Why should consumers be forced to watch what is broadcast over public airwaves only at the time networks or the creators of these programs deem fit? Why should those who work during the day or during prime time be denied the opportunity to tape a program for viewing at another time? Surveys show that the majority of the people who own a Betamax use it primarily for this time shift capability.

Three, we should not lose sight of the fact that many copyright holders, including sports, educational, religious, and entertainment producers, are all on record in court documents that they have no objection to consumers privately recording their presentations for home use.

Indeed, aside from Universal and Walt Disney, no one else in the entire movie industry has been concerned enough to bring suit, complain to Sony, or identify themselves with the suit that resulted in this court ruling, and Disney Productions has now dropped a subsequent suit against all other VCR manufacturers and distributors, a suit currently being pursued by Universal alone.

Four, we are talking about a product that contributes an estimated $3 billion annually to the American economy, and this figure is growing. It allows viewers to record educational, informational, and religious programs. With the addition of a portable camera, it enables consumers to make home movies. In short, it enriches the quality of life of millions of Americans.

Sony's tape plant in Alabama employs 1,800 of the 6,000 men and women who work for our company in America. They make a significant percentage of the 25 to 30 million videotapes sold in the United States each year. But other companies are also involved in tape manufacturing, and if this industry were curtailed the job losses could be significant.

Five, allowing the current legal ruling to stand without needed clarification means that consumers who own or use VCR equipment are considered as law breakers and could conceivably be subjected to recall of their machines.

While Universal in its public statements has expressed no interest in harassing consumers, in the courts it has demanded an injunction against further sales of new machines and even asked for a recall of all the machines already sold to consumers. Consider the job implications for dealers, shippers, sales personnel, and many others if the court grants these demands.

Six, to ban this equipment would surely have a dangerously negative impact on technological innovation and development in this country. Traditionally, when a product is banned or restricted in its use, it is because it has been found harmful to the user. In the present case, no harm of any kind has been demonstrated to consumers or to any other industry, only benefits.

Sony has pioneered in this field since it created the first home videotape recorder in 1965. Through 1971, when we introduced the U-matic video recorder, up to the present Betamax format, which was introduced in 1975, our capital investment in R. & D. has been considerable. So has that of the many other companies now in the field.

From the first, our technology has been well received and very much utilized by the entertainment industry. Some say it has revo

lutionized the communications field. In any case, it has proven very useful and popular with both commercial users and the public. Why then, one might ask, did it take 11 years after home video recording was introduced for these two studios to try to stop this technology?

Thank you for your generous time today. I think you sense how concerned we at Sony Corp. of America are about all the complex implications of this matter. We feel convinced we have a quality product that serves the interests of millions of consumers, broadens their freedom, and grants them full use and enjoyment of the public airwaves.

At the same time, even our adversaries admit that this product has harmed no one and has caused no one a loss of revenue. I hope you will act favorably on this remedial legislation and act upon it quickly, so that this serious but in our opinion quite unjust problem may be solved.

Thank you.1

Senator DECONCINI. Thank you, Mr. Lagore.

At this time I will yield to the Senator from Alabama to introduce Mr. Kretzer.

COMMENDATION OF WITNESS

Senator DENTON. Thank you very much, Mr. Chairman.

One of the real pleasures of serving in this office is the opportunity it provides for working with men like the one sitting in front of me today.

Mr. Julius Kretzer is an Alabamian and a Mobilian. I am from that town, and over the years I have admired him as he has helped maintain and improve our city. As a successful businessman and an active community leader, he embodies the highest standards of business integrity and good citizenship.

I want to take a minute today to say more, Mr. Chairman, than just welcome to Julie Kretzer. Since his statement mentions freedoms, I believe that committee members should know something of the measure of this man's demonstrated commitment to preserving our freedoms.

During World War II, Julie Kretzer was a combat medic who saw action in France and Germany. He also served in Russia. He took part in the Battle of the Bulge and was wounded and lost his leg in Germany in 1945. He returned to the United States, a decorated hero, and began the years of hard work that would lead him to success as one of my city's industrious businessmen.

He is currently the president of Kretzer, Inc., and the president of Mobile Downtown Unlimited, a major city development nonprofit organization.

As a community servant, he is both a member of the chamber of commerce and a director of the Diabetes Association. Professionally, he has served as the director of the Mobile chapter of the Sales and Marketing Executives and, today, is before this committee in

' Mr. Lagore's voluminous prepared statement can be found at the close of today's hearing as appendix A on page 165.

his capacity as president of the National Association of Retail Dealers of America.

I believe that he is uniquely qualified to express the concerns of the retailers of video cassettes and recorders. I want to welcome Julie to Washington and commend him to you, Mr. Chairman, and to this committee.

Senator DECONCINI. Senator Denton, thank you.

I also have a note, Mr. Kretzer-you are a very popular man down there-from Senator Heflin, who is in Alabama today, regretting and expressing his disappointment that he cannot be here to join Senator Denton in presenting you to the Judiciary Committee.

He points out your community activities and as a business leader in the State and in the community of Mobile, and he asks me to express his regrets that he cannot be here.

Senator DENTON. Mr. Chairman, would you excuse me? I have just been informed that I have to offer an amendment now on the floor.

I must ask that I not hear you. I have read your statement, Mr. Kretzer. I will see you later.

Senator DECONCINI. Senator Denton, that would be fine. Maybe you can hold the vote off for a couple of hours. That would be just great.

Senator DENTON. All right. I will do my best.

Senator DECONCINI. Thank you.

Who wants to go next? Mr. Wayman.

STATEMENT OF JACK WAYMAN, SENIOR VICE PRESIDENT, CONSUMER ELECTRONICS GROUP, ACCOMPANIED BY J. EDWARD DAY, SPECIAL COUNSEL

Mr. WAYMAN. Thank you, Senator.

In the interests of time, I am going to take just a few minutes from my prepared statement, Senator. My name is Jack Wayman. I am senior vice president of the Consumer Electronics Group of the 56-year-old Electronic Industries Association, which has its headquarters here in Washington. With me is our long-time special counsel, J. Edward Day. He is a partner of the law firm of Squire, Sanders, and Dempsey.

We are a trade association for manufacturers and sellers at the manufacturer's level of consumer electronic products. These include television receivers, radios, tape recorders, audio systems, phonographs, video cassette recorders-the so-called VCR's; by the way, that is the same thing as a videotape recorder, a VTC-and we represent other consumer products.

Our membership consists not only of all the major domestic manufacturers but most of the leading foreign-controlled manufacturers which have facilities here in the United States.

Our member companies, which include General Electric, RCA, Zenith, and many others, account for well over 95 percent of the sales of these VCR's we are discussing today and 95 percent of the sales of blank videotape, both at the manufacturer's level.

The purpose of our testimony today is to urge that VCR recordings of copyrighted materials off the air, when intended only for private, noncommercial use, do not constitute copyright infringe

ment as is the case, with congressional approval, for home recordings of copyrighted sound-only audio materials.

We seek to have Congress overturn the potentially disastrous effect of the recent decision of the U.S. Court of Appeals for the Ninth Circuit in the case of Universal City Studios, Inc. v. Sony Corporation of America, the so-called Sony case, which reversed the opinion of the lower court. This Sony case has already been in the courts for 5 years, and with further court proceedings underway it could remain there for a long time.

We seek legislative relief to avoid the possibility of a long period of uncertainty and confusion while this matter inches its way through the judicial process.

Let us talk about some facts about VCR's and their use. There are almost 3 million VCR's in American homes, which means access for about 10 million people. In 1978 the VCR sales to dealers was about 400,000 units. This year, in 1981, we expect that figure to reach 1.3 million units, a 200-percent increase over the 1978 figure.

The monetary value of the American public's investment in VCR's and related products exceeds $3 billion, though with limited. profit for manufacturers, and this is due to the enormous research and development investment and a very strong competition which exists in our industry.

Time shifting is a benefit and not a detriment. Home videotaping occurs primarily for time shifting purposes. That is, if a consumer is unable to watch a program while it is being broadcast, he records it to watch at a more convenient time. Surveys indicate that 70 to 90 percent of all VCR owners use their VCR's primarily to view television programs that they could not otherwise have watched.

A. C. Nielsen and Arbitron, the two major rating services, support this view because they now include VCR use in their ratings as an additional, previously unavailable audience of viewers who could not otherwise have watched a program. This was brought out and stated in the FCC study in their 1980 status report on the video cassette industry.

Let me point out that fair analysis of VCR usage leads to an inevitable conclusion: Time shifting, the principal use of VCR's, economically benefits rather than injures copyright holders. Indeed, the lower court found no proof that any copyright holder is being damaged by this private copying.

We are not attempting to appeal the ninth circuit court decision to this committee, but we do believe the ninth circuit court decision violates the public interest by threatening to prohibit American consumers from utilizing and enjoying a product which significantly improves the quality of their lives. And we feel that certain farreaching public policy issues such as this one should be resolved by Congress and not the courts.

In regard to the economics of the motion picture industry, we certainly favor any company or industry making all the money it can. But let me point out that the motion picture companies are already triple dippers in the economic pot, and some of them may want to become quadruple dippers at the expense of the consumer and the profit-squeezed consumer electronics industry.

When a new movie is made, a producing company releases it first for showing in theaters for their first dip and for a profit. Then, as a second dip, the company can relese the movie in exchange for generous payments, often 15 to 25 percent of wholesale, to a manufacturer of prerecorded tapes which sell at retail for between $50 and $100.

Then the movie company has a third dip-negotiated royalty arrangements to let the movie be shown on television. It is common knowledge that some of these movies are shown on the air dozens or even hundreds of times, some year after year, by broadcasters both large and small and by the networks, all with royalties paid to the motion picture company which owns the copyright.

The royalty paid by the broadcaster is subject to negotiation based on expected viewing audience. As already mentioned, because of the consumer convenience feature of time shifting, recording off the air for private, noncommercial use increases the broadcaster's viewing audience. Thus, copyright holders can negotiate for more revenue based on estimated larger audiences.

Instead of recognizing these advantages, some movie companies apparently want to take a fourth dip to in some way charge the consumer for off-the-air recording for purely private, noncommercial use.

However, we are now becoming convinced that Universal-MCA and perhaps other motion picture companies may not really be aiming for this fourth economic dip. We think what they may actually want is to put video cassette recorders completely out of business. This would be done by obtaining a court injunction against their use.

An injunction against the use which the court could impose would be cruel and unusual punishment in this situation. The injunction would apply, at the present time, to only one company selling at the manufacturer's level, Sony, but it might then apply nationwide not just to Sony but to retailers, distributors, and advertising agencies involved in selling the Sony VCR's. It could also affect companies who sell the Betamax VCR under their own brand names, as their source would be cut off.

With regard to the violation of right to privacy, not only does the ninth circuit court decision threaten the viability of a growing industry, but its ruling has had the sudden effect of overnight turning law-abiding citizens in almost 3 million American homes into lawbreakers. The ninth circuit decision threatens the privacy of millions of Americans.

As regards the economic effects of an injunction, there are an estimated 25,000 retail outlets selling VCR's and/or blank tapes in the United States. VCR's are the most popular product in our consumer electronics industry today. Each of the companies selling VCR's at the manufacturer's level has a marketing structure and a merchandising staff. They have advertising agencies, and in many cases there are representatives and distributors.

The economic havoc that an injunction would cause in the terms of profitability and unemployment is inconceivable.

With this background, we give you our reasons why an explicit amendment to the Copyright Act is essential.