Microsoft Argues Computer Software Masters Are Export Property

                          TABLE OF CONTENTS

[3] On July 2, 2001, the Tax Court entered its decision. ER 536-537. Microsoft filed a timely notice of appeal on September 21, 2001. ER 538-541; §§ 7483 & 7502. This Court has appellate jurisdiction over the Tax Court's final judgment under § 7482.

[5] In an opinion filed September 15, 2000, the Tax Court ruled that Microsoft's export of copyrighted computer software masters did not qualify as the export of copyrighted works embodied in "films, tapes, records, or similar reproductions, for commercial or home use" under § 927(a)(2)(B). ER 493-535. The Tax Court interpreted the quoted phrase as encompassing only motion pictures and sound recordings. Concluding that computer software was "fundamentally different" in its ability to make a machine function, ER 523-524, the court treated as irrelevant any similarities in the tapes and other physical media used for reproductions of motion pictures, sound recordings, and computer software.

[6] The same issue tried in this case is presented in four other cases currently in the Tax Court: Oracle (Barbados) Foreign Sales Corporation v. Commissioner, T.C. Nos. 13298-98 - 13301- 98; Adobe Systems, Inc. v. Commissioner, T.C. Nos. 16156-97 and 4227-98; Autodesk, Inc. v. Commissioner, T.C. No. 23079- 97; and Electronic Arts, Inc. v. Commissioner, T.C.. No. 002433-99. All have been stayed pending this Court's decision here.

[8] Microsoft's explosive growth paralleled that of the U.S. computer software industry. Like the movie and music industries before it, the computer software industry developed into a significant employer of creative talent and an export leader. ER 414. From 1988 through 1991, Microsoft's domestic employment grew at an average annual rate of 41.7%. ER 74, 326, 328, 330. International revenues accounted for 54.9% and 57.3% of Microsoft's total revenues in 1990 and 1991, respectively. ER 84.

[9] Microsoft distributed its products internationally through two principal channels: foreign computer makers (also known as original equipment manufacturers or OEMs), and Microsoft's foreign subsidiaries (also known as controlled foreign corporations or CFCs). ER 84, 88. Via both channels, Microsoft exported individually packaged copies of its products for distribution to end users. Microsoft also exported computer software masters, from which OEMs and CFCs made copies of software products for distribution to end users. Unlike a consumer or business that purchased a shrink-wrapped package containing Microsoft software, an OEM or CFC that licensed a computer software master obtained the right to make copies for distribution to others. ER 85, 87-90, 118-119, 123-132, 151-152.

[10] Like many other U.S.-based software exporters, Microsoft set up a FSC to avail itself of the incentives in U.S. tax law favoring exports. ER 76. For 1990 and 1991, the Commissioner allowed FSC commissions of $17.7 million. These commissions were attributable to Microsoft's export of shrink-wrapped products directly from the U.S. to distributors or customers overseas. ER 77, 88, 146-148. The Commissioner disallowed, however, $38.5 million in FSC commissions for the same period, commissions attributable to Microsoft's export of computer software masters to OEMs and CFCs for duplication and distribution around the world. ER 77.

I. The Statutes

[11] The statutory regime that governs this case traces its origins to the Revenue Act of 1971, Pub. L. No. 92-178, 85 Stat. 525 (1971), codified as amended at §§ 991-997, which created the Domestic International Sales Corporation ("DISC") regime. DISC gave corporations a valuable incentive to develop products in the U.S. for export. Congress enacted DISC to increase the nation's economic growth, to provide a rational system of tax incentives that would aid in the modernization of the nation's productive facilities, and to boost U.S. exports. S. Rep. 92-437, at 1 (1971). DISC encouraged U.S. development and production of products destined for foreign markets by permitting corporations to defer part of their income tax on sales, licenses, or leases of "export property." Export property had to be manufactured or produced in the United States and sold or leased in the ordinary course of trade or business for direct use outside the United States. In addition, not more than 50 percent of the property's fair market value could be attributed to articles imported into the United States. § 993(c)(2)(B). There is no dispute that Microsoft's software masters met these requirements.

[12] Congress provided that certain types of property would not qualify as export property, notwithstanding satisfaction of this test: "The term 'export property' shall not include . . . patents, inventions, . . . copyrights (other than films, tapes, records, or similar reproductions, for commercial or home use), good will, trademarks, . . . or other like property." § 993(c)(2)(B) (emphasis added). Congress thus determined that although copyrights generally would not qualify as export property, copyrighted works embodied in "films, tapes, records, or similar reproductions, for commercial or home use" (hereinafter the "Similar Reproductions Parenthetical") would qualify as export property.

[13] In the early 1980s several foreign governments challenged DISC's legality under the General Agreement on Tariffs and Trade. In response, Congress enacted the FSC legislation. Foreign Sales Corporation Act, Hearings on S. 1804 Before the Senate Comm. on Finance, 98th Cong., 2d Sess. 5 (1984). FSC altered DISC in ways not pertinent to this case. Most FSC provisions mirrored the DISC provisions; they continued to provide incentives to export. §§ 921 et seq. FSC adopted DISC's definition of "export property" and left the language and meaning of the Similar Reproductions Parenthetical unchanged. Compare § 993(c)(2)(B) (DISC), with § 927(a)(2)(B) (FSC); 1 Staff of Senate Comm. on Finance Print 98-169, 98th Cong., 2d Sess., Explanation of Provisions Approved by the Committee, at 636 (1984).

II. Copyrights, Computer Software, and CONTU

[14] In 1974 Congress created the National Commission on New Technological Uses of Copyrighted Works ("CONTU") to study and make recommendations about intellectual property protection for computer software.²Apple Computer, Inc. v. Formula Int'l Inc., 725 F.2d 521, 523 (9th Cir. 1984). CONTU issued its final report to Congress (the "Report") in 1979. ER 83. The Report noted that computer software, motion pictures, and sound recordings were all copyrighted works stored on media that were read by machines to "print words, display pictures, or create sounds." ER 374-375. CONTU recommended that the Copyright Act expressly recognize computer programs as copyrightable works, a recommendation that Congress adopted in 1980. Apple Computer, 725 F.2d at 524.

III. Production and Distribution of Motion Pictures, Sound Recordings, and Computer Software.

[15] At trial the Tax Court heard extensive testimony about the development, production, and distribution of computer software, recorded music, and movies. Virtually none of this testimony found its way into the Tax Court's opinion. A brief synopsis of the evidence is necessary to understand the parties' arguments.

A. Production of the Copyrighted Work and the Master

[16] Producing a complex piece of computer software, a feature- length motion picture, or a popular musical recording requires an organized team of creative individuals applying their skills with the assistance of technological tools. In addition to software developers, Microsoft in 1990 and 1991 employed graphic artists and audio experts to create clip art, animations, video, audio, and other components that Microsoft incorporated into its products. ER 78, 138- 140, 143. These became increasingly important as Microsoft expanded its use of graphical user interfaces and began creating multimedia products. ER 112-115, 141-142, 166-169. In the motion picture industry, conversely, computer-generated music and special effects made software engineers and experts in computer graphics and sounds increasingly important in the creative process. ER 321-323, 424-425, 490-491. In the music recording industry, production companies commonly created recordings using computers with specialized software packages. Composition, performance, and editing could all occur with the aid of a computer. ER 218-223, 427-428.

[17] In all three industries the end result of the creative process was a master recording, termed a gold master (computer software), a master film negative or tape (movies), or a production master (music). ER 411, 427-428, 455-456. Masters were reproductions from which further authorized copies could be made. Microsoft's second-generation masters, duplicated on media such as 1/4-inch magnetic tapes and diskettes, were transferred to, among others, foreign OEMs and CFCs for reproduction and international distribution. ER 89-90, 95, 156-165, 402. For their part, movie production companies used the master film negative to make a series of master elements for international distribution. These elements included positive film prints, internegative film prints, magnetic tape recordings of sounds, and analog or digital videotapes. ER 270- 271, 456-461. Similarly, sound recording companies used the production master to turn out tape recordings, acetate masters, metal "mothers" or stampers, and/or CD masters that were sent abroad for mass duplication. ER 281-282, 471.

[18] The computer software, movie, and music industries all used magnetic tape for some of their export masters. ER 159-160, 199- 200, 224-225, 460. U.S. producers of computer software and musical recordings employed the same or similar mastering processes. ER 259- 261, 429-433, 438-439, 444-445. The masters used in all three industries could be read only with the aid of a machine and, by virtue of the media and processes involved in making reproductions, lent themselves to relatively easy duplication and distribution. ER 144, 268-269, 277-278, 320, 365, 375.

B. International Distribution

[19] About half of the 500 foreign OEMs that shipped Microsoft's software products with their computers in 1990 and 1991 did so pursuant to license agreements authorizing them to adapt and reproduce Microsoft's operating systems software. (The other foreign OEMs shipped products that had been reproduced by Microsoft or its CFCs.) ER 125-129, 153-155. In addition to operating systems, Microsoft licensed applications and other software products to foreign OEMs. ER 85-86.

[20] Copies of Microsoft software products for the international retail channel were produced at Microsoft's duplication facility in Canyon Park, Washington; by Microsoft's Irish CFC; and by subcontractors of its Asian CFCs. The copies were shipped to a Microsoft sales subsidiary in the country of distribution. The Canyon Park facility and Microsoft Ireland duplicated English language and European language versions of Microsoft's products, while the Asian CFCs duplicated Japanese, Chinese, and Korean language versions of the same products. All of the products were distributed as shrink- wrapped packages containing software-encoded media. ER 88, 144-152.

[21] The seven major U.S. movie studios handled international distribution of their films through affiliated corporations. Independent studios distributed their motion pictures overseas through unrelated companies. ER 447-448. The standard license agreement used by the Independents granted a foreign distributor the right to exploit a motion picture in a particular market by making duplicate copies, by making derivative works, by distributing copies, and by performing and displaying publicly those copies. ER 264-267. The foreign distributor frequently adapted the work by dubbing, subtitling, or editing it for the local market. ER 269, 285, 453-454, 462-463. Master licenses used for export distribution in the music recording industry in 1990 and 1991 granted foreign distributors the rights to reproduce, distribute, adapt, and publicly perform the copyrighted sound recording. ER 284-286, 469-470. Adaptation activities included arranging songs in a different order, adding songs, and re-mixing songs. ER 272-274, 468.

[22] Among the similarities in the foreign distribution methods used in the computer software, movie, and music industries were the primacy of the copyright rights granted (namely, the rights to adapt the master product, to make copies, and to distribute the reproductions); the bundling of non-copyright grants and obligations (e.g., rights of publicity, trademarks) as necessary to permit exploitation of the copyright rights; the supplying of materials to the licensee to make adaptations; and provisions governing the licensor's representations, warranties, and indemnities. ER 193, 283- 306, 449-450, 469, 476-477.

C. End User Reproductions

[23] In 1990 and 1991 Microsoft's products were distributed to consumers outside the U.S. on magnetic media (5 1/4-inch diskettes, 3 1/2-inch diskettes, and hard drives) and optical media (CDs). ER 84-85, 87, 119-120. Movies were distributed to consumers and cinema owners abroad on a variety of media, including 35 mm film and magnetic videotapes. Movies were also distributed on optical media -- namely, laser video disks, which have now been supplanted by DVDs. ER 307-309, 311, 418-419, 441-443, 451-452. Recorded music has been distributed over the years to consumers and radio stations on vinyl records, various magnetic media (e.g., 8-track and cassette tapes), and CDs. ER 277-280. In all three industries, copies have been produced abroad from masters supplied by U.S.based companies and distributed, together with printed materials, in packages reflecting product information and decorative artwork. ER 85, 88, 296, 298, 302-303, 464-466, 472-473.

[24] Diskettes and magnetic tape are both manufactured from a plastic or polyester substrate that is coated with a slurry of magnetic particles suspended in a chemical binder. After the magnetic coating is baked onto the substrate, the plastic is cut into long strips for use as magnetic tape or cut into circular disks for use as diskettes. ER 1.94-199. Hard disk drives are built around a circular platter coated with magnetic material; like diskettes, they can store any information in digital form. ER 200-205, 420-422. Diskettes, tapes, and hard drives are all generally rewritable. ER 310-313.

[25] Sony and Philips introduced the CD in 1982 as a method of recording and playing back audio signals in digital form. In 1985 the CD was adapted for recording digital information other than audio signals, such as computer software. ER 436-437. Microsoft released its first CD product in 1987. ER 171-172, 325. Beginning in late calendar year 1991, Microsoft began to use CDs regularly both for retail copies of its software products and for the masters provided to CFCs and OEMs for foreign duplication and distribution. ER 119- 120, 162-164, 170-172, 332.

[26] Music and software CDs are physically identical injection- molded plastic disks upon which digital information is recorded. Software and audio CDs use nearly identical mastering and production processes. ER 259-263, 438-440. Because of their common data format, computer programs and video clips can be combined with music recordings on a single CD. ER 206-209, 216-217, 488. Microsoft's Multimedia Beethoven and Cinemania showed the potential of these multimedia products. ER 172-174, 178-192, 552-586. Other examples can be found in the "enhanced CDs" that have been released in recent years by recording artists such as Sarah McLachlan, Yo-Yo Ma, and James Taylor. ER 206-215, 426, 488, 542.

IV. The Parties' Dispute and the Tax Court's Holding

[27] Asserting that Microsoft's computer software masters did not constitute export property, the Commissioner took the position that the Similar Reproductions Parenthetical is limited to the export of motion pictures and sound recordings. In his view, the parenthetical must be interpreted based on content: Only those reproductions containing content that is similar to sound recordings or motion pictures qualify as export property. The Commissioner claimed that, because computer software content is dissimilar from motion picture and sound recording content, computer software masters and the copies made from them can never qualify as "similar reproductions." According to the Commissioner, any similarity of the media on which computer software, motion pictures, and sound recordings are fixed is irrelevant to the determination of what constitutes export property. ER 226-258.

[28] Microsoft, by contrast, maintained that because the Similar Reproductions Parenthetical refers only to media ("films, tapes, records, and similar reproductions"), copyrighted content distributed on tapes or on media that are similar to films, tapes, and records must qualify as export property. Because Microsoft's software masters and shrink-wrapped retail products both consist of copyrighted content reproduced on tapes or on other magnetic or optical media that are very similar to films, tapes, and records, they fall within the Similar Reproductions Parenthetical. ER 96-98.

[29] The Tax Court adopted the Commissioner's view, holding that Congress intended to include only motion pictures and sound recordings when it enacted the Similar Reproductions Parenthetical. The Tax Court also held that the phrase "similar reproductions" refers to motion pictures and sound recordings on tangible media similar to films, tapes, and records, but not to computer software on the same media. ER 522. The Tax Court reached this conclusion based on its determination that computer software is "fundamentally different" from motion pictures and sound recordings. ER 524. The Tax Court also determined that Temp. Treas. Reg. § 1.927(a)-1(f)(3) (1987) supported the Commissioner's position and was consistent with the plain meaning of the Similar Reproductions Parenthetical.³ ER 524-532.

[31] The Tax Court's holding was erroneous as well because excluding computer software masters from the definition of export property is inconsistent with Congress's purpose in enacting DISC. Congress emphasized that the legislation was intended to encourage the modernization of the nation's productive facilities, increase the export of products that would improve the United States' balance of payments, and boost domestic employment. Including computer software masters as "export property" furthers all these congressional goals. The computer software industry undeniably helped modernize the nation's economy while exporting billions of dollars of software products and creating thousands of export-related jobs in the United States during the 1980s and 1990s.

[32] The Tax Court further erred by holding that computer software is fundamentally different from motion pictures and sound recordings. This conclusion of law is directly contradicted by an express finding adopted by Congress in 1980, which the Tax Court ignored. The Tax Court's failure to accord deference to a congressional finding independently warrants reversal.

[33] Whereas the Tax Court accorded no deference to Congress, it gave extraordinary deference to the Commissioner's position. That position, based upon a contested interpretation of a 14-year-old "temporary" regulation, conflicts with the plain meaning of the Similar Reproductions Parenthetical. If the Commissioner's interpretation of the regulation is accepted, the regulation cannot stand.

[34] This Court reviews the Tax Court's conclusions of law, including its interpretation of a statute, de novo. Gainer v. Commissioner, 893 F.2d 225, 226 (9th Cir. 1990); Vukasovich, Inc. v. Commissioner, 790 F.2d 1409, 1413 (9th Cir. 1986). The issue of whether a regulation promulgated by the Commissioner constitutes a valid exercise of his authority also presents a question of law that is reviewed de novo. Nichols v. United States, 260 F.3d 637, 642 (6th Cir. 2001).

II. Computer Software Masters Are "Export Property" Under § 927(a)(2)(B).

[35] Microsoft created copyrighted works in the United States and exported masters of those works to be reproduced and distributed abroad. Without dispute, the motion picture and recording industries did the same thing. All three industries used magnetic and optical media for masters and reproductions. Despite these similarities, the Tax Court concluded that computer software masters -- unlike motion picture and sound recording masters -- do not qualify as export property. This conclusion cannot be squared with either the language of or the goals underlying the Similar Reproductions Parenthetical.

[38] The Tax Court took the word "films" to be a surrogate for motion pictures; "'records" became "sound recordings." As a matter of copyright law, the Tax Court's assumption that there is one-to-one correspondence between a material object (e.g., a film or a record) and a particular class of copyright content is simply wrong.⁴ That error aside, the Tax Court's construction of the Similar Reproductions Parenthetical leaves no role for "tapes." In the Tax Court's view, "tapes" must refer to motion pictures or sound recordings, making that word redundant with "films," "records," or both.⁵

[39] The redundancy inherent in the Tax Court's construction is only compounded when one considers what "similar reproductions" means under the Tax Court's reading -- namely, motion pictures and sound recordings in another form. If, as the Tax Court believed, motion picture or sound recording content is the touchstone of "films, tapes, records," then motion pictures and sound recordings qualify as export property regardless of the media in which they are fixed, and the statutory phrase "and similar reproductions" is wholly superfluous.

[40] To avoid the Tax Court's redundancy, the phrase "films, tapes, records" must be construed to mean precisely what it describes: three different types of media for storing copyrighted material. "Films," "tapes," and "records" describe three different things, not two, and "similar reproductions" describes something else: material objects akin to films, tapes, and records, on which copyrighted works are fixed. Examples of "similar reproductions" are CDs, diskettes, and DVDs. Under this interpretation, all the words have meaning.

[41] When construing an act of Congress, a "cardinal rule of statutory interpretation [is] that no provision should be construed to be entirely redundant." Kungys v. United States, 485 U.S. 759, 778 (1988). This rule applies not only to sections of a statute but also to individual words within a statute. United States v. Alaska, 521 U.S. 1, 59 (1997) ("The Court will avoid an interpretation of a statute that 'renders some words altogether redundant."') (quoting Gustafson v. Alloy Co., 513 U.S. 561, 574 (1995)).

[42] If the Similar Reproductions Parenthetical is to be interpreted properly, then each word chosen by Congress -- "films, tapes, records, or similar reproductions, for commercial or home use" -- must be given effect. A non-redundant reading of the statute compels the conclusion that computer software masters qualify as export property. Without question, they are copyrighted works in the form of tapes or similar reproductions, and they are exported for commercial or home use. The Tax Court plainly erred in ruling otherwise.

[44] In United States v. Lacy, 119 F.3d 742, 747 (9th Cir. 1997), cert. denied, 523 U.S. 1101 (1998), the defendant was convicted of possessing child pornography after several sexually explicit GIF (graphics) files were found on diskettes and on the hard drive of his computer. The statute at issue there criminalized the knowing possession of "3 or more books, magazines, periodicals, films, video tapes, or other matter which contain any visual depiction . . . if the producing of such visual depiction involves the use of a minor engaging in sexually explicit conduct. . . ." 18 U.S.C. § 2252(a)(4)(B) (emphasis added).

[45] Lacy considered whether the phrase "or other matter" in the statute should be read to refer to a computer hard drive and diskettes, or rather to sexually explicit images (i.e., content). This Court held that because "books, magazines, periodicals, films, [and] videotapes" all refer to physical media, the phrase "or other matter" must also be understood as referencing "the physical medium." 119 F.3d at 748.

[46] Under Lacy, the Tax Court's novel interpretation of the Similar Reproductions Parenthetical is untenable in at least two respects. First, in light of noscitur a sociis and ejusdem generis, it makes no sense to construe "films, tapes, records" as referring to content and "similar reproductions" as referring to media. Because "similar reproductions" is a general term following the more specific terms "films, tapes, [and] records," they must all refer to the same kind of thing. Congress's use of the word "similar" only reinforces this conclusion. Second, if "books, magazines, periodicals, films, [and] videotapes" each referenced a "physical medium" in Lacy, then the quite similar phrase "films, tapes, [and] records" presumably should be understood to reference physical media in the case at bar. This conclusion is reinforced if one considers the meaning of "similar reproductions." Unlike "other matter," which by itself could mean anything, the word "reproductions" clearly denotes physical copies.

[47] One might have anticipated that the Tax Court would go to great lengths to distinguish Lacy if it was going to pursue a contrary path. Instead, the Tax Court's treatment of Lacy was breathtakingly cursory: "Lacy construed different words, within a different statute, in a different context. It is irrelevant to the issue before us." ER 534. To the contrary, courts must interpret structurally similar statutes using a consistent methodology. Noscituur a sociis and ejusdem generis are interpretive canons applicable to all statutes, not substantive rules applicable only in criminal cases. By ignoring Lacy's interpretive methodology, the Tax Court erred.

[49] The Similar Reproductions Parenthetical enacted as part of DISC in 1971 and reenacted as part of FSC in 1984 can be traced back to two bills considered by the 91 st Congress in 1970. The first bill would have excluded from DISC benefits income from "copyrights (other than motion picture films or films or tapes used for radio or television broadcasting)." H.R. 18392, 91st Cong. § 2 (1970). The second bill excluded income from "copyrights (other than films, tapes, or records for the commercial showing of motion pictures or used for radio or television broadcasting or to provide background music)." H.R. 18970, 91st Cong. § 402 (1970). See Addendum. Neither bill was enacted.

[50] During the subsequent Congress, the advocates of DISC scrapped both content-based limitations and restrictions based on the use to which a copyrighted work might be put. In their place, DISC proponents put forward much broader language. Gone were content- specific phrases such as "motion picture films" and "background music." Gone, too, were references to particular license rights (e.g., the public performance right). The language that Congress substituted had but one limitation, based upon the media used to distribute copyrighted works: "films, tapes, records, or similar reproductions, for commercial or home use." So broadened, the DISC statute was enacted. The 92nd Congress thereby discarded the narrower definition of export property that had been proposed, but not enacted, by the 91st Congress. See David J. Kastanis, Note, Treatment of Computer Software Under the Foreign Sales Corporation (FSC) Provisions of the Internal Revenue Code, 19 Hastings Int'l & Comp. L Rev. 597, 613-15 (1996).

[51] The Tax Court's construction of the Similar Reproductions Parenthetical cannot be squared with the Town & Country rule. Congress's rejection of the content-limiting language of H.R. 18392 and H.R. 18970, combined with its enactment of the more broadly worded DISC parenthetical, is conclusive evidence of Congress's intention that the Similar Reproductions Parenthetical should not be limited to particular content. Nor may the parenthetical be read to exclude certain license rights (e.g., the right to reproduce and distribute retail copies of copyrighted works).⁷ Only by ignoring this evidence of Congress's intent could the Tax Court read the Similar Reproductions Parenthetical in a manner that excludes computer software masters and, in effect, resurrects the discarded statutory terms.

[53] Courts routinely construe statutes to cover circumstances that did not exist when the statute was enacted. See, e.g., Barr v. United States, 324 U.S. 83, 90 (1945) ("[I]f Congress has made a choice of language which fairly brings a given situation within a statute, it is unimportant that the particular application may not have been contemplated by the legislators."); Browder v. United States, 312 U.S. 335, 339-40 (1941); People of Puerto Rico v. Shell Co., 302 U.S. 253, 257 (1937). Because the computer software industry was in its infancy when the FSC legislation was enacted, it is not surprising that Congress did not refer specifically to computer software. Congress's use of general language -- namely, "films, tapes, records, or similar reproductions" -- made it unnecessary to do so.⁸

[54] When confronted with a venerable statute and a set of facts that may not be expressly covered by it, a court must adapt the older rules to the newer situation. For example, the Supreme Court held in J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred International, Inc., ___ U.S. ___, 2001 WL 1560870 (Dec. 10, 2001), that the broad provisions of the Patent Act should be interpreted to encompass innovations that occurred well after its enactment in 1930:

[55] This Court has taken the same approach in considering computer technology. Lacy held that a statute referring to films, tapes, and similar objects encompassed the defendant's diskettes and hard drive, even though the statute nowhere mentions computers, diskettes, or anything of the sort. This Court stated that the only limitation it would impose on the phrase "other matter" was the one contained on the face of the statute: Such matter had to be "capable of containing a visual depiction." 119 F.3d at 748. The Court then explained its holding that a criminal statute enacted by Congress in 1978, before diskettes and hard drives became popular, nevertheless would be construed to include such matter: "Here, the word 'matter' appears at the end of the list 'books, magazines, periodicals, films [and] video tapes,' all of which are physical media capable of containing images." Id. Accord United States v. Gallo, 53 M.J. 556, 565 (A.F. Ct. Crim. App. 2000), aff'd, 55 M.J. 418 (U.S. Armed Forces 2001).

[56] Other courts have also read revenue statutes enacted well before the information age to embrace subsequently invented computer technologies. In Comshare, Inc. v. United States, 27 F.3d 1142 (6th Cir. 1994), for example, the taxpayer sought favorable tax treatment for its computer software under an investment tax credit statute that Congress had enacted in 1962. Under that statute, all tangible personal property, except property specifically excluded, was to be eligible for the tax credit. Comshare purchased master tapes and discs containing source code from programmers, and it used this source code to manufacture software products for its customers. The court held that "however exotic Comshare's computer tapes and discs would have appeared" when the statute was enacted, the statute should be construed broadly enough to cover such software. Id. at 1146.

[57] The Tax Court plainly erred when it concluded that the statute's silence with respect to computer software was tantamount to an intentional decision to exclude tapes and similar reproductions containing computer software. The only limitations on "similar reproductions" in the Similar Reproductions Parenthetical are that they resemble films, tapes, and records, and that they be for commercial or home use. Microsoft's software masters easily satisfy this test. Thus, under Lacy, they are covered. Moreover, as J.E.M. and Comshare illustrate, where Congress deliberately chooses to draft a statute using broad, category-level language, the courts must construe the statute as including such "exotic" products as the computer software reproductions at issue here.

a. Sound Recording Act

[59] Until 1971 copyright law protected music (the arrangement of notes) but not recordings of musical performances. United States v. Moghadam, 175 F.3d 1269, 1271 (11th Cir. 1999), cert. denied, 529 U.S. 1036 (2000). That changed with the enactment of the Sound Recording Act of 1971, Pub. L. 92-140, 1971 U.S.C.C.A.N. (85 Stat. 391) 417. See Dowling v. United States, 473 U.S. 207, 211 n.4 (1985). The Sound Recording Act employed unambiguously content-specific terminology -- "sound recording" and "motion picture" -- and distinguished such terms from reproductions on "disks" or "tapes":

b. Copyright Act

[60] In 1971 the 92nd Congress also considered legislation that would have revised the nation's copyright laws dramatically. Senate Bill 644, 92nd Cong., 1st Sess. (1971), like the Sound Recording Act, used content-specific terminology in delineating types of copyrighted works.

[61] The contrast between the Sound Recording Act and Senate Bill 644, on the one hand, and the Similar Reproductions Parenthetical, on the other, is revealing. When the 92nd Congress wished to craft a content-focused law, it did so by choosing content- specific language. When Congress intended to craft a mediafocused law, it eschewed content-specific language in favor of media terms: films, tapes, records, or similar reproductions. This contrast eliminates any question about what Congress intended in enacting the Similar Reproductions Parenthetical. Cf. United States v. Ibarra-Galindo, 206 F.3d 1337, 1339 (9th Cir. 2000), cert. denied, 531 U.S. 1102 (2001) ("It is well-established that, when one interpretation of a statute . . . obviously could have been conveyed more clearly with different phrasing, the fact that the authors eschewed such phrasing suggests, ceteris paribus, that they in fact intended a different interpretation.").

[62] Given this history, there is great irony in the Tax Court's interpretation of the Similar Reproductions Parenthetical. The court read the copyright terms "motion pictures" and "sound recordings" into the statute, even though those terms cannot be found there, while ignoring what the Copyright Act teaches about the terms that do appear there: "films, tapes, records." The terms used in the Similar Reproductions Parenthetical all denote material objects in which copyrighted motion pictures, sound recordings, and computer software are embodied. See supra note 4; ER 475.

[65] Recognizing that the Similar Reproductions Parenthetical cannot be applied unless there is copyrighted content does not mean that the statute restricts its application based on type of content. Rather, the statute draws a distinction based on the type of medium that is used to distribute copyrighted content. Only when copyrighted works are embodied in films, tapes, records, or similar reproductions and licensed for exploitation abroad can their producer claim FSC tax benefits under the Similar Reproductions Parenthetical.

[67] One very large category of copyrighted works is printed matter. Under the Similar Reproductions Parenthetical, books and magazines that are printed and distributed abroad would not qualify as "similar reproductions," because they are not similar to films, tapes, and records. Unlike computer software, motion pictures, and recorded music, each of which is fixed on a magnetic or optical medium throughout the production and distribution process (including when it is delivered to and utilized by the end user), printed books and magazines begin on paper and end on paper. That producers of printed materials might employ magnetic or optical media during an intermediate stage in the production process hardly makes books and magazines "similar reproductions" or qualifies them as export property under the Similar Reproductions Parenthetical.

[68] This differing treatment of printed books and magazines, on the one hand, and computer software masters, on the other, is firmly grounded in the domestic job-creation policies that animated DISC/FSC. While the process of printing books overseas is quite labor-intensive, see ER 316-319, copying computer software masters, motion pictures, or sound recordings is not.⁹ The vast majority of the jobs created by Microsoft's export activities involved programming, design, administrative, and support activities at Microsoft's domestic facilities. ER 75, 80-81, 337-354. Similarity of media is the Similar Reproductions Parenthetical's limiting principle. The Tax Court's slippery slope concern fails as a matter of law, because the slope proves quite conducive to traction.¹⁰

[69] Courts discerning the meaning of a statute look to Congress's purpose in enacting the law. See, e.g., Commissioner v. Engle, 464 U.S. 206, 217 (1984); Kokoszka v. Bedford, 417 U.S. 642, 645 (1974). Such an examination often clarifies language that might otherwise seem ambiguous. Discerning legislative purpose is particularly important when trying to gauge whether a statutory regime is applicable to technology that post- dates its enactment. See Gregory E. Perry & Cherie Ballard, A Chip by Any Other Name Would Still Be a Potato: The Failure of Law and Its Definitions To Keep Pace with Computer Technology, 24 Tex. Tech L. Rev. 797, 822 (1993).

[70] In this case, Congress has made clear its purpose in creating the DISC and FSC regimes. Examination of that purpose reinforces the lesson to be drawn from the language of the statute: The Similar Reproductions Parenthetical embraces new technologies, including computer software.

[73] This language is highly pertinent here. One of Congress's purposes in enacting the DISC and FSC legislation mirrored precisely a primary purpose motivating the enactment of the investment tax credit at issue in Comshare -- namely, modernization of the economy. Not only did the goal of encouraging modernization motivate Congress in 1962; it was also what prompted Congress to reinstitute the investment tax credit in 1971, as part of the same legislation that authorized the DISC. The 1971 committee report quoted in Comshare, 27 F.3d at 1150, emphasized that this country's precarious balance of payments situation stemmed from "the fact that our tax policies do not adequately encourage investment in more modern and efficient machinery which would enable our businessmen to compete more effectively in foreign markets." S. Rep. No. 92-437, at 7 (1971), reprinted in 1971 U.S.C.C.A.N. 1918, 1924.¹¹

[74] Just as the Comshare court was guided by Congress's interest in encouraging modernization and innovation when interpreting the Revenue Acts of 1962 and 1971, so this Court should read § 927(a)(2)(B) in light of Congress's stated purpose of encouraging the type of modernization that Microsoft's exports represent. The critical phrase "similar reproductions" can only be understood in light of Congress's expressed interest in fostering the export of innovative products that may not have been foreseen, distributed in export markets that had not yet been opened.

[76] To be sure, Microsoft's computer software masters were adapted and reproduced, and the copies packaged and distributed, overseas. ER 145-151. So, too, were masters with musical and motion picture content: They were adapted, reproduced, packaged, and distributed overseas, creating foreign jobs in the process. ER 267- 269, 275-277. That prospect did not prevent Congress and even the Commissioner from concluding that the motion picture and sound recording industries should benefit from the provisions of DISC and FSC.

[77] For Congress, a critical consideration was whether a company's creative efforts would produce the most jobs, and the best paying jobs, in this country. If so, generating some adaptation, reproduction, packaging, and distribution jobs abroad would not deprive the company of DISC / FSC benefits. See 116 Cong. Rec. 159-160 (Nov. 19, 1970) (colloquy between Chairman Mills and Rep. Corman); 117 Cong. Rec. 34894-34895 (Oct. 5, 1971) (same).¹² Computer software, like motion pictures and recorded music, boosted domestic jobs and exports. The computer software industry's export activities are precisely the kind of creative, modernizing, and job- creating efforts that the DISC and FSC regimes were enacted to promote.¹³

III. The Tax Court's Conclusion That Computer Software Is "Fundamentally Different" from Motion Pictures and Sound Recordings Constitutes Reversible Error.

[78] During trial the parties treated the similarity between computer software and other copyrighted works embodied in films, tapes, and records primarily as a factual issue. Numerous factual and expert witnesses testified about the technical and conceptual similarities among different media and various forms of digital content. The Tax Court, however, treated the issue of the similarity between computer software reproductions and films, tapes, and records as a purely legal question, concluding that "[c]omputer software is fundamentally different from motion pictures and sound recordings." ER 524.¹⁴ That legal determination is subject to de novo review. It must be overturned, because it flies in the face of a contrary congressional determination.

[79] CONTU, which Congress established to study intellectual property issues surrounding computer software, issued its final report in 1979. "Congress adopted all of the statutory changes recommended by CONTU verbatim. Subsequent Congresses, the courts, and commentators have regarded the CONTU Report as the authoritative guide to congressional intent." Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1519 n.5 (9th Cir. 1993). Among other things, Congress adopted the factual conclusions contained in the Report when it acted on CONTU's recommendations in 1980. See, e.g., MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 519 n.6 (9th Cir. 1993).

[80] The Report contains several findings that are diametrically opposed to the Tax Court's "fundamentally different" holding:

[81] A close reading of the analysis that the Tax Court used to justify its remarkable conclusion demonstrates its severe deficiencies. The Tax Court stated:

[82] More importantly, the Tax Court was not writing on a clean slate. Through CONTU, Congress had already settled the issue. The Tax Court's conclusion is flatly inconsistent with the congressional findings contained in the Report. "When Congress makes findings on essentially factual issues . . . those findings are of course entitled to a great deal of deference, inasmuch as Congress is an institution better equipped to amass and evaluate the vast amounts of data bearing on such an issue." Walters v. National Ass'n of Radiation Survivors, 473 U.S. 305, 330 n.12 (1985).¹⁷ For that reason, this Court has reversed a district court's factual determination that the system for resolving disputes used by the Veterans' Administration functioned in an adversarial manner. National Association of Radiation Survivors v. Derwinski, 994 F.2d 583, 592 (9th Cir. 1993). This Court chastised the district court for ignoring a congressional committee's contrary determinations, holding that a federal court must accord "great deference" to Congress's findings and is "not free to ignore" such findings. Id. at 593-94.

[83] The Tax Court here completely ignored the Report, despite numerous references to it and to CONTU in the record.¹⁸ Under Derwinski, this constitutes reversible error. Had the Tax Court properly accorded Congress's findings the "great deference" they were due, it could not have ruled as it did.

IV. As Interpreted by the Tax Court, the 1987 Temporary Regulation Is Invalid.

[84] Throughout this litigation the Commissioner has sought to bolster his legal position by invoking administrative deference. Specifically, he has offered his interpretation of a 1987 temporary Treasury, regulation, which, he asserts, excludes computer software masters as export property. Temp. Treas. Reg. § 1.927(a)-1T(f)(3) provides in pertinent part:

[87] The first DISC regulations, published in 1977, did not address computer software expressly.¹⁹ The Technical Memorandum accompanying the regulations noted that a commentator had suggested the regulation's definition of export property should expressly include such items as computer software. Treasury decided, however, the term did not need further clarification. "Moreover," the Technical Memorandum continued, "items such as computer software may constitute services rather than export property and for that reason should not be included." ER 409.

[88] By the mid-1980s the law was moving away from viewing standardized computer software as a service and, instead, treating it as a product for tax purposes. See John Wei-Chung Kuo, Sales/Use Taxation of Software: An Issue of Tangibility, 2 High Tech. L.J. 125, 133-35 (1987). In 1985 the Commissioner publicly opined, for the first time, that retail packages of computer software qualify as export property. Gen. Couns. Mem. 39,449 (Feb. 17, 1983), available in 1985 WL 291815,²⁰ mused about the scope of the parenthetical:

[90] The Commissioner's 1993 pronouncement was not his last word on the subject. In answers to requests for admission in the case at bar, the Commissioner abandoned the "entertainment industry" rationale of Tech. Adv. Mem. 93-44-002: "[R]espondent admits only that the 'films, tapes, records or similar reproductions' language of section 927(a)(2)(B), as well as the corresponding language at Temp. Treas. Reg. § 1.927(a)-1T(f)(3), does not apply solely and exclusively to products of the entertainment industry." ER 66 (emphasis added). The Commissioner took the position below, instead, that the Similar Reproductions Parenthetical and cognate language in the temporary regulation refer solely to "motion pictures" and "sound recordings" within the meaning of 1.7 U.S.C. § 101 of the Copyright Act. ER 102.

[92] Its provenance and longevity aside, the temporary regulation (as interpreted by the Tax Court) does not even survive scrutiny under the test that is applied to permanent, interpretive tax regulations. A Treasury regulation is not entitled to deference if it is unreasonable and inconsistent with the underlying statute. Walt Disney Prods. v. United States, 480 F.2d 66, 68 (9th Cir. 1973). In this case, the temporary regulation, as interpreted by the Commissioner and the Tax Court, construes § 927(a)(2)(B) in a wholly unreasonable manner. Accordingly, this Court should refuse to accord it any deference.

[93] To determine whether an interpretive regulation implements the congressional mandate in some reasonable manner, courts examine several factors:

[94] As the Tax Court has interpreted it, the temporary regulation does not pass muster under National Muffler. All of the factors identified by the Supreme Court lead to the conclusion that the regulation, so construed, is unreasonable.

1. Contrary to the plain meaning of the statute.

[95] As demonstrated supra Section II, the temporary regulation's purported distinction between computer software masters, on the one hand, and motion picture and sound recording masters, on the other, cannot be squared with the plain meaning of the statute. Films, tapes, records, and similar reproductions were all combined in § 927(a)(2)(B), reflecting that Congress intended them to be treated identically for FSC purposes. See Boyd Gaming Corp, v. Commissioner, 177 F.3d 1096, 1101 (9th Cir. 1999); Comshare, 27 F.3d at 1147.

[96] The Commissioner may not craft an interpretive regulation construing a tax statute in a manner that finds no support in the underlying statute itself. Easson v. Commissioner, 294 F.2d 653, 659 (9th Cir. 1961). There are limits to the Commissioner's discretion. "[T]he Commissioner may not prescribe any regulations which are not consistent with the federal tax statutes or which add a restriction . . . which is not justified by the statutory language or the intent of Congress." Jones v. Commissioner, 743 F.2d 1429, 1432 (9th Cir. 1984) (internal quotation marks omitted). See also United States v. Calamaro, 354 U.S. 351, 359 (1957) ("we cannot but regard this Treasury Regulation as no more than an attempted addition to the statute of something which is not there.") (footnote omitted).

[98] The legislative history surrounding the 1984 adoption of the FSC regime is entirely consistent with this conclusion. As demonstrated by the arguments made by amicus SoFTEC, the Tax Court erred in concluding otherwise.

3. Contrary to the purpose of the statute.

[99] As discussed supra Section IV, the purposes of DISC and FSC included increasing the nation's economic well-being and employment, improving its balance of payments, and spurring economic modernization. The interpretation of the temporary regulation offered by the Commissioner runs counter to these important interests. The motion picture, sound recording, and computer software industries have all created the bulk of their jobs domestically and relatively few, lower-level jobs overseas. Yet the Commissioner concludes that only the first two industries should benefit from having their masters accorded export property treatment. That distinction is contrary to Congress's purposes in enacting DISC and FSC.

4. Not contemporaneous with the statute.

[100] The Commissioner's interpretation of the statute was put forward long after Congress enacted the Similar Reproductions Parenthetical. The temporary regulation was issued in 1987, 16 years after Congress enacted the DISC legislation. In general, regulations that are promulgated after such a long delay are entitled to little deference, since by then the administrative agency is unlikely to have possessed any special insight into what the enacting Congress intended. National Muffler, 470 U.S. at 477.

[101] Although the temporary regulation followed the enactment of the FSC legislation by only a few years, the verbatim re-enactment of the Similar Reproductions Parenthetical as part of the FSC did not bestow upon the Commissioner a "second chance" to interpret the meaning of those words. When enacting the FSC in 1984, Congress stated that all rules interpreting the re-enacted DISC provisions should be carried over without change. 1 Staff of Senate Comm. on Finance Print 98-169, 98th Cong., 2d Sess. Explanation of Provisions Approved by the Committee, at 636 (1984). Therefore, the temporary regulation and the interpretations issued pursuant thereto are not entitled to the sort of deference that normally attaches to a contemporaneous interpretive regulation.

5. Not long in effect.

[102] The temporary regulation was promulgated in 1987. The instant case involves income earned in 1990 and 1991. Therefore, the temporary regulation was in place for less than three years when it became a matter of dispute between the parties. Such a regulation is not entitled to the same deference as a venerable one. Cf. Cleveland Indians Baseball Co.,121 S. Ct. at 1445 (according deference to the Commissioner's "61-year-old regulation implementing a 62-year-old statute").

6. Not relied upon.

[103] This is a case of first impression. Prior to the Tax Court's determination below, no published opinion had ever interpreted the temporary regulation or considered whether, if construed as the Commissioner urges, it is a reasonable interpretation of the Similar Reproductions Parenthetical. The temporary regulation is therefore not entitled to the deference that would be accorded to a long-standing regulation on whose validity the Commissioner and courts had long relied.

7. Subject to inconsistent interpretation.

[104] The Commissioner's vacillating interpretations of the Similar Reproductions Parenthetical and the regulations construing it, detailed supra Section III.A., deprive the temporary regulation of whatever deference might otherwise be owed it. See Commissioner v. Schleier, 515 U.S. 323, 334 n.7 (1995) ("In view of the Commissioner's differing interpretations of her own regulation, we do not accord her present litigating position any special deference."); National Muffler, 440 U.S. at 477; U.S. Freightways Corp. v. Commissioner, 270 F.3d 1137, 1144-45 (7th Cir. 2001).

8. Little scrutinized.

[105] The Tax Court concluded that, because Congress did not explicitly include computer software within the Similar Reproductions Parenthetical in 1984 and because Congress did not amend the language immediately after the temporary regulation was promulgated, Congress must have agreed with the Commissioner's exclusion of computer software masters. ER 522-523, 530-531. As explained in more detail in the brief of amicus SofTEC, there is no support for either assertion.

[106] The fact that the temporary regulation was a proposed regulation, never finalized, further undermines the Tax Court's view that the temporary regulation was subjected to congressional scrutiny. Given the regulation's status, it was reasonable for Congress to defer action pending the Commissioner's apparent intention to reconsider the regulation prior to finalization. Once Congress realized that the Commissioner intended to keep the supposedly temporary regulation on the books indefinitely, Congress overruled the regulation and enacted a law explicitly including computer software in the Similar Reproductions Parenthetical. 26 U.S.C.A. § 927(a)(2)(B) (West Supp. 2000).²³

9. Summary: unpersuasive and unreasonable.

[107] If the Commissioner's interpretation of the temporary regulation is analyzed under the Skidmore standard, its inconsistency with the text, history, and purpose of the statute deprive it of any power to persuade. Even if viewed under the more deferential National Muffler standard, the temporary regulation, as it has been interpreted, is unreasonable. Every National Muffler factor underscores that the Commissioner's interpretation contravenes the expressed intent of Congress.

[109] DATED this 20th day of December, 2001.

² At that time, the Copyright Act did not expressly reference software. Nevertheless the U.S. Copyright Office had been registering copyrights on computer software since 1964. See Office of the Register of Copyrights, Announcement SML-47 (May 1964); ER 369-70.

³The temporary regulation is set forth and discussed infra Part IV.

⁴The Copyright Act distinguishes between the material objects in which a copyrighted work may be embodied and the category or categories into which work itself best fits. For example, both literary works and audio visual works may be embodied in films and tapes. Literary works and sound recordings alike may be embodied in disks, tapes, or phonorecords. See 17 U.S.C. § 101 (definitions of "audiovisual works," "literary works", "sound recordings"); H.R. Rep. No. 94-1476 at 53 (1976). As a result, no conclusions can be drawn about the category or categories into which a work falls from the fact that physically the work is embodied in a material object such as a film, tape, or disk. ER 475.

⁵According to the Commissioner, even software products fixed on magnetic tapes are not covered by the "films, tapes, records" portion of the Similar Reproductions Parenthetical. The Commissioner asserts that a tape containing MS-DOS or Microsoft Word is not a "tape" if the person possessing it may copy its content for use by others. Microsoft, by contrast, believes that such a tape is indubitably a "tape" under FSC. See generally Gertrude Stein, Sacred Emily (1913) ("A rose is a rose is a rose.").

⁶The Supreme Court has embraced an identical rule. See e.g., Sale v. Haitian Ctrs. Council, 509 U.S. 155, 168 n. 16 (1993) ("Few principles of statutory construction are more compelling than the proposition that Congress does not intend sub silentio to enact statutory language that it has earlier discarded.").

⁷The Commissioner's interpretation of the Similar Reproductions Parenthetical disqualifies computer software if and only if accompanied by a right to reproduce for external use. Such a limitation on permitted license rights, which does not apply to any other copyrighted work embodied in films, tapes, records, or similar reproductions, is wholly arbitrary.

⁸Courts have read "similar" as applying broadly. See e.g., United States Dep't of State v. Washington Post, 456 U.S. 595, 600-601 (1982) (holding that the phrase similar files" should be construed broadly); Cranford v. United States, 338 F.2d 379, 383 (Ct. Cl. 1964) (holding that the phrase "or similar property" must be construed broadly). When Congress uses a phrase in a statute, it is presumed to do so against the background of that phrase's established meaning. See, e.g., Schwenk v. Hartford, 204 F.3d 1187, 1202 n.12 (9th Cir. 2000).

⁹As Congress has found, "[t]he cost of developing computer programs is far greater than the cost of their duplication." ER 365.

¹⁰The Tax Court's speculative concern about products "yet to be invented" (ER 522) seems oddly misplaced. Congress's use of general terminology ("similar reproductions") is a testament to its interest in covering technologies that had not yet been invented.

¹¹The Congress that enacted FSC remained committed to the policies embodied in DISC. See Dresser Indus., Inc. v. United States, 238 F.3d 603, 604 (5th Cir. 2001) ("The FSC serves essentially the same purpose as the DISC.").

¹²The Tax Court misread these colloquies as creating an exclusive carve-out for the motion picture industry. See ER 526. Given the statutory text under discussion, however, Chairman Mills should be understood to have been articulating a broad principle applicable to all producers of copyrighted works embodied in films, tapes, records, and similar reproductions. Cf. Pettis v. Morrison-Knudsen Co., 577 F.2d 668, 672 (9th Cir. 1978) (interpreting a legislative colloquy broadly in light of the broad statutory language Congress ultimately enacted).

¹³The Commissioner has provided no principled basis for concluding that it is consistent with Congress's purported interest in keeping as many jobs as possible in the United States that the motion picture and recording industries are permitted to adapt reproduce, repackage, and distribute their products abroad while still qualifying for the tax incentive under the FSC, whereas computer software producers forfeit their FSC eligibility by engaging in the same activities. As amicus Software Finance and Tax Executives Council ("SoFTEC") argues, the Tax Court committed reversible error in discriminating among similarly situated industries.

¹⁴ The court's conclusion appears in a section of the opinion that consists mostly of legal argument and legal citations. Nowhere in the Tax Court's "Findings of Fact" does it make any finding about fundamental dissimilarity.

¹⁵ This Court's landmark decision in the Napster case underscores the error inherent in the Tax Court's determination that computer software is "fundamentally different." The Court repeatedly emphasized that music did not cease being music (and machine-readable data did not cease being machine readable data) when it was transferred from audio CDs to computer hard drives or MP3 players. See A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1011, 1015, 1019 (9th Cir. 2001). Just as Napster held that sound recordings are protected by copyright regardless of the media on which they were fixed, so the Tax Court should have concluded that the DISC/FSC statutes encompass all copyrighted works so long as they are embodied in films, tapes, records, or similar media.

¹⁶Cf. Comshare, 27 F.3d at 1147 ("[I]f film negatives used to make positive prints of motion pictures can qualify as tangible personal property, it is not readily apparent to us why computer tapes used to make copies of executable code software cannot qualify as well'").

¹⁷The Court's language is particularly apropos here. CONTU consisted of 15 experts in the fields of technology, publishing, and intellectual property law, who devoted several years of study to the issues before issuing their report.

¹⁸The Commissioner's expert witnesses actually urged the Tax Court to ignore CONTU on the grounds that they disagreed with its reasoning. ER 314-315, 479-482, 484-486.

¹⁹Treas. Reg. § 1.993-3(f)(3) (1977) is set forth in the Addendum.

²⁰There was a two-year delay between the drafting of Gen. Couns. Mem. 39,449 and its publication in November 1985.

²¹The Tax Court's opinion mistakenly discusses this administrative pronouncement as two separate rulings, Tech. Adv. Mem. 93-44-002 and Priv. Ltr. Rul. 93-440-02. ER 516. There is no Priv. Ltr. Rul. 93-440-02.

²²Cleveland Indians' reaffirmance of National Muffler trumps an suggestion contained in Redlark v. Commissioner, 141 F.3d 936 (9th Cir 1998), that the standard set forth in Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), applies to interpretive tax regulations that are promulgated pursuant to the Commissioner's general grant of authority in § 7805(a). See also Boeing Co. v. United States, 258 F.3d 958, 963 (9th Cir. 2001) (noting that Chevron deference is applicable to legislative regulations, but not to interpretive regulations). This Court has analyzed the regulations interpreting DISC as "interpretive regulations" and has consequently reviewed the regulations, not under Chevron, but under the "less deferential standard of review" set forth in National Muffler and its progeny. See L & F Int'l Sales Corp. v. United States, 912 F.2d 377, 380 n.2 (9th Cir. 1990) (applying Vogel Fertilizer Co., 455 U.S. at 26).

²³In the Conference Report accompanying the amended provision, Congress directed that courts should draw no inference about the pre-1997 meaning of the Similar Reproductions Parenthetical based upon on the 1997 changes. H. Conf. Rep. 105-220, at 636 (1997), 1997-4 C.B. (Vol.2) 1457, 2106 ("No inference is intended regarding the qualification as export property of computer software licensed for reproduction abroad under present law.").