i have with a, i'll ask you to stop, breathe, and then paint a picture. there have been lots of kind of surface projections made about what happens if we wake up in october 1st and your doors are shuttered. i would like you, as a long-time former business person. the former acting administration manufacture and the president of import bank, look forward, not just october 1nd and 2nd, what's the long term consequence to america's manufacturing base? what happens to our economy? what happens to our position in the world? may n paint the picture for us. >> i will and i'll include something flea subsequently overlooked, congressman. foreign companies that are looking to invest in this country to make products for the u.s. market but all of them have said to me, when we move here, it's also to export from the united states.

and on several of them have said, we would not be opening new manufacturing facilities in the united states if there was no possibility of xm support for expouts. that would be too risky to have u.s. manufacturing here. first solar, a company that does solar panels, manufactures in the united states and malaysia and he said without the xm bank labor costs have been pretty much the same. u.s. actually has higher taxes but without xm bank he would shift more manufacturing to malaysia. so i think that we'll see some irrevocable changes if that happens. the threat of it is enough to make manufacturers think twice that this is going to be, on again-off again continually, as hard as a businessman, i was a businessman, to make five and ten-year investments when there's so much uncertainty. >> in the brief amount of period of time we have left, i'm fascinated to know how you've plibed such a low default rate

and low loss rate. can you express that in 25 seconds? how do you get that? >> well, first of all 80% of the transactions we have on the books are either collateralized and we have security in the actual assess or guaranteed by a solvation. and we do a good job of underwriting and do an excellent job of asset management. actually following up on credits and making sure people are current and stay current. >> thank you. yield back the balance. >> time of the gentleman has expired. the chair recognizes the gentleman from new jersey, mr. garret. chairman of our capital markets. >> i'll denver defer if you have another member, first. >> in that case, the chair will recognize the gentleman from kentucky, mr. barr. >> thank you, mr. chairman. chairman hawkberg, i appreciate you coming to my office and

talking to me about a month ago and i think you know what my principal concerns are with reauthorization of xm bank. there's been a lot of talk today about jobs and i'd like to talk a lot about jobs and in particular, the jobs situation in kentucky and the obama administration's climate policies, carbon policies and the impact that those policies have had on jobs particularly in eastern kentucky. and as you may recall, on december the 3rd, i sent you a letter expressing my concerns about the supplemental guidelines for high carbon-intensity projects. these are guidelines your bank adopted that would -- that explicitly provides that your bank will not provide support for exports for high-carbon intense they plants and define

your bank defines a high-cash bon intensity plant as any plant that uses coal as a source of fuel for the generation of the power of production of heat. my home state of kentucky is the third largest coal-producing today in the country. we've lost over 7,000 coal jobs in eastern kentucky over the last two years as a result, direct result of the regulatory assault of this administration. we're talking about jobs. you want to talk about jobs? my dismay is that on december 19th, in response to that letter, you said that the revisions and the adoption of these guidelines was for the purpose of harmonizing xm bank with the administration's claim change policies. -- the climate change policies. why, on earth, if you're about creating jobs. why are you aligning yourself with a job-killing agenda?

>> we had time to meet if your office and since 1992, xm bank has had to take into account credit-worthiness of an export as well as the environmental impact. it was put in by congress 22 years ago. we have had an environmental criteria for all exports since 1992. this is not a new-fangled policy. >> i would submit if this is really about jobs, then xm would not have issued or adopted these guidelines and i would want to know who -- and you say in your letter, you have reviewed this extensively with the administration and i would want the know who in the administration did you work with in adopting these guidelines and i would finally want to know whether or not xm, in order to be reauthorized would consider abandoning this bank's participation in the war on

coal. >> and well, we are active in the export of coal-mining equipment. we're active in the export of coal. one of our largest exporters in the state of pennsylvania is a company called x coal. these regulations only apply to a dole-fired power plant. >> i understand. let me reclaim my time quickly. i would just submit, also, if the administration's concerned about the environmental impact, what you're doing by discriminating against coal-fired power projects is you are excluding u.s. technology from the opportunity -- these projects will be funded but they will be funded by china. and so if you're interested in supporting environmental, sensitive policies then support u.s. technology to build coal-fired power plants and deliver hundreds of millions of people from energy-poverty across the globe? one final in my remaining time i want to share a story from a constituent. when we talked in my office, you gave me the example of a small

business in my district that benefitted from kbchlt m financing and you said, reach out to them. we did. john macpherson, i know this man, small business man, he did aks financing from dpchlt m. this is what he told my staff on the phone yesterday. quote, we reached the point where someone was working full time to make sure the reporting documents were filled out so we could continue to receive our line of credit. you can't take a company of only 70 employees and dedicate one entirely to failing out this kind of paperwork. if the if export import bank went away it wouldn't make any difference to me. this was the company that you told me benefitted from the bank. quote, we've seen no difference in sales since we stopped working with xm bank. the reason we stopped working with xm was the cost and the complexity. do you have a response to that? >> we're asked by this committee continually to do a better job of risk management and oversight. so i'm trying to find a balance between supporting jobs and doing the proper job of

oversight. i hope to get it right. if we tilt in one direction we need to adjust that. >> time of the gentleman has expired. the chair recognizes the gentleman from new jersey, mr. garret, chairman of the capital markets subcommittee. >> thank you. chairman, thank you for your interest in promoting job creation in the country and holding a very timely hearing. this committee is very familiar with government lending programs. and very familiar with government lending programs that have gone belly-up including fannie and freddie, the national flood insurance and fha, in the sense that well, you know their numbers. as such, i've come to believe that over time, that when proponents of government lending programs tout that they actually make money for the fellow government, i tend to remember the old adage that there are no such thanks as free lunches. so we have to look at it a little bit deeper than the

talking points that we hear sometimes on the panel. according to the cbo congressional budget program. the government standard accounting federalwork. however, when the cvo applies a private sector accounting method and if we were here before that issue was discussed with mr. handerson in some detail i'd appreciate mr. anderson having a comprehensive understanding of that as opposed to members of this committee. the private sector standards of this program to it, cvo projects the bank is projected to lose about $2 billion. between $14 and $2 billion. i have to do the math even though it's late in the day, that's $16 billion and that suggests a lot of downside uncertainty when it comes to xm. i'll start here. do you believe that the current government accounting standards truly and honestly and fully

account for the risk, the risk to the taxpayers of the banks lending programs? >> i do, congressman. i can -- i mean, the difference between -- as my understanding of fair value and the analysis cbo did, and in that swing, assumes one large giant assumption that i believe is not true. >> okay, so -- >> that is, we would not adjust our fees. we could adjust our fees to compensate. if there's a different accounting system that was adopted by the u.s. government, we could adjust our fees cowardingly to make sure that we're at a break-even or cost for subsidy. >> i don't know if that's the only difference on their appraisal of it. dr. -- the estimates that we've done, the numbers which you describe correctly, take the structure of the programs as they currently are. so they take the fees as they currently stand. they take xm bank's projection of depault and recovery rates

and if the program is worth a change we would end up possibly with different estimates of their cost. we've just done an estimate based on the way the program stands today and the numbers in the present budget. >> when they talk about the fees changing. the fees are changing on, what? current loans or future loans? doctor? >> from our point of view we take the fees that are currently in place. if xm bank were to charge did have fees, then we'd have to see how that affected not just the direct payments but also, how it would affect the composition of the borrowing that would occur from xm bank. we'd have to look at the whole structure of the whole structure of the program. >> seeing that we have legislation to this point and what cbo does on every other government program, would you commit to evaluating your loan portfolio on a fair-value basis? >> is the microphone on?

>> i'm not -- >> i'm asking that you would as other agencies do as the cbo does on a fair value basis. >> right now i'm requires because congress has -- the law of the land is federal credit reform act passed in 1990. that's how we keep our books in accordance. i was in business. you don't get to pick and choose your accounting system. that's the accounting system of the u.s. government and the accounting system that we apply and do our annual audit. you don't get to pick and choose. >> mr. chairman, i think you wanted additional time? >> >> yeah. >> if not -- >> i'll take the 30 seconds here. mr. hawkberg you used some rather apocalyptic language regarding what would happen if the xm was not reauthorized.

again, just for the record, i believe you've said it already, but isn't us true 98.4% of u.s. exports are financed without your bank? is that correct? is it also correct that only 5% of all transactions of xm are to meet countervailing subsidi dis. it's from your record, 5% of the transactions of the bank, you classify these, are made in order to meet other subsidies. it's in your competitiveness report, do i neat to cite the page? >> we -- i can't remember or recall if it's 5% but one of the criteria is meeting foreign competition from other export credit agencies.

in 2013, it was 38%. i'm looking at my records here. in 2013. >> that's dollar volume. correct? >> that was transaction by purpose. on a transaction basis. >> that's on the transaction basis. 38%. time to the gentleman is expired. the chair recognizes the gentleman from michigan, vice chairman of monetary policy subcommittee. >> i'll yield some of my time to you if you want to continue that line of questioning as i believe that's a line that needs to be explored. yield some time back to you. >> i thank the gentlemen for yielding. we've heard a lot and i think you, yourself, have used the phrase "unilateral disarmament." and so, again, if we have over

98% of all u.s. exports not being financed, again, my reading of your report, and i'll try to get the page number, was that it was 5% of transactions, roughly a third of dollar volume, are there to, so-called, level the playingfield. all in all, it's a fairly small percentage of all u.s. exports. you also said that the bank extends credit based on need and where they cannot find it in the private sector. i don't want to put words in your mouth. i don't have the transcript in front of me. i think you said that. so, ge, boeing, based on their balance sheets. can they not find credit in the vat sector? is that your in the private sector? >> it's not ge or boeing.

it's their customer. in the boeing case, to use that example, i was in africa, kenya airways or ethiopian airways which are good customers. the size of their balance sheets would not allow them to extend credit to their customer. is that what you're say something. >> they're a manufacturing company. they're not a bank. their job is to manufacture and put money into our -- >> he doesn't have ge capital. boeing doesn't have a finance arm? are they not financing transactions? >> not to the extent that of the global requirements. and, again. >> what's a global requirement. >> to meet all their export needs. they do it frankly -- >> what's an export need? >> sorry? >> what's an export need? >> what i'm trying to say, mr. chairman, is that sometime, boeing will do, this credit is too poor and we're not going to present that to xm bank and the other thing we have to remember is we have airbus as an exception. we'll talk about boeing.

fully funds their export credit agencies particularly in britain, germany and france, don't have the criteria we have. in terms of -- >> ge capital has half a trillion dollars in total assets. boeing, apparently, has 92 billion in assets. and, yet, they have a need that apparently, you have to fill. so you're tell me, again, some of the largest companies in america, can't finance their customers desire for their products, correct? >> they cannot provide -- they're not in a position to provide 12-year financing or 10 or 14 years -- >> i wonder what they're doing with that half a trillion balance sheet. >> a couple of different times you talked about government shutdown. and rightfully said, i believe this is something as harmful to the economy.

i assume, something to be avoided? did i understand you talked about the government shutdown earlier today? >> i talked about it in terms of what the impact was on exports and small businesses that we work with. >> and my take-away from your answer was, detrimental, is that correct? >> that's correct. >> okay. so if congress decided to send the president a clean, continuing resolution and he refused to sign that because it did not reauthorize the xm bank and the administration threatened a government shutdown would you council the administration publicly not to do that? >> i'm not in a position to make recommendations on that, sir. my job is to manage the bank and to -- >> well you just said "shutdown" in your earlier testimony is something i think you thought was pretty negative to the economy. so the xm bank would be

something that would be extraneous, potentially attached to a clean reauthorization to keep the government opened. you have a lot of opinions on other matters. you have no opinion on this matter? >> what i refer to, sir, is the threat of a shutdown. a threat of not reauthorizing the bank or simply, reporting what i heard when i spoke to exporters and their customers. >> so do you have no opinion on the matter out you refuse to share your opinion? >> i haven't given it any thought, sir. >> fascinating. >> three seconds, many chairman. >> i -- the exact quote i wrote down earlier is that we are there when the private sector can't or won't. and the question mark i wrote for myself after that was, really? it doesn't really seem to be that. that is the case so with that, i yield back. thank you. >> the time of the gentleman is expired. the chair recognizes the gentleman from indiana, mr. messer. >> thank you, mr. chairman.

i yield my time back to you, the chair, to continue your inquiry. >> i thank the gentleman for yielding. again, i would have you take a look at figure b 1 of the xm bank transactions by purpose. from your 2012 competitiveness report. page 149 -- where you list the financing due to the fact that, quote, no private sector financing was available and that which says meet competition as i do the math, by number of transactions, it's about 5%. so i would have you take a look at that report. >> i have 2013 here.

i did not bring 2012. we issued this last night. >> well, thank you but we just got 2013 yesterday. so this is the latest data that we have. again, whatever the proper number there is. it appears to be a somewhat smaller number. let's talk about the level playingfield listening to some of those on the other side of the debate, you would think the only way one could be competitive is to take taxpayer money and subsidize fortune 50 companies. regretfully, we're going to drag you back into all of this. but i believe the latest cbo's february budget and economic outlook said that the affordable care act, also known as obama care, would reduce the number of fulltime employees that would exist in the ten-year budget

window by 2.5 million. i assume cbo still stands by that report? >> i think that was our projection for the end of the budget window and yes we stand by those estimates. >> perhaps one way we could make our manufacturers and our exporters more competitive would be to repeal obama care. now, here's something else that makes people competitive. wages. now. some of our competitors have a higher wage scale. some of them have a lower wage scale. the president has called for increasing the federal minimum wage according to a february cbo report. that could reduce employment by half a million but it could be as high as $1 million. that, again, according to a february cbo report. the cbo, do you stand by that report? >> yes, mr. chairman.

>> i think if i remember right, just about every democrat on this committee, cosponsored their reduction in jobs of a half a million, perhaps, they might want to rethink that to help make our manufacturers a bit more competitive. we've got the top five proposed rules that are coming down the pike. most of with you is coming from epa, tier three admission standards and $35 billion impact on the economy. efficiency standers and 11.7, the highest corporate tax rate of any industrialized nation in the world yet, my friends on the other side of the aisle, the only way they can think to somehow, make us more competitive, is to take taxpayer money in subsidized large companies. and the time that's remaining, here's another question that's somewhat disturbing to me. and that is it appears, that you're taking taxpayer money and loaning it or guaranteeing the

credit to some nation states that, according to human rights watch, some of the worst violators of human rights. democratic republic of congo where the human rights watch is, quote, government authorities have sought to silence dissent with threats, violence, arbitrary arrests against human rights activists. freedom from torture, another human rights group, calls it the rape capital of the world. and, yet, on behalf of the american taxpayer, apparently, you have extended one of the state-owned enterprises a line of credit. you've also extended the lines of credit to russia. now that the ukrainian peninsula, the crimea has been absorbed, sierra leon. human rights watch, the mining company that's the country's largest private employer, have

undermined villages access to feed, prevented workers from challenging abusive practices, united arab emirates, continue to crackdown on freedom of expression and association. what you do with taxpayer money is different than what previous soot people. why are you taking taxpayer money and consistently loaning it to nation states that are some of the worst human rights abusers on the planet? >> mr. chairman, the example you set in the congo is from the 1980's. that's over 30 years ago. >> my data says 2012. >> every transaction the state department gives a clearance of human rights conditions and we don't make a transaction if the state department has a objection on a human rights basis. that's current practice. i can't talk about the 1980's. i can talk about currently the state department gives us a clearance on every transaction from a human rights point of view. >> well, i might say it's time

to start showing a little bit, independent judgment in these matters. one man's opinion. the gentleman from indiana, the time has expired. >> there are no other members coup so i'd like to thank our witnesses for the testimony and without objection. all members have five legislative days in order to submit written additional questions for the witnesses to be forwarded to the witnesses and the witnesses are asked to please respond promptly to the questions. all members have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. this hearing stands adjourned.

the e-cigarette industry

caught the attention of congress and federal regulators. on monday, c-span will air portions from fwro recent senate hearings where democratic lawmakers, the accusing the industry of intentionally marketing their products to kids. the republicans said that regulators should be mindful of the ecigarette's potential aas a smoking cessation tool. here's a brief look. i think this whole thing is nothing more than it's all about the money. i think it's uncreative. i think it's nasty. it's like pornography, in my mind. what's to pick between one and the other. in fact, maybe what you're doing is much more dangerous. i'm ashamed of you. i don't know how you go to sleep at night.

i don't know what gets you to work in the morning. except the color green of dollars. i've never said anything like that before but i've never, in my 30 years on this committee, have i ever heard testimony such as given by you, sold to and by you, sir, who -- what i want to do is send you to the middle east because you say we should get good people together and settle everything. so go to the middle east and settle that and come back and talk to us more realistically. but for you two, you're what's wrong with this country. and the profit motive is good. but only if it's aimed at something which is for the general benefit of the public and that can be stretched a little bit. because the public likes to be entertained. i can't say professional

basketball is necessary for the existence of democracy in america but people like it so, let's go ahead. but i think in your case, you don't have that leeway. it's simply a matter of the dollars. the money that you rake in. the 256% increase in two years in advertising. and you say it's only for the adults not for the children. when everything else that's come out of the hearing says otherwise. i think it's dreadful. >> and you can join us monday at 7:00 p.m. eastern for more on e cigarettes and we'll effect more the fda regulations and take phone calls and comments on facebook and twitter. that's monday at 7:00 eastern on c-span. what i have right here is a partially processed plant that i've cut down into sections that are the right length for hanging and i take off all the big, fan

leaves. those are sent to the kitchens to make edibles. they have a small amount of thc so they get that for a really good price in us and the little leaves here are the tight trim. that can be dried and be made into joints or sent to the places that make ax tractions and made into hash and that sort of thing. and then right here, we have the finished bud. and this is sent over to cure and hang to dry and then cured in buckets for a couple of weeks before they sell it in the dispensary. >> washington journal looks at the recreational use and legal sale of marijuana in colorado with guests and your phone calls live friday morning, 7:00 to 1:00 p.m. eastern. the senate on c-span2 here on c-span3 we compliment the coverage by showing you the most relevant congressional hearings and public affairs events and on weekends we're the home to american history tv with programs that tell our nation's

story including six unique series. the civil war's 150th anniversary. visiting battlefields and key events. american artifacts. touring museums and sites to discover what artifacts reveal. history, with the best known american history writers. the presidency looking at the policies and legacies of our nation's commanders and chief. lectures in history with top college professors delving into america's past. and our new series "real america" educational films from the 1930's through the '70s. c-span3 funded by your local cable or satellite provider in hd. like us on facebook and follow us on twitter. the u.s. supreme court today issued a 6-3 ruling the internet streaming company, aero is in violation of copyright laws. we'll show you the oral argument

that led to today's ruling. from april, this is an hour. >> your argument next in case 13461, american broadcasting companies versus aero. mr. clament? >> mr. chief justice may it please the court. the business model is to enable thousands of paying strangers to watch live tv on line. their legal argument is that it can make you will of that happen without publicly performing. the congress passed a statute that squarely forecloses that rather counterinto you five submission because although the internet and the thousands of many are new, the basic service that aero is providing is not materially different from the service provided by the cable company before this court in 1969. >> they're not. i'm looking at the -- everybody's been arguing this case as if for sure they're not. but i look at the lef in addition of a cable company and it seems to fit. a facility located in any state.

they've got whatever they have, a warehouse or a building in brooklyn, the receipt -- that receives signal transmissions or programs broadcast by television broadcast stations. they're taking the signals off of it. >> they're ticking the signals. >> i'm sorry, they are. it makes secondary transmissions by wires, cables, or other communication channels, it seems to me that a little an february that with the dime, fits that definition, to subscribing members of the public who pay for such service. i read it and i say, why aren't they a cable company. >> a couple of things. first of all, i think if you're already at this point, you probably understood like a cable company they're publicly performing and maybe they qualify as a cable company and maybe they could qualify for the

license that's available to cable companies under section 111 of the statute. >> this gets it mixed up. do we have to go to all of those other questions if we find that they're a cable company? >> we say they're a cable company. they get the come pulsery license couple pulsery license. they are not a cable company in their view. they don't want to be a cable company and i think that's because with the cable company it might potentially get you the license but it brings with it a lot of obligations that come with being a cable company. >> that's what they don't want. >> exactly. >> that isn't the question. >> here's the other thing is -- >> the question is, are they? >> i don't think they are. that's really ultimately a question under the federal communication's act. but here's why, if i could, i think and mr. frederick will speak to us if you want him to and the reason they don't want to be a cable company is because

i think their basic business model would not allow them to qualify for a compulsory license anyway. >> if you want a reason i'll give you my reason. if we take the public performance maybe we run into what the professor saw as a problem. why is it, a phonograph recorded stores that sells phonograph records, to 10,000 customers, giving a public performance? it seems to fall within that definition. and if it is, there's no, no first-sale doctrine and it's a big problem. so we could avoid that problem. that's why i'm very interested in the answer, not just what they want. >> well, i don't think they are ultimately cable company and we could debate that question but it's not the question before you. so maybe pa i could give you some comfort about why you don't need to decide that question. >> perhaps you should remand it.

the my reason for wanting decide is what i said. what you read in their briefs as they in their support have thrown off a series of serious problems not involving them, like the cloud, which the government tells us to ignore. and many others which make me nervous which make me nervous about taking your preferred so that's who i was interested in the question. >> i think it's very important to understand that even if they're a cable company it doesn't make all the problems go away because they would be a cable company that by very virtue of what they want to point to which is their user-specific copieses they wouldn't qualify for the dpuls kpulsry license. they're not involved in any performance at all and that's different than an online music store way not only provides a download of something but performs it and streams it and allows it live. that's a basic distinction

that's not only recognized by the second circuit but recognized in the real world by the way these different services are structured. if you provide downloads of music you get a distribution license or a reproduction license. if you provide streaming of music where you also have a contemporaneous live performance then you also get a public performance license. >> you should and you shouldn't. >> justice breyer has asked you the troubled about the phonograph store. and the drop box and the icloud. i'm also worried about how to define or the public performance or the performance of a work publicly, which i guess is the better way to do it according to you, how do i define that so that someone who sells coaxle cable to a resident of a building, is not swept up as a

participant in this? or someone who, passive storage advisers. this is really hard for me. what do i do to avoid what do we do, not me. but what does the court do to avoid a definition or an acceptance of a definition that might make those people liable? >> let me try to take -- those are actually two different examples and i think the answer to both of them is somewhat different. the provider of coaxle cable is, if it's just a simple sale of the cable, is not performing at all. and so i think if you're somebody and all you do is take a piece of hardware and you sell it once and for all to a user. then the user might be performing with the equipment but you're out of the picture. and that's different from an ongoing service like a cable company or a aereo who still owns all the facilities and they're providing through wire transmissions these performances on an ongoing basis. >> >> what if you do something else before you get to justice so the

mayor's -- suppose they had a antenna and hard drive, that's what they sold to the user and the user was able to use the antenna and the hard drive in her own house or apartment, in order to get all of these broadcast programs. what would the -- would that be a performance? >> i think the end-user would be doing the performance and it would be a purely private performance and i don't think the person that sold them the hardware or anybody else if i understand your hypo, would be involved in a performance 37 the answer to these and this isn't something i'm making up on the fly, it's in the text of the statute. >> but it depends on what the hardware is. in other words, if aereo has the hardware in its warehouse as opposed to them selling the hardware to the particular end user, that is going to make all the difference in the world as to whether we have a public performance or not a public performance? >> again, i think that goes to

what i was about to say which is, that's not because we like one better than the other. it's because of the text of the statute congress wrote. one of the ways you can public perform. the singer at a concert hall. they sold tickets and then they say, it's a public performance if you take the singer's performance and you transmit it. and they're thinking over the airways and all sorts of other ways if you transmit it to the public and the definition of transmission then is to commune kwat from one place to another so there's a gee graph cal aspect, if you will, built into the statute so if you sell the hardware and all they're doing is transmitting it to themselves, at their home, there's not going to be a transmission that's chargeable to the person who sold you the hardware. if you provide an ongoing service -- >> there's a performance but it's a private performance. >> and then you move the hardware and it becomes a public performance. is that it? >> it becomes a public performance on behalf of the sender and it still would be a

private performance on behalf of the receiver. that's one thing that's important to get in mind. in this statute, as to the public performance rights, there's nothing particularly anomalous about a single transmission that from the sender's transmission is ap public performance but from the recipient's perspective, only allows for private performance. think about the classic cable context which is what congress was trying to address in 1976 with the transmit clause. you have the cable company and they're taking a performance off of the air waives and transmitting it to all the end users. now the cable company's clearly performing to the public. but that same transmission is allowing each end-user to turn on their television set and -- >> before you -- >> rokuo is paying a license for no reason? they sold me a piece of equipment? >> i don't know all the details of that piece of equipment. i'm not sure whether they're paying a license or not. but if there was a transfer and

nobody else providing transmission, i don't think that just operating the hardware in the privacy of your own home will result in anything but a private performance. >> go to the drop of the icloud. >> that's a slightly different situation. here, i think the ultimate statutory text that allows you to differentiate a cloud locker storage from something like what aereo does is a language to the public and i think is that, in all sorts of places including the real world, there's a fundamental difference between new content to all sorts of end users and a service that provides a storage service. i think if you want a real-world analogy off of the internet it's the basic difference between a car dealernd a value lay park g valet parking service. for 30,000 feet they both provide cares to the public but more closely, if i show up at the car dealership without a car i get a car.

if i show up at the valet service and don't own a car, it's not going to end well for me. >> i didn't mean to interrupt your -- >> i was just going to -- there's a very real way in which you would say -- at the end of the day the car dealer is providing cars and the valet is not. why isn't it -- >> why isn't there like a public garage in your own garage? if you're to park your car in your own garage or a public garage. you can go to radio shack and buy an antenna and a dvr or you can rent those facilities somewhere else from aereo. they have an antenna. they'll let you use it when you need it and they can record it as well and let you pick it up when you need it. >> that's not an implausible way to look at it but that's the way the court looked at it in the knightly decision but in 1976 congress decided to look differently and said if you are providing a service, if you're providing a service that one could reckon septemberalize as

giving out antennas on your house the person that provides the service on an ongoing basis and in the process exploits the copyright work of others engaged in a public performance. that's clearly what they were trying to do in the 1976 act by adding the transmit clause. >> the second circuit natursir guised this to the remote system. does the difference have to do with the way in which the cable company and the remote storage -- i don't think the court has to decide today. be confident they are different. >> i don't find that very satisfying. i really. i need the know how far the

rationale that you want is to accept us will go and i need to understand, i think, what effect it will have on these other technologies. >> i had the same question. assume that cable vision is our precedent. i know it isn't but just assume that it is. how would you distinguish the cable vision in your case. assume it's -- that's a hypothetical. >> i'd like to answer both questions by assuming the result in cable vision is right but i don't have to buy the reason. i think the reasoning of cable vision is profoundly wrong. let me circle back. the reason there's a fundamental difference between the issue and cable vision and what aereo provides is what justice alito alluded to. there's a license in the cable vision context to get the initial performance to the public. and so then, i think appropriately, the focus in the cable vision context becomes just the playback feature and just the time share thing that's enabled by that and in that

context if you focus only on that the rsdvr looks i lot like a locker service where you have to come in with the content before you get it out and you only get back the same content and here's what really i think aereo is like. it's like cable vision having won in the second circuit decides we won! guess what. going forward we're going to dispense with all these licenses and we're just in -- that's all we are. never mind that we don't have any license ability to get the broadcast in the first instance and we'll provide it to individual users and it's all going to be because they push buttons and not because we push buttons. if that were the hypothetical. i don't know how that wouldn't be the clearest violation. >> assuming that, i'm hearing everyone with the same problem and i'll be absolutely prepared, at least for argument sake, to assume to you if there were ever anything that should be held to fall within the public performance, this should be. all right? i'll assume that. i'm not saying that.

but then, the problem is in the words that do that. we have to write words. are we somehow catching other things that really will change life and shouldn't, such as the cloud? and you said -- well, as the government says, don't worry. because that isn't a public performance. i read the definition and i don't see how to get out of it. >> here's the way to get out of it, justice bryer. ultimately the words are to the public. >> to the public? >> you see, separate, at the same time, or different times. >> separate or together. >> 1,000 people store in the cloud the same thing as the easily happen and call it back at varying times of the day. if all they can do is get back what they put up there is that's not to the public. that's not coming up with a

clever distinction. that's the distinction in the real world. not all this is created equal and some cloud-computing services that use cloud-putting technology to get new on content to people that don't have it and they get licenses. there's other cloud licensing that just has locker services and they don't think they need a license. i'm no not saying you have to bless what the market has done but i think it's a proud indication -- >> what if it's not as simple as a company that just allows you, yourself, to put something up there? >> there's lots of companies where many, many thousands or millions of people put things up there and then they share them. the company in some ways, aggregates and sorts, all of that content! does that count? >> that is precisely why i'm asking you not to decide the cloud-computing question once and for all today. not all cloud computing is created equal. the details of it might matter. if i can take my valet parking

system. if they rent it out with a zipcar on the side. if somebody else needs a car we'll rent it out. that's different. i can reserve the rest of my time. >> thank >> mr. stewart? >> mr. chief justice, and may it please the court. i would like to begin reinforcing two of the points that mr. clement made. what the area is doing is really the functional equivalent of what congress in the 1976 act wanted to define as a public performance. as the chief justice said, one potential way of looking at this is that companies like it are not providing services, they are simply providing equipment that does in a more sophisticated way what the viewer can do. it's a plauzic way of looking at the world. congress acted to override that, and make clear that cable

services, services that used one antenna to pull broadcast signals out of the sky and reroute it to their subscribers, those people were engaged in public performances and they ought to be paying royalties. the second thing that i would like to reinforce is that there's no aren't decision should pertain to cloud locker services. >> how about simple tv or nimble tv? which is not quite a hybrid? >> i'm not familiar enough with the precise details of the process. some are licensed, they recognize they are publicly performing. if a particular company recorded television programs and offered to stream them to anyone who paid the fee or offered to stream them for free and made

its money off advertising, that would be a public performance, because those companies would be providing content to people who didn't have it. i think the basic distinction, the one that at least defines the extremes is the distinction between the company, whether it be internet based or a cable transmitter that provides content in the first instance. and the company that provides consumers with access to content that they already have. if you have a cloud locker service. someone has built a death cal copy of a song, stores it in a locker and ask that it be streamed back, the cloud locker and storage service is not providing the content. it's providing a mechanism for watching it. >> that's my question to you that i asked of mr. clement. how about if there's a company that allows sharing and aggregates all the content that different individual users put up, and that in some sense sort of classifies the content in different ways. how about that? >> i think you would have to

know both the details of the service, and you would have to be making a harder call there about how to draw the line. because i don't pretend that there is a bright line between providing a service and providing access to equipment. if you look, for instance, at the extremes of a person putting a rooftop antenna at his own home, everybody agrees that they're -- the rooftop antenna manufacturer is not performing at all, and the individual is engaged in a solely private performance. at the other extreme is the cable company. one big antenna makes a lot of services. you come up with lots of hypotheticals that look more or less like one of the other streams. i don't have a good answer for how do we get out of this example? >> how do we get out -- what words do i write to get out of this -- throwing into this

clause a music store that distributes via federal express a device, or the u.s. postal service or even some over the counter distribute to 10,000 people a copy of a record which they then will take and play it. they have the same degree transmitted something that will make a performance of the music. when they sell the record, are they -- >> no, because the definition of to transmit goes on. to transmit a performance or display is to communicate it by any device or process, whereby images or sounds are received beyond the place from which they are -- >> they are the sounds are received beyond the place. it requires the person to take the record, put it on a machine, and then play it. >> well, there is a separate

exclusive right in the copyright act. >> of course there is, and that separate exclusive right has such things as first sale document patch. if they also flow here. if this covers them, which is why the paragraph was written. if this covers it, there is no for sale doctrine. and that has a lot of consequence. >> if you don't know, and you haven't got something right there, you're not going to think about it in two minutes, nor will i. >> i have thought about it, and i think the answer is, that the word transmit is being used in a particular sense. you are correct that there are some contexts in which we would say that a person who sends cds or vinyl albums is here. that's not the way it's being done here.

if there were any doubt about the word transmit nobody would say that a person who has transferred a copy of a record was performing. >> before you finish. mr. clement made the point that we would. area areas are incompatible with the c conventi

convention. page 45, he says that areas view of what the public performance price is runs straight up against. different from your being recorded. >> we haven't made that argument. it's fully sufficient to comply with our international organizations p.m. that doesn't mean -- it is possible that if this case were decided in the favor, that some of our international trading partners will object. we're not making that argument. the other thing i would say to reinforce the point that mr. clement was saying about the phrase to the public. using his example of the valet parking, using a comparable example of a coat check room.

there are conversations all the time in which people place property momentarily at the disposal of another, and then retrieve it later, and it's distributed to them at that later date, not in their capacities as members of the public, but as the true owners of the property. and i think some kind of distinction along those lines is essential in much more mundane applications of the copyright act. for example, if i invite ten friends over to watch the super bowl. that's a private performance, not a public performance. that's not because my friends are not members of the public. they are in some other capacities, it would be important to regard them as such. if the theater down the street had a screening of casablanca, and those ten people were the only ten people that attended, it would be a public performance, they're in their capacities as members of the public. for -- in a wide range of situations, dealing with public

performance, it's essential to ask, not only are these individuals members of the public in some sense. are they active in their capacities as such. if you have the pure cloud locker service, it simply stores content and plays it back at the users request that service would be providing content to its true owner. >> how do you want us to deal with the cablevision in the second circuit? assume it's a binding precedent? just assume that. >> my answer will be the same as mr. clements. the reasoning of cablevision, if you really adhere to the idea that the only performance that counts is the individual transition, and ask, does that go to more than one person, it's hard to see how you could rule in favor of our position here. you could accept the decision and say cablevision was decided

the correct way because cablevision had a obligation to perform in realtime. the only thing that was at issue was the rsdvr service. and they held that recording of the programs by the subscribers who had already viewed them in realtime and the play back can be viewed as a private performance of their own cont t content. >> mr. fred kick. >> thank you. i want to address the cable position. can i say three points i want to make is the text is very clear for areo. the interpretations of what they offer prohibit cloud computing.

this is mass car aiding as a public performance case. beer not a cable service. the reason we're not a cable service, cable takes all signals and pushes them down. there's a head-in defined by statute, a very regulatory structure that deals with taking a lot of content and pushing it down. the user initiates the system by logging on and pressing, this is the program i want to play back. >> i always thought, and i'm trying to be careful about it, not often enough. if i take a photograph of their

record and duplicated a million times the way you're doing it. and i then go out and sell each of the copies to the public that i am violating the act. why is it that you're not. >> it's not logical to me, that you can make these millions of copies and sell them to the public because you're telling the public when they want to buy it, they can call it up and here it, why aren't you? >> your hypothetical implicates the reproduction right. that is the exclusive right of the copyright holder to restrict the number of copies made they abandoned their challenge in the preliminary injunction proceeding to the reproduction right issue, because it runs right into the sony decision. in sony, this court held that consumers have a fair use right

to take local over the air broadcasts and make a copy of it. all area was doing is providing antennas and dvrs that enable consumers to do exactly what this court and sony recognize they can do, when they're in home and moving the equipment, the antennas, dvrs to the internet. >> when judge wright said there was no technically sound reason to use these multiple antennas, the only reason for that was to avoid the breach of the copyright act. was there a technical reason instead of having one beam antenna? >> let me -- this is a very complex question. and let me answer it at multiple levels. there are technical reasons why the antennas provide the same

utility. there are very practical concerns too. as a start-up business, areas attempting to entire kwon assumers to replicate on the cloud what they can do at home, at lower costs and more efficien efficiency. as a practical matter, and judge chen had no basis in which to make this statement at all in his dissent, because these are facts not in the record, efficiency is not a consideration under the copyright act you can't do multiple channels over the internet anyway. whether you have one big antenna or lots of little antennas, you still have to compress the signal and only one can go over the internet at a time. however, justice ginsburg, as a start-up business there's a very real reason why antennas make sense. if you want to put an antenna on top of a building in new york city, you have to get a building

permit. if you want to put it up there with a crane, you have to get a subway permit. >> is there any reason you need 10,000 of them? can't you put just -- if your model is correct, can't you just put your antenna up and do it? there's no technological reason for you to have 10,000 dime sized antenna, other than to get around the copyright laws. >> the copyright laws shouldn't turn on the number of antennas, it turns on the person that is receiving the signal, getting a data stream, having the signal compressed. through a user specific user initiated copy. >> that may be, it doesn't contradict the justices

question. you don't violate the copyright laws, is there any other reason you did it other than not to violate the copyright laws? >> yes, we wanted to tell consumers, you can replicate the experience at very small costs. you know you have a right to put an antenna on your roof and dvr in your living room, we can provide the same antenna and dvr for a praks of the cost -- >> but it's not, you give them space that's available when they call in, they don't have -- this is my little dime thing, this is my copy that's going to be here. they're there and when they want something, you provide them the service. they don't have a dedicated antenna in brooklyn. >> well, some of the consumers do, some are statically assigned to particular users. that doesn't answer the statutory interpretation, as in cablevisi cablevision, there is a user specific user initiated copy

that when viewed by the user is a private performance. that operation of the system works exactly the same way. the fact that cablevision is able to compress its signals to make them internet accessible through a single antenna. all the hassles should not matter for the copyright laws. we're still talking about renting equipment that consumers have a right to get over the air signals that are free to the public, using public spectrum that the government has allocated so it -- >> so the service is offered so the viewer at home could press three different buttons, which takes 45 seconds. and he could get the broadcast without advertising? and areo would have some way to screen out the evidence. you could watch the entire

baseball game or football game without advertisements? >> that would violate the reproduction right. >> where areo be a performer? >> areo would not be a performer. this goes under the technical details. they say the facts don't matter, we have a well developed factual record, justice kennedy, the factor that would matter in your hypothetical, would be weather or not the initiation of the advertiser free had been done by the consumer or whether it had been done by the cloud. >> the consumer makes the choice, you can have it with the adds or without the adds. push button one or two. i don't understand why it's a performer in one case and not the other. >> because the action of who is a performer turns under the statute on who is making -- who is acting to make the sequence of sounds and scan ned images

perceivable. where you're talking about taking out advertising. you're altering the copy and you're bridging, infringing the reproduction right. that's not something you can do in the area of technology. i have no brief to defend that, that would be a difficult reproduction right question. but it doesn't matter in terms of who is exercising a private performance, because that is being done in the home with a user initiated specific -- >> your client is just using this for local signals? >> yes. >> right now. but if we approve that, is there any reason it couldn't be used for distance signals as well? >> possibly. >> possibly what? there is possibly a reason? or it could possibly be used? >> it can't be used for distance signals. >> what would the difference be. you could take hbo, right? you could carry that without

performing. >> no, because hbo is not done over the airwaves, but through a private service. let me answer your distance signal hypothetical this way, that would implicate against the reproduction right. it does not indicate the private performance and public per 230r78 answer distinction, even if you were to take distance signals and make them available in the home, it's still through a user initiated specific copy of this programming. the question then becomes, is there a fair user right to be able to do that? >> what sony said, because sony was dealing with the over the air broadcasts, it said that consumers have a fair use right to make a copy of that. soengny did not address the distant signal, and the question then would become balancing the various fair use factors whether it was appropriate for a consumer to get access to that programming without being able to otherwise implicate the free

public spectrum. now, the way congress has addressed that, congress has addressed in a by saying that when there are distant signals that then get pushed through a cable system. there is a copyright royalty that gets paid. i want to make absolutely clear. satellite, cable do not pay copyright royalties for local over the air broadcasts. why? because the local over the air broadcast channels wanted it that way. they didn't want to be in a situation of having to figure out how to divvy up all the copyright royalties to the various holders. when they talk about how congress supposedly overruled -- what they ignore is that in section 11-d and 122-3 of the copyright act, congress said the retransmission of local over the air broadcasts through satellite and cable shall be exempt from the copyright regime.

when they talk about the retransmission issue. they're really trying to con nature -- >> mr. -- every other player -- you are the only player so far that doesn't pay any royalties at any stage. >> well, justice ginsberg, the person who sells an antenna to me at the local radioshack store doesn't pay copyright royalties either. the question it really boils down to in this case is how significant slu it be, how long the cord is between the antenna and the dvr? >> no, the answer is very significa significant. what the local antenna person

doesn't do, but you could do, with the same kind of device, pick up every television signal in the world and send it into a person's computer. that sounds so much like a catv system does. or what a satellite system does. it looks as if somehow you are escaping a constraint that's imposed upon them. that's what disturbs everyone. and then what disturbs me on the other side is, i don't understand what the decision for you or against you when i write it is going to do to all kinds of other technologies. i read the briefs fairly carefully, i'm not sure i understand what the problem is. but it might turn out to be. >> let me try to make it their problem. i think i've addressed the distant signal. and i think you can reserve that case to say it might raise a different issue, but on the facts here would not entitle the company to an injunction from

providing the service. now, with respect to the second aspect of this, the reason why their interpretation of the transmit clause causes so much problem, so many problems for the cloud computing industry is that it's two fold. they are con naturing performance with work in the transmit clause. what they are saying is that so long as the work is always perceived in some fashion through a performance that is privately done through the play back of a recording, that that, because the initial work was disseminated to the public, that implicates the public performance. what that does, is it means that every time somebody stores something in the cloud, whether it's a song, video image or the like, if it's something that somebody else has stored in the cloud the act of one person initiating it and preceding it,

is going to implicate the public performance right. that's why the cloud industry is freaked out about this case, because they've invested tens of billions of dollar s on the notion that in user specific user initiated copy, when perceived by that person is a private performance and not a public performance the second thing they do that's wrong with the statute, they aggregate performances the statute says transmit a performance. they say transmit performances. they acknowledged that the way the technology works for areo, is the individual specific user copy, they say, no matter, if you add enough of them together you can aggregate that to become a public performance. >> there's no reason it's a user specific copy, is it? it would be much easier for you to make one copy and everybody

could get a copy? >> that's where the issue of replicating what happens in the home matters. if i'm in my home and i start the program two minutes in i miss the first two minutes, i never get to watch it. it happens to be when i push the button to initiate the copy. when i'm at home watching on a dvr, the same principle, the copy will always be different because i have control over it. >> surely you can make a program where you have one copy, starting it at different times you don't need every viewer to have his own copy? >> that is the key distinction between video on demand and the service that areo provides. we don't have a brief to defend the master copy, because in the master copy situation, that is public, because there is no right to exclude anyone else. with areo's technology, if i'm

making a copy using the areo system, no one else can look at it. you can't watch my copy, you can't download it. >> there's a reason we call them copies, because they're the same. >> all i'm trying to get at, and i'm not saying it's necessarily bad, i'm saying your technological model is based on circumventing legal prohibitions you don't want to comply with. it's fine, lawyers do that. i'm wondering why -- whether you can give me any technological reason apart from compliance for your technological model. >> it's more simple when you are starting up ramping up, and what we're talking about in any cloud computing industry, you are starting with one group of servers and then you add them, almost like lego pieces as you

are adding the number of people that you are using. with areo's antennas and dvrs, we can, with the length of the size of this council table here serve as tens of thousands of people in the new york area. we can provide the antennas and provide the dvrs into very compact small space. if we expand and we're able to continue to be in business, and we get more subscribers in brooklyn, we may add another road. that aspect of the technology goes to the modules that are uses for cloud computing, where you can add additional servers, hard disc space. and when new servers activate, when they sign up their system is completely empty. there's no content being

provided there's equipment being provided. when they activate the system and say, i want to watch the news at 6:00 they start the process that fills their individually assigned storage with the 6:00 news, until that happens, there's no content being provided. the notion they have, that somehow they're a content provider, would mean that everyone who provides an antenna or dvr is a content provider. if that's true, the implications for the equipment industry are massive, and you can understand why that would frighten the cloud computing industry, that turns them into public perfor r performers whenever they are handling content. >> they give the subscriber a menu, and says, you can get any of these things, it's not as though the subscriber initiates it. you have these choices, and

they're providing you these choices. and those choices are content. >> it's no different justice ginsberg, if i'm at home and i have an antenna or rabbit ears at tv, and know what channels i can get. >> it's exactly same if i'm watching cable, right? you just have a different content selection 37 but it looks the same to you. somebody else is providing you with a menu and you pick off that menu. >> right, but the menu is simply what is technologically available. there are broadcast signals available that are limited because that's what the broadcasters make available. simply providing a user guide, it says you can tune to this channel or you can tune to that channel if you want to pick up one program or another. carpet be the difference between a content provider and merely facilitating the use of your equipment.

>> will you explain in a sentence or two -- i want them to have a chance to reply. the thing that scared me was the cloud storing everybody's music, vast amounts of music, and now they then send it down perhaps to a million people at a time, who all want to hear the same song. what you said was, if i understood it, there is a provision of the copyright law says when that happens, it's subject to a compulse ari license, then, of course, people can get it and it's paid for by somebody. if we side with them, there would be a different provision that comes into play, and it wouldn't be subject to the compulsory license. there's no sense telling me i'm right if i'm wrong. >> i think your argument. >> it's not my argument, it's a parody of yours. >> there is no compulsory

license with respect to music or video there are different kpursry licenses with respect to satellite and cable that capture all signals and push them down to everybody. >> that would be the same, it isn't going to be a problem. >> no. where it's going to be a problem with the cloud. if i'm watching a particular program and you're watching a particular program and justice sotomayor is watching the same program, we are engaging with the company that is engaging in public performance. you have to deal with the concept of volition and who's doing the act. if i'm simply making the equipment available. >> it should work in a parallel way. when i look at the program, i'm making a copy of the program and violating the nonexclusive right to copy. if that's fair use and i can do

it, it should be fair use if exactly the same thing happens and it comes from the cloud. >> for local radio broadcast, there is a music distribution license, under section 115. >> yes, that's what i was asking. >> that's the full -- that is exactly the same way satellite and cable work as well if you're broadcasting in the local area, it's for free. like a copyright free zone. the reason for that in the music world, they want local radio broadcasters to play songs because that drives sales of the records that's a totally different business model than in the television world. the reason this matters for your perspective. what the court did, it said user specific user initiated copies are private performances, not public performances.

>> now you're saying that at&t's system, netflix, hulu, all of those systems give their content and they don't push it down to you, they do exactly what you do, they let you choose what you want to see. >> yes, the difference is, they do not absolute anyone, and the difference the public/private distinction is whether or not there's a right to exclude. if i have private property i exclude others. netflix, hulu, they're not excluding anyone, as a user, i have no right to exclude anyone else. they're making their product, their content available to all without exclusion. what we're doing is providing the equipment that enables people to access it. >> you are thinking subscribers.

legions of subscribers. i don't understand that, you say they have to -- they're selective in that some people want to use your service and are turned down? they're not. you take anybody who can pay, right? >> sure, and if we weren't around to 10,000 homes in brooklyn and installed their dvrs for them and provided them a bill every month, it would be the exact same situation. that can't be a copyright provision. somehow it should be different here, is in the supposed lawfulness of the first instance in which that content is received. that distinction can't work and would impair el the cloud. here's why, when a person is accessing local over the air broadcast television, it's doing so because that is free public spectrum, and sony says we have

a fair use right in order to make a copy of that free use. the government in the ft. nightly case argue there is a license when a person accesses local over the air telecasts in that way. it can't be a distinction there is somehow some difference. if i'm watching local over the air broadcast on tv in my own home, i don't have to pay a royalty for it. how would that affect the cloud? if you turn every type of performance that an individual makes that gets downloaded or transferred from the cloud the cloud performer can't tell what's legal or not legal. some stuff could be up there pirated or perfectly licensed. those people are libel for direct infringement of the public performance right that's

why the cloud industry is concerned if you have too expansive interpretation of what is the public performance right, you are con signing them to ruinous liability. >> why isn't sufficient to create a line that said, do you on the one hand supply or provide the content? that will puts you in one box. on the other hand you're not supplying the content the user is supplying the content and you're just supplying the space for them to do that and for them to potentially share the content that puts you in another box. >> i note that my friend did not offer the words of the transmit clause at all. in order to get there, you have to make up words to put them in the transmit clause. if you think that's good for a policy reason you have to explain why the hundreds of thousands of people that are

subscribers don't have the same use right to get over the air broadcast con ten the. and all those who are not areo subscribers have a home antenna and dvr. they have the right to have access, and the fact that they're doing it doesn't make their antenna or antenna provider a content provider. >> why do people pay for areo service? >> if you don't have to buy a tv, dvr and antenna, and a sling box, which might cost you thousands of dollars, you may pay $100 to rent it, if you want to look at programming selectively, you pay $8 a month. it's a rental service. that can't change the copyright analysis. just because you rent equipment does not transform the person that is provided that equipment into a public performer, parly

when you are the one who initiates every set of signals that activates the programming and the content. >> if there are no further questions. >> thank you, council. >> mr. clement, you have three minutes remaining. >> just a few points on rebuttal. mr. frederick says if you only -- if you're a cable company and you only retransmit locally you don't have to pay a royalty, that's just wrong. there's a minimum royalty that every cable company pays. this is not a case as mr. frederick would like to say, where you push a button and then after that, you're a bystander. if you warrant an insight into what happens behind the scenes. look at pages 64-a to 67-a of the petition appendix. judge nathan explains all the

things that areo does after the consumer appreciations the button and before it comes back to them on their home screen. they're not just a by stander. also, this whole notion of pushing a button, there's only one person that reproduces, the concept of what is the requisite conduct is answered by the transmit clause. congress specifically looked at this and said there are going to be lots of situations where the sender, usually the cable company or area sends transmission to the user. the sender, if it allows a contemporaneous performance unlike the record company, they are a transmitter, they are public performance. >> tell me the consequences of our decision today? >> your consequences. >> do you put them out of business? or do they have to negotiate a license with every copyright holder? you're the -- they're not a

cable company, they're not a satellite company, they can't get into those systems of payment. >> if they actually provide something that is a net benefit technologically, there's no reason people won't license them content. if all they have is a gimmick, they shouldn't go out of business. >> once you take them out of the compulsory licensing system, they're going to have to find copyright on who owns something that was written by -- like a french silent film in 1915. i mean, the problem is that they might want to have perfectly good things that people want to watch, and they can't find out how to get permission. that is a problem that worries me, and it worries me again, once you kick them out of the other systems. >> it's not a problem you should worry -- if they need a compulsory license, congress can revisit it as it has. in specific ways for cable and satellite. there is other ways to get

content. they can -- >> you have some other rebuttal points? >> i think, your honor. and one of them really gets to this hbo point. they want to say this whole case is about reproduction, there's no public performance going on at all. to understand how crazy that is with all due respect. if they approach hbo and say we'd like to hear your content, they would be telling hbo, by the way, we don't need a public performance license, all we need is a reproduction license 37 we don't involve ourselves in any public performance at all. that's why at the end of the day, their argument links reality, they provide thousands of strangers with public performances over the tv, that they don't publicly perform at all. it's like magic. thank you, your honor. >> your case is submitted. coming up on the next washington journal. ron johnson of wisconsin on the u.s. strategy in iraq and other news. then hakeem jeffries of new york, talks about his proposed

vulnerable immigrant voice act. legislation to provide legal services to unaccompanied minors crossing the u.s./mexico border. washington journal is live every morning at 7:00 a.m. eastern on c-span. >> the annual report of the financial stability oversight council. that was created in 2010, protecting against systemic risk in large financial firms. the secretary also answers questions about missing irs e-mails. this hearing's an hour and a ha half.

>> the company will come to order. the hearing is for the purpose of receiving the annual report of the financial stability of the oversight council which will be presented by jack lieu i now recognize myself for five minutes to give an opening statement. again this morning, we welcome back secretary lieu to discuss fsoc. before we do discuss fsoc, i would be remiss if i didn't bring up the continuing scandal at the irs. an agency that is part of treasury. mr. secretary, 13 months ago you appeared before us and said, my highest priority is to restore confidence in the irs. i think we know mr. secretary that that has not yet occurred. back then, president obama said

of the irs scandal, the misconduct is inexcusable and americans are right to be angry about it, and i'm angry about it. he said his administration would cooperate with congress to uncover the truth. that's what he said, that's not what has happened. in the last few days, we've known the administration has known since february, that years. years worth of irs e-mails, that eight irs employees at the epicenter of the scandal have simply vanished. how terribly convenient for the administration, but how inconvenient for the american people who expect equal protection under the law. the american people regrettably, but understandably are becoming increasingly cynical and fearful of their government. there's a growing resentment of one set of rules for washington, and another set of rules for everyone else. in other words, no one believes in saying, "i'm sorry i lost my e-mails" is an excuse the irs

would accept from a taxpayer being put through a tortuous audit. mr. second i trust you agree. the american people deserve better. it's pastime for openness and transparency from this administration on what you told this committee 13 months ago, was your highest priority. it is also pastime for openness and transparency at fsoc, which you chair. while you and other officials site responsibility for the shadow banking system. you do not accept responsibility for the shadow regulatory system in which fsoc is front and center. fsoc may very well be the nation's least transparent federal entity. the government cannot view their proceedings. when the minutes are produced on average, they weigh-in at a mere

five pages long, with half the pages devoted to memorializing attendee's names and resolutions considered. better markets, a public interest group that consistently advocates for more regulation of our financial seconder has stated, the fsoc's proceedings look open by comparison. no one in america knows who they are. the few open meetings they have, they snap their fingers and it's over, and they are all scripted. they treat their information as if it were state secrets. the reason transparency and accountability are so important is because fsoc can designate practically any large financial firm in our nation as a systemically important financial

institution and thus render effective control over it. our underemployed and unemployed americans who are count iing on the return of their investments over the long term are approximately $108,000 per investor. in other words, add it operates in the shadows, fsoc can take away the seed capitol necessary to start a business or send a college to college. that is unfair and unwise. no one else seems to find it a review of their latest report

indicates it's willfully blind. hardly a mention. without the leadership of the administration to end permanent taxpayer subsidies, they are certain to be at the center of the next financial crisis. no mention of the federal government itself. $17 trillion in debt and growing. more debt incurred under this administration and our nation's first 200 years. our offices are all awash with cbo and independent reports saying the pace of spending is unsustainable. rather than reign in government spending, the administration turns a blind eye and is threatening to allow default on our sovereign debt. this committee has passed hr-4881 to place a one-year moratorium for the designations of nonbank sifis.

i would call on fsoc to cease and desist with these designations, so congress can have time for oversight and have answers to questions republicans and democrats have raised about fsoc's decision making process. i now recognize the ranking member for five minutes. >> thank you very much, mr. chairman. today i'm very pleased that you are here, secretary lew, and i welcome you back. i assure you we're not here to talk about the irs, that's been done over in oversight investigations. we don't have documents, e-mails, we don't have information relative to that issue. we gather here today to receive your annual report of the financial stability oversite that fsoc has required by the dodd frank act. to be honest, i'm surprised to

see so many of my colleagues on the other side of the aisle with us today, given that the fsoc has joined the ranks of the consumer protection bureau and the terrorism risk insurance act in becoming the latest target in a relentless republican effort to tear down important engines of job creation, economic growth and consumer protection. i didn't think my colleagues on the other side of the aisle would have any interest in hearing about the council's progress or in your views of the financial stability of the united states. in fact, just last week, this committee approved two measures that under the guys of the transparency would erode the important role in place, these partisan bills were nothing more than an effort to derail this cornerstone of the dodd-frank wall street reform act.

the economic collapse of 2008 results in the greatest loss of wealth in a generation. starting with the banks, lehman brothers, our economy quickly ground to a halt, leaving the american taxpayers to clean up the mess. all told, the financial crisis resulted in the destruction of more than $9 trillion in wealth and cost each american household approximately $50,000 while unemployment exploded throughout the country. one problem leading up to the crisis, was that no one in the private sector or government saw the big picture or had the responsibility to deal with emerging threats before they caused damage to our economy. that is why democrats created the financial stability oversite council, to fill that void and serve as an advanced warning system to identify and address systemic risks posed by large

complex companies, products and activities before they threaten the economy. in plain english, fsoc is charged with looking at every aspect of our financial system for possible weaknesses and risks. something that did not happen in the leadup to the crisis. the council's work is critical to ensuring that our financial regulators are working collaboratively to identify and respond to emerging threats to financial stability. it remains a mystery to me why republicans are spending the few legislative days we have left in this situation, pushing partisan legislation to protect homeowners, consumers and the american economy. and it's obvious that republicans go -- the republicans' goal is to stop the program for its important work, even if that means ending important protections for the

american people in our economy. secretary lew i look forward to your insight on areas of systemic risk. the council has identified servicing, alternatives to reference rates like libor and too big to fail. as we hear additional details from you about the risk, identified in this year's report, i would be interested to hear whether republicans believe fsoc should take action to mitigate those risks or turn a blind eye in another crisis. finally, mr. chairman, i'm looking forward to hearing more from you about how we address concerns that i and other members of congress have raised regarding the transparency of the fsoc designation process. i'm sympathetic to these concerns and would like to hear what steps you have taken. and your suggestions on how to inkreesz transparency, in a way that continues to carry out fsoc's mission. i look forward to the secretary's insight on all of

these issues, as well as what the fsoc is currently doing to monitor systemic risk and promote financial stability. i yield back the balance of my time. >> the chair now recognizes the gentle lady from west virginia for one minute. >> thank you, mr. chairman. and thank you, secretary lew for being with us today. we're going to learn more about the fsoc which was created by dodd frank. this designation can have a significant effect on the institution by requiring increased levels of regulatory capital. the costs associated with standards are quite clear. in the recent designation of prudential insurance, fsoc argued there was little evidence to support the notion that a large life insurer poses a

systemic risk. furthermore, we know little about how an institution will affect end users. another thing i'd like to discuss, is it systemically significant. there's been a lot of discussion about the different thresholds and i'd like to dig deeper with that. >> time of the gentle lady has expired. ranking member of the capital market subcommittee for a minute and a half. >> thank you mr. chairman, ranking members, and welcome to secretary lew. i believe i speak on behalf of all of new yorkers when we say we are so proud of you and your many years of public service. this is an important hearing. the financial stability oversight council was one of the keys of the dodd frank financial reform, and it provides a forum for all of our financial regulators to come together to discuss the risks that they each

see in the markets they regulate, but from a broad perspective, from a systemic perspective. it also requires them to publish an annual report that describes in detail the emerging threats that they see in the financial markets. and this is tremendously important. it depends on what report you look at, the ranking member said 9 trillion, i've seen some reports that said we suffered 16, $18 trillion in loss to our economy. christina testified before this congress that the economic shocks we experienced in the last recession was three times greater than the great depression. and we managed it better. but also economists have testified before this panel and other panels that it was the only financial crisis in our history that could have been prevented by better financial market overview and regulation. we didn't keep up with the new products. we didn't keep up with the new

trends. so fsoc was created to help us prevent another serious damaging painful economic loss that we could have prevented with better financial management. i look forward to reading your report, thank you. >> time of the gentle lady has expired. the chair recognizes the gentleman from new jersey for two minutes. >> thank you mr. chairman. today the fsoc has become a regulator, implicit taxpayer guarantee. too big to fail will use their capital cost advantage to drive smaller competitors out of business. in short, fsoc picks the winners and losers in our financial markets. it asserts itself over more and more sectors of our economy. most recently they owe the american people an explanation for what they're doing. despite the 147 page fsoc

report, the vast majority of which is a rehash of basic information available on any website. fsoc's decision making process remains a black box. citizens whose livelihood are directly affected by fsoc, have little why why they make the decisions they do. i can be briefed on the most sensitive intelligence information. but i'm not allowed to sit quietly and listen in on fsoc meetings. they have only the vaguest notion of what deems them important. they can do nothing to reduce their own systemic risk. when republican members have asked questions of you and of fsoc in the past, the answers received have always been bland and evasive talking points, designed to give us the impre impression of responsiveness without answering any of our

questions. this committee asked you specifically last month for all the documents and all the communications between you, your department and fsb. and i have everything that you supplied right here in >> we've to get real answers from you and your department. >> the time of the gentleman is expired. the chair now recognizes the gentleman from colorado. >> thanks, mr. chair. mr. secretary, it's good to see you here. i want to thanks yo you, i want thavng t

thank the administration. my math take that is to 13 trillion dlarsz. home prices are up. iras are up. and we put 10 million people back to work and i want to thank you for that. we had kind of an age-old debate. dodd-frank and f-sock had too much discretion. we had members saying there was too little and too many lines. i have two areas i'd like you to talk about today. one is the living wills whoochlt you're doing on the major institutions to find out if they fall apart, how you're going to take them apart. and secondly, i want you to talk a little bit about the gses. glnd and, now, there isn't a lot that has to be done with respect

to gses. i'd like you to talk about living wills and gses. >> the gentleman yields back his time. secretary lu has testified before. without objection, secretary lu's written statement will be included in the written record. >> chairman, ranking member waters, members of the committee, thank you for the opportunity to testify today on the financial stability oversight council, 2014 annual report. nearly four years ago, president obama signed into law dodd-frank

creating the strongest safeguards since the aftermath of the great depression. that's why these historic safeguards were established. today, our financial system is more resilient. our marktss robust. the agency is charged with protecting consumers and investors. one of the lessons from the financial crisis was recognizing how important it is to detect and mitigate risks to financial sisters and brothers. in the lead up to the crisis, individual regulators focused on individual institutions, focus or markets. the siloed approach allowed risks to fall through the cracks. now, regulators are obligated by statute to collectively monitor the stability of the entire u.s.

financial system, to plook over the horizon and to respond to threat that is have been detected. in short, the council's work to detect possible risks is not only mandated by law, it is sound economic policy. that's why it both defies common sense and ignores recent hist y history. the council cannot simply kwaurn teen off a threat. that was be a complete disregard for the very purpose of the council. somebody has gone so far to suggest the council should be prohiblted from asking questions about certain activities or company that is could threaten financial stability. we have to be allowed to ask questions. as everyone here knows, during the run-up to the financial crisis, regulators should have asked more questionings, not fewer. to be clear, asking questions

does not equal regulatory action. sometimes question result in a conclusion that the council does not need to act. that it needs to examine further or gather more information. the council asks questions with an open mind. in that vain, the council's procedures are transparent. the council's annual report kpemplly fills the commitment to collaboration. it reflects collective analysis and conclusion of council members, clining the key risings to financial stability what areas it will focus on, what areas will require additional attention and how the council expects to address them.

these areas include wholesale funding markets, risk-taking by large financial institutions and potential interest rate volatility. before closing, let me point out that we've reached a number of chi milestones in financial reform implementation. >> over-the-counter derivatives are into centralized clearing. fines have been imposed on abusive actions related to ma nichelation. and the international community is making progress on increasing the stability of the global financial system. mr. chairman, i want to thank

members of council and all the staff involved with the 2014 annual report for their tireless work and commitment. we'll koblt to work with you, the committee and progress to work for all americans. >> the chair now recognizes himself for five minutes. mr. secretary ux i'd like to start off with a matter that i left off during your last appearance for which i did not receive an abs. answer. it's not a groch ya question. as you know u the ge20sfsb of which treasure is a plen rare member designated three insurers as global siffies. did treasury support these dez ig naxs? yes or no? >> mr. claireman, as i merngsed, the last time i testified u the

sfb operates by con sen susz. >> okay. so treasure considered in the sdez ig nation, correct? >>. >> these as are very different matters. the fsb is not a natural authority. the fsoc does it on a parallel path. >> can a financial institution pose, in your mind, a systemic risk to the global economy without representing system grifs to our domestic economy? >> mr. chairman, i think the question of designation is a moment in time and based on analysis it had at that time. in the case of a designation of

a specific institution, the process of a-sock gs -- >> i understand there may be two different processes. blue i'm simply asking in treasury's opinion, 23 one is a threat, to the global economy, are they a risk to the do mostic economy? >> it's based on the information and the analysis you have at that point. what you go through, through an f-soc determination process, is a very detailed exchange of information ultimately with a company. so treasury could report a dez ig nation of the exact same firm but not be systemically risky to the domestic economy?

>> the action taken does not designate in the same way that f-sock does. >> i'll tell you what, mr. secretary, my time is limited. let me move on. the chairman told the fsock that they wanted to release asset management study bloomberg report that had you personally called the sec chair to express your displeasure. is that story accurate? >> my view was that the ofr study was going to be released to the public and the