplace in which creative content is accessed, performed and distributed across a wide variety of consumer platforms.
It is an unusual time for copyright policy. The Chairman of the House Judiciary Committee, Bob Goodlatte, stated in an April 24, 2013 address, “There is little doubt that our copyright system faces new challenges today…. Even the Copyright Office itself faces challenges in meeting the growing needs of its customers—the American Public.”1 The Chairman was responding to my March 2013 call for updates to the copyright law, to ensure that it remains effective for authors and flexible for the public in the 21st century. Following Mr. Goodlatte’s address, the House Subcommittee on Courts, Intellectual Property and the Internet has held eight hearings on a wide array of copyright-related topics, with many more expected throughout the year. In addition, the Office has engaged in a major effort to update its Compendium of Office Practices and Policies, the comprehensive internal guidebook used by Office staff that also serves as a recognized authority consulted by copyright owners, legal practitioners and the courts.
While these copyright policy activities have been a major focus of the Copyright Office throughout the past year, we have also maintained other important law and policy functions including administering the national registration and recordation systems, engaging in copyright policy discussions domestically and internationally including in trade agreements and negotiations, and providing expert support to congressional offices and agencies. In doing so, the Office draws upon a surprisingly small, expert staff that has been increasingly called upon to do more with less. Given the key role that the Office plays in the copyright ecosystem and because copyright industries constitute a substantial and growing sector of the national economy, it is clear that we must seek increased funding in the near term to continue providing our basic public services while also engaging in necessary modernization efforts. I fully recognize the difficult budget environment within which we exist, but enhanced budget authority for the Copyright Office should be viewed as a public investment that is both prudent and sensible.
In terms of the 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 2013 using data from 2012,2 these core copyright sectors—whose primary purpose is to produce and distribute creative works—accounted for nearly 6.5% of the U.S. domestic gross product, or exceeding $1 trillion for the first time. The core copyright industries also employed 5.4 million workers (4.04% of U.S. workers), and that number doubled to over 11.1 million people (8.35% of the U.S. workforce) when those who support the distribution of copyrighted works were added into the equation.
Fiscal 2015 Budget Request
The Copyright Office recently completed a major two-year effort gathering information through a series of public meetings with participants in the marketplace including authors, publishers, producers, distributors and aggregators, educators, libraries, archives, and end users such as consumer and bar associations. Results of the effort acknowledge and clarify a number of shortcomings regarding Copyright Office IT systems and services, some of which were already under discussion both within the Copyright Office and throughout the copyright stakeholder community. There is no question that the Office has both near term and long term investment needs. Nonetheless, for this immediate cycle the Copyright Office request put forward for fiscal 2015 as part of the Library's larger budget process is limited to inflationary increases to maintain existing spending levels including staff costs.
For fiscal 2015, the request put forth is $53.068 million, offset by fee collections of $27.971 million, and licensing royalty collections of $5.611 million, applied to the Office's Licensing Division and the Copyright Royalty Judges. Specifically, our requests are as follows:
- A 2.8% increase ($1.272 million) over fiscal 2014 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 2.6 % increase ($131,000) over fiscal 2014 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
- A 2.7% increase ($41,000) over fiscal 2014 for Copyright Royalty Judges to support mandatory pay-related and price level increases.
Copyright Office Special Projects
As mentioned earlier, fiscal 2013 marked the conclusion of many of the projects outlined in the Priorities and Special Projects of the United States Copyright Office. Three of these projects rise to the level of special discussion--Technical Upgrades, Compendium Rewrite, and Recording Documents.
The Copyright Office’s Technical Upgrades Project focused on issues relating to the reliability, security and searchability of Office’s records as well as the ease of use and convenience of our online services. Public response to the Office’s Federal Register Notice called attention to shortcomings with the digital repository, user interface, quality of data and public records, standard identifiers, information architecture and infrastructure, and customer experience. Many cited basic frustrations, such as the need to access previous applications for reference, and the need for enhanced features, such as customized dashboards.
Rewriting the Compendium of Office Practices and Policies was the most ambitious of our projects. Accomplished largely by an internal team of senior attorneys and registration experts, the Office engaged in auditing, reconciling, and documenting current registration practices. The team devoted special attention to legal developments in the courts and technical developments for creating and distributing works. A key goal of the project is to make the Office’s practices more transparent and accessible. In some cases, the review led to a reevaluation and revision of existing practices to ensure a more robust registration record. During this process, it has become clear that this revision is the first step in developing a registration program for the twenty-first century. The Compendium must remain a dynamic document that evolves with changes to the marketplace.
As with registration, there is no general requirement that copyright owners record copyright-related documents, including assignments of ownership, with the Office. Instead, the law provides incentives for recording. During the previous reengineering effort, the Office tabled updating the recordation function, which now provides the Office with an opportunity to remake the recordation function in a manner to best serve the current marketplace. The Office met with many law firms, businesses and trade associations to clarify issues relating to recordation. The system would benefit for having more copyright owners publicly assert their ownership interests as a condition of maintaining certain remedies of protections. Further, the Office would benefit from reviewing other systems, such as those used by local governments, to process documents on public record. By making recordation less burdensome, the Office can create a more robust public record. The Office is engaging the public in further discussions on the Recordation program in fiscal 2014 to determine the future of the Recordation Program.
Challenges of the Current Fiscal Environment
The Office appreciates the restorations that the Committee provided to the Office in the 2014 appropriation. However, the Office is still down about 7% from 2010 levels, and Fiscal 2014 has been an especially challenging year because fee revenue in the first quarter was the lowest it has been in five years. Moreover, implementation of a new fee schedule in April will make revenue largely unpredictable for the remainder of the fiscal year.
Title 17 states that fees received remain available until expended. 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. The unpredictability of fee receipts in fiscal 2014 highlights why it is critical that the Copyright Office maintain sufficient reserve funds to deal with contingencies effectively. In recent years, the reserve has fallen below and remained under $5 million; this may seem a relatively small figure but these funds may nonetheless mean being able to patch an IT system or staff an important study for Congress.
While the Office is able to fund two-thirds of its operations with fees, appropriated dollars are essential to fund the many activities that serve the general American public and commerce that cannot reasonably be funded by fees for copyright registration and other services for copyright owners. We therefore respectfully request that the Copyright Office budget includes sufficient spending authority as to fees collected, and sufficient appropriated dollars, but that a reserve remains available to meet shortfalls in projected receipts so that public services are not negatively affected.
The accumulated results of budget cuts and unpredictable revenue income have taken a toll on the Office’s ability to provide critical services at the level the public demands. 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 non-personnel expenditures. These cuts have very real and negative effects 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.
- As a result of staff lost in the registration program, the Office is beginning to see increases in registration processing times—meaning that the public is waiting longer to have their registrations processed.
- The Office continues to reduce IT spending on eCO3 and has maintained previous reductions to the Help Desk for internal and external stakeholders who use eCO. This means that we are delaying updates to the system and stakeholders are waiting longer to get information on eCO.
- While the Office is doing what it can with existing resources, progress on many IT projects is incremental at best, including:
- Needed enhancements to the registration system including a secure repository for digital copyright deposits. o An online system for filing and processing copyright-related documents submitted for recordation. Records of such documents are critical for determining chain of title to copyright-protected works. o 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 system for filing and processing copyright-related documents submitted for recordation. Records of such documents are critical for determining chain of title to copyright-protected 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).
Law and 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, Congress is now involved in a particularly busy period of copyright review and possible copyright revision that is especially important and rather rare. This kind of review has not occurred for decades. The Register and the Copyright Office are playing a critical role in supporting this ongoing congressional review, and have also engaged in a multi-year effort to update and 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.
In fiscal 2013, the Office provided ongoing support to Members of Congress upon request and through formal assignments. The Office prepared a major report on copyright small claims. The report proposed that Congress create a process where parties can more efficiently pursue small copyright infringement matters. The Office also worked on 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. The office held public roundtables on the issue in fiscal 2013 and published its report on resale royalties in early fiscal 2014. The Office also began a renewed review of the problem of orphan works and mass digitization, issuing a formal request for public comments in early fiscal year 2013. The Office will hold public roundtables on this issue in the Spring.
On the international front, the Office continues to participate on U.S. delegations to World Intellectual Property Organization (WIPO) regarding a variety of global issues. In June 2013, a senior member of the Office joined the U.S. delegation to WIPO’s diplomatic conference that resulted in the historic Marrakesh Treaty to Facilitate Access to Published Works for Persons Who are Blind, Visually Impaired, or Otherwise Print Disabled. The Office also continued to provide significant technical advice and support for ongoing negotiations of the Trans-Pacific Partnership.
Registration and Recordation
Registration Program: Since the end of 2013, the Office experienced growth of the number of claims on hand. 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 has historically experienced during periods of reduced production.
Document Recordation: As discussed earlier, the Office will utilize its first Kaminstein Scholar in Residence, a well recognized authority on U.S. copyright law, to prepare a full report on the possible future state of recordation, which is expected at the end of fiscal 2014. The Office’s goal is to build an online filing system for document recordation that will meet the expectations of stakeholders who routinely engage in online commerce. Document recordation is of paramount importance to the copyright community and providing electronic and fully searchable functionality is a major goal.
The Copyright Office administers 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.
In fiscal 2013, the Office’s Licensing Division collected nearly $316 million in royalty fees and distributed approximately $324 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 continued a multiyear business process reengineering program designed to decrease processing times for the examination of statements of account, implement online filing processes, and improve public access to Office records. The new processes will be implemented and refined throughout fiscal 2014, 2015 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 2013, the Office managed the combined deposit of 641,723 copies of books, motion pictures, and other creative works for the Library’s collection, valued at approximately $29.4 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.
Fees for Services
On November 14, 2013, the Office delivered 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 anticipates implementing the new fees in early April 2014.
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.