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H.R. 1858, the Consumer and Investor Access to Information Act of 1999

Statement of ANDREW J. PINCUS, GENERAL COUNSEL, UNITED STATES DEPARTMENT OF COMMERCE
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION COMMITTEE ON COMMERCE U.S. HOUSE OF REPRESENTATIVES
concerning
H.R. 1858, the "CONSUMER AND INVESTOR ACCESS TO INFORMATION ACT OF 1999" 15 June 1999

Mr. Chairman and Members of the Committee:

Thank you for this opportunity to present the Administration. s views on H.R. 1858, the "Consumer and Investor Access to Information Act of 1999."

INTRODUCTION

As we have stated in the past, the Administration views database protection legislation from a number of perspectives: as a creator of data and a user of it; as an advocate both of economic incentives for socially useful investment and of open, market-based competition free from artificial barriers; and as an entity committed both to effective law enforcement and to the First Amendment. Reconciling these perspectives is difficult in any context. The digital economy. s rapid and unpredictable change makes this challenge even greater.

The Administration believes strongly in free markets, in which firms can meet demand for new products and services without having to overcome artificial barriers that keep consumers hostage to an undesirable status quo. However, we also recognize that there are circumstances in which markets need legal mechanisms in order to function efficiently. The Feist decision conclusively eliminated one form of legal protection for databases. Undeniably, Feist has altered the landscape, but the topography is still changing in ways that pull in different directions as to the nature and extent of protection that is needed.

In particular, the emerging digital environment has significant implications for this issue. It has become commonplace to observe that information is the currency of our economic age. That puts a premium on designing a legal schema that creates sufficient incentives to maximize investment in data collection -- to expand the available universe of information -- without putting in place unjustified obstacles to competition and innovation. Moreover, digital technology permits the creation and distribution of a large number of perfect copies of data files at the touch of a button. Those data files may constitute all, or significant portions of, commercial databases. This new technology expands the risk that, in the absence of adequate legal remedies, piracy, or the threat of piracy, will deter investment in database creation. For all of these reasons, it is important to calibrate new private rights carefully -- to optimize overall economic and social benefits, to prevent unfairly undermining investments and agreements premised on the current law, and to preclude new opportunities for thwarting competition.

The U.S. Government has an unique stake in database legislation because it collects, manages, and disseminates massive amounts of information, possibly more information than any other entity in the world. In all these processes, it interacts with the private sector in a variety of ways. In addition, Federal agencies are engaged in funding research that produces tremendous amounts of information that the government does not undertake to manage itself.

These activities represent enormous investments in highly complex knowledge management processes that are vital to human health, the environment, national security, scientific progress, and technological innovation -- and, in turn, to the economy as a whole. Changes in ground rules for the use and reuse of information must be designed to minimize disruption of these critical activities and to avoid imposition of new costs that could hinder research.

The sections which follow discuss the Administration. s efforts to study database protection and access issues (Part II) and summarize the six principles that we believe should guide both domestic legislative and international treaty efforts in this area (Part III). Next, we elaborate on each principle, discussing the Administration. s concerns relating to that topic and particular provisions of H.R. 1858, as well as some additional concerns with aspects of the bill. (Part IV).

The Administration congratulates Chairman Bliley and the other members of the Committee involved in drafting H.R. 1858 for their thoughtful efforts to draft a simple bill that is targeted on the dangers of unchecked piracy. At the same time, the Administration has had only a very limited amount of time to consider the provisions of H.R. 1858. For that reason, the comments provided below are not as extensive as other Administration analyses of database protection issues or legislative proposals, such as H.R. 354. The Administration. s work on database protection has been an intensive, interagency effort (as described in Part II below), and we have not yet been able to bring all these resources to bear in our analysis of H.R. 1858. For that reason, we hope that we may provide you, at a later date, with any further comments that you may desire on this legislation.

II. HISTORY OF ADMINISTRATION STUDY OF DATABASE ISSUES

In response to legislative proposals in the Congress and developments in the World Intellectual Property Organization (WIPO), the Administration devoted substantial energy in 1998 and 1999 to studying database protection and access issues. The Administration. s review of these issues has included a variety of mechanisms and fora:

The Patent and Trademark Office (PTO) held a public conference on database protection and access issues on

April 28, 1998.

During the spring and summer of 1998, a variety of Executive Branch departments and agencies participated in an informal working group on database issues led by the State Department, the Office of Science and Technology Policy (OSTP), and the PTO.

In January 1999, the National Research Council (NRC) held a two-day conference on scientific databases at the Department of Commerce. This conference was supported by the National Science Foundation, the National Institutes of Health, and several other agencies. The NRC is expected to issue a report this summer.

Various officials in the Executive Office of the President (including OSTP), the Department of Commerce (including PTO), and the Justice Department have held informational meetings with both proponents and opponents of database protection legislation.

In addition to these efforts, the Administration has carefully studied a wide range of reports, studies, legal opinions and legislation on database protection and access from the United States, Canada, Japan, and the European Union, as well as participating in discussions of database protection issues at WIPO conferences in 1996, 1997, and 1998.

The Administration continues to discuss these issues with concerned parties and to examine specific topics and areas where we believe further information will help both the legislative process and any future study of the effects of database protection that might be mandated by legislation.

III. GENERAL PRINCIPLES

On August 4, 1998, in response to Senate consideration of then-H.R. 2652, the Administration set out the principles that it believes should govern database protection legislation.

Now, as then, Administration supports legal protection against commercial misappropriation of collections of information. We believe that there should be effective legal remedies against "free-riders" who take databases gathered by others at considerable expense and reintroduce them into commerce as their own. This situation has arisen in recent case law, and we believe that digital technology increases opportunities for such abuses.

At the same time, the Administration has significant concerns with provisions of H.R. 1858, both on policy grounds and because the Constitution imposes significant constraints upon Congress. s power to enact legislation of this sort. From a policy perspective, the Administration believes that legislation addressing collections of information should be crafted with the following principles in mind:

1. A change in the law is desirable to protect commercial database developers from commercial misappropriation of their database products where other legal protections and remedies are inadequate.

2. Because any database misappropriation regime will have effects on electronic commerce, any such law should be predictable, simple, minimal, transparent, and based on rough consensus in keeping with the principles expressed in the "Framework for Global Electronic Commerce." Definitions and standards of behavior should be reasonably clear to data producers and users prior to the development of a substantial body of case law.

3. Consistent with Administration policies expressed in relevant Office of Management and Budget circulars and Federal regulations, databases generated with Government funding generally should not be placed under exclusive control, de jure or de facto , of private parties .

4. Any database misappropriation regime must carefully define and describe the protected interests and prohibited activities, so as to avoid unintended consequences; legislation should not affect established contractual relationships and should apply only prospectively and with reasonable notice.

5. Any database misappropriation regime should provide exceptions analogous to "fair use" principles of copyright law; in particular, any effects on non-commercial research should be de minimis .

6. Consistent with the goals of the World Trade Organization (WTO) and U.S. trade policy, legislation should aim to ensure that U.S. companies enjoy available protection for their database products in other countries on the same terms as enjoyed by nationals of those countries.

We believe that these principles also embody some of the Constitutional concerns with legislation in this area. With these principles in mind, we turn to an analysis of H.R. 1858.

IV. DISCUSSION

First Principle -- Protect against commercial misappropriation

A change in the law is desirable to protect commercial database developers from commercial misappropriation of their database products where other legal protections and remedies are inadequate.

As we have stated previously, the Administration supports enactment of a statute to protect database creators against free-riding -- the wrongful appropriation and distribution of database material with resulting infliction of commercial harm (loss of customers) on the database creator. We believe that there is considerable, if not complete, consensus that this kind of free-riding can occur without additional legal protection for non-copyrightable databases and that such legal protection is necessary to prevent a diminution in database creation.

Section 102 is the operative core of H.R. 1858 for databases outside the securities markets; it provides the "basic prohibition" of this proposal to protect databases through a misappropriation model. Section 102 prohibits unauthorized selling or distribution of a "database" that is a "duplicate" of a prior database "collected and organized by another person" where the new database is sold or distributed "in competition" with the original database. Section 101 provides definitions of these key concepts.

The drafters of H.R. 1858 have understood that the problem of misappropriation includes the distribution of significant parts of databases as well as entire databases. To address this problem, section 101(1) provides that a discrete section of a database "may be treated as a database." We recognize that the intent of this "discrete section" provision is to protect identifiable subsections of databases from wholesale misappropriations, but we very are concerned that this definition could create liability for insubstantial distributions from databases, particularly in the digital environment.

For example, the book edition of a national database of hotels might subdivide hotels by state and city; in such a situation, we understand that the intent of section 101(1) would be to create liability when a competitor misappropriated all of the Sacramento, California or Cincinnati, Ohio listings from the national database, even though this might only be a small part of the national database. But in a digitized form, the same national hotel database can have discrete sections organized by state, by city, by neighborhood, by quality rating, by hotel ownership or chain participation, by price, by the availability of particular services (conference rooms of such a size, gym facilities), etc. . so that many, if not most, distributions of material from the database could trigger the "discrete section" provision.

Indeed, the coverage provided by section 101(1) appears likely to be more subject to technological vicissitudes and manipulation by private parties than a "substantial" taking measure, i.e. , defining a "database" as a complete database and providing that a "substantial" distribution of material appropriated from it could trigger liability. A substantial appropriation requirement has the virtue of allowing courts to apply reasonable, evolving standards against possible manipulation by private parties. Defining a database to include a discrete subset of the database invites database producers to format their products so as to make small amounts of the data appear as "discrete," therefore liability-triggering, subsets. We therefore recommend against this approach.

By requiring "extraction" from a pre-existing database, the definition of "duplicate" in section 101(2) seems intended to ensure that the basic prohibition of section 102 would not create liability for a database that was independently developed, but was nonetheless a "duplicate" (in the everyday meaning) of the pre-existing database. We are not sure, however, that the definition achieves this purpose. Imagine, for example, that a database was 98% independently gathered material, but the remaining 2% came from "extracting information from [a pre-existing] database." It could be argued that the new database "was made by extracting information from [the] other database." Because H.R. 1858 does not provide any express exception for verification , it could also be said that a new database product "was made by extracting information from [another] database" when, in fact, all the new database producer did was to check the accuracy of its independently collected work against the pre-existing database.

Of course, the scope of the basic prohibition of section 102 depends greatly on the interpretation given to "in competition." Section 102(5) provides a bifurcated test for when a new database is in competition with a pre-existing database. The first element requires that the new database "displaces substantial sales or licenses of the database of which it is a duplicate." Our initial impression is that this is similar to the standard we have advocated in relation to H.R. 354 . that is, other conditions being met, there would be liability when the new database causes "substantial harm" to the pre-existing database. s market. This approach also is consistent with the standard under many states. general misappropriation laws.

The second element of the bifurcated test for "in competition" requires that the new database "significantly threaten[s] the opportunity to recover a return on investment" in the pre-existing database. We are concerned that this standard is too vague. Would a significant threat to any return on investment be sufficient for purposes of the test, or is this intended to be a reasonable return on investment? Our concern with this element of the "in competition" test is the same as we have expressed elsewhere concerning the "diminution of incentive" test inspired by the National Basketball Association v. Motorola case. While we agree that a misappropriation law should be focused on acts that do, in fact, have a tendency to reduce incentives in this manner, we think these types of tests do not comport with our principle (described below) that a database protection law should be predictable, simple, and transparent. Because a competitor cannot be expected to know much about the incentive structures that lead to the production of the first database, such a competitor would have no way to judge in advance whether or not her acts would "threaten" recovery of "a return on investment," particularly where the statute does not say what kind of return on investment.

In addition, this test is problematic because it does not take account of the cumulative effects of repeated acts of blatant piracy. Suppose several different persons duplicated all or a substantial portion of the database, but the effect of each duplication fell just short of "significantly threatening to the opportunity to recover a return on the investment" under the test. Cumulatively, however, these acts would indisputably deny a return on an investment. Our fear is that this standard, in comparison with a substantial harm approach, will not provide appropriate incentives for people to invest in the creation of databases. For these reasons, we believe that some variation of a harm test can achieve the necessary purposes and be both easier for private parties to understand and for courts to apply.

Finally, we have previously testified before the House Committee on the Judiciary. s Subcommittee on Courts and Intellectual Property that while the Administration continues to believe that misappropriation for commercial purposes should be the focus of any legislative efforts, we recognize that some acts of duplication by individuals, when systematic, could conceivably undermine the commercial market for a database product. We are not familiar with any reported cases or incidents of this kind, but we recognize that such harm could occur. Such damage may occur when those acts become customary in a particular economic sector or field of research. At present, if there is no contract with the individual or her organization, the investor in a database has no effective civil remedy against such acts. We believe that one of the greatest challenges in drafting database protection legislation is providing database producers with some type of protection against such patterns of repeated individual acts of duplication without prohibiting uses of data by individuals that, in the opinion of many, should be treated as "fair uses" permissible under the First Amendment. We are not certain whether a balance can be struck, but we note that section 102 does not address this problem. We look forward to working with the Subcommittee and all concerned parties on this problem as the legislation moves forward.

B. Second Principle -- Keep it simple, transparent, and based on consensus

Because any database misappropriation regime will have effects on electronic commerce, any such law should be predictable, simple, minimal, transparent, and based on rough consensus in keeping with the principles expressed in the Framework for Global Electronic Commerce. Definitions and standards of behavior should be reasonably clear to data producers and users prior to the development of a substantial body of case law.

The preceding section identified at least one of the ways in which Title I of H.R. 1858 does not fulfill the Administration. s goal of a database protection law which is predictable and transparent. We also believe that there are some additional aspects of H.R. 1858 which may unnecessarily complicate the bill. For example, we are concerned that some aspects of the definition of a "database" may complicate application of the section 102, generating uncertainty and, possibly, unnecessary litigation. The section 101(3) definition of "information" expressly excludes "works of authorship," making databases composed of such works ineligible for section 102 protection. It is unclear whether the phrase "works of authorship" is intended to apply only to original works of authorship under 17 USC 102 or if it is intended to encompass non-copyrightable works which, nonetheless, appear to be text written by identifiable authors (that is, "non-original" works). For example, would real estate listings which may lack sufficient creativity for copyright be ineligible for database protection? Unless this is clarified, the express exclusion of "works of authorship" may cause unnecessary litigation in defining protected databases.

In the same vein, section 104(c)(2) would exclude from protection any database integrated into a software program where the database is "an element necessary to the operation of the computer program." We appreciate the effort in section 104(c)(2) to distinguish data entries from instructional software code, but a database embedded in software will often be "an element necessary to the operation" of the software in the sense that the software will stop running if the data entries are not available as inputs to the software code; that the database is "necessary" to the operation of the software does not mean that it should lose the possibility of being covered by a database protection law.

Of considerable concern are the enforcement provisions for Title I. While most, if not all other proposals for database protection, provide for a private cause of action, only the Federal Trade Commission (FTC) would be empowered to enforce the prohibition created in Title I of H.R. 1858. On policy grounds, the Administration is very concerned about both the lack of a private cause of action and the placement of enforcement responsibilities with a single government entity. While vesting exclusive jurisdiction in the FTC may reduce the risk of abusive litigation, we believe that this is better addressed by establishing suitable thresholds for private causes of action.

Placing enforcement of the law solely in the hands of a government agency distinguishes H.R. 1858 from a wide range of laws which provide for both a private cause of action and government enforcement (such as antitrust law, computer crimes and eavesdropping). In short, Congress has generally considered it wise to permit private parties to enforce laws bearing on commerce. A database protection law will stimulate database production only to the degree that it is perceived as having meaningful enforcement. A database producer cannot be sure that a newly charged government agency will protect its products from misappropriation in the same way that the producer could plan to make provisions to willingly defend its own investment.

Inasmuch as subsection 105(b) expressly preempts state laws inconsistent with the bill. s provisions, H.R. 1858 appears to eliminate private causes of action that now exist under many state laws. This replacement of private causes of action with exclusive government enforcement could be considered a step backward by many. Even if the enforcing government agencies had sufficient resources and expertise, this development would not be in keeping with the Administration. s commitment to market mechanisms to develop the information economy. As a general approach, we believe that is better for the government to establish ground rules for interaction among private parties and then allow enforcement of those rules by the private parties concerned.

C. Third Principle -- Preserve access to government data

Consistent with Administration policies expressed in relevant Office of Management and Budget circulars and Federal regulations, databases generated with Government funding generally should not be placed under exclusive control, de jure or de facto , of private parties.

Section 101(6) defines a "government database" as a database "collected or maintained" by any agency or instrumentality or the United States or any database required to be collected or maintained by Federal statute or regulation. Section 104(a)(1) then provides that the basic prohibition does not extend to these databases. Section 104(a)(3) further provides that where a Federal, state, or local government substantially funds the creation or maintenance of a database, that government may "establish[] by law or contract" that the resulting database will not enjoy protection under the bill. s basic prohibition.

As we have consistently stated, the Administration believes that a database protection law generally should not protect government investment in generating data. There are three reasons for this conclusion. First, database protection proposals are premised on the need to provide an incentive for investment in data gathering; in the case of wholly government-funded information, no incentive is needed. If a government decides that it is in the public interest to collect information on smog levels, education scores, or solar flare activity, it will do so. Second, there is a widespread sentiment that once data generation has been paid for with government funds, taxpayers should not have to pay "twice" for the same data. Finally, the U.S. Government has historically pursued policies that strongly favor public funding of the creation and collection of information. The Administration believes that these policies have contributed greatly to the success of America. s high technology and information industries as well as the strength of our democratic society. The Administration has stated previously:

"Government information is a valuable national resource. It provides the public with knowledge of the government, society, and economy -- past, present, and future. It is a means to ensure the accountability of government, to manage the government. s operations, to maintain the healthy performance of the economy, and is itself a commodity in the marketplace."

The Administration believes that the free flow of government-generated data is an important engine of economic growth; it will be an increasingly important resource for any society intent on creating jobs, businesses, and wealth in the "Information Age." Often, government-generated information is also critical to the health and safety of the population; we must ensure that any database protection law does not hamper the dissemination of such information.

For these reasons, we believe that the definition of a "government database" should be broadened to encompass all databases created on behalf of the government or with substantial government funding -- from any level of government, not just Federal. The definition should be broadened to encompass all government-generated information, whether created as the result of direct government activity or as a result of a government contract or grant. This matter should not be left to local, state, and Federal agencies to decide.

Instead of drawing a distinction between information directly generated by the government and information substantially funded by the government, we believe that the focus should be on the funding source. Information generated with public finances should be treated the same regardless of the vehicle used to generate the information. We recognize, however, that many valuable cooperative efforts involve funding for a variety of sources and in these cases, it may be desirable to give some recognition to the non-government contributions. In exploring the need for such flexibility, the Subcommittee should consider whether the presumption should be reversed: instead of permitting agencies to expressly "opt-out" of database protection in government contracts and grants (section 104(a)(3)), it would be better to create a system that allowed agency-by-agency express determinations "opt-in" in favor of database protection for information generated with substantial government funding.

In the other direction, our initial conclusion is that section 104 does not provide the best solution to the problem of "capture." Section 104(2) implicitly indicates that government information integrated into a private database continues to retain its exclusion from section 102, such that third parties can copy the government information without any risk of liability to the private database producer. The Administration recognizes that this is one possible approach to the specter of government information being "captured" in private database products, but we believe that this approach may substantially reduce the incentive for the creation of value-added products using government-generated information and, thus, the "flow" of government information to the public.

Federal, state, and local governments generate tremendous amounts of information. Historically, these same government agencies have not done a commensurate job disseminating the information to the public. Dissemination of government-generated data has always involved a mix of public and private resources. Through the Congressionally mandated Federal Depository Library Program, the Federal Government uses public libraries, libraries of public universities, and libraries of private institutions to make government-funded information widely available to citizens. At the same time, in hundreds of cases ranging from the court system to the U.S. Geological Survey, private entities gather raw, government-generated data and then process, verify, and repackage the data to produce value-added products which are then widely disseminated.

Once there are such commercial products, any decisions to devote public resources to disseminate the raw government data further must be weighed against other demands for government resources. If government-generated data does not remain available to the public from government sources, there is the potential for capture of data, with one or a few private entities becoming the "sole source" for important data.

When a U.S. Government work is integrated into a private, value-added product, copyright law requires that the U.S. Government portion remain unprotected and available for copying. The Administration has considered whether a parallel solution to the "capture" problem with collections of information would be appropriate: requiring private entities to identify government information in their value-added products, and excluding such information from any database protection schema. The problem with this approach is that a private entity may make a considerable investment in gathering government data from disparate sources, bringing it together, and distributing it. This "value-added" would be lost . and the incentive for it destroyed . if all the data could be freely appropriated on the grounds that it is government-generated data in a private database.

While the Administration is committed to finding ways to increase public dissemination of government information and to avoid "capture" of data, we must recognize that these private entities perform a valuable service, and may invest substantial resources, in the production of data products. For this reason, the Administration has advocated that private database producers provide clear notice of the source of government data . so that users or would-be competitors may turn to the original government source . in exchange for the right to prevent wholesale misappropriation of government information embedded in the private database. Given the realities of dissemination of government information, we believe that this is a better means to transition into wider dissemination of government data by the government than the approach embodied in section 104.

Section 101(6)(B) provides that databases collected or maintained because of Federal statute or regulation would be excluded from section 102's protection. Perhaps the most powerful argument for excluding "legally required databases" from any database protection regime is that the production of these databases requires no further incentive. There is, however, an important distinction between legally required databases that must be submitted to public authorities and those whose preparation are legally required, but held privately by individuals and institutions. The Administration has not reached any conclusion on whether either kind of databases collected or maintained by requirement of law should be excluded from any database protection regime

D. Fourth Principle -- Avoid unintended consequences

Any database misappropriation regime must carefully define and describe the protected interests and prohibited activities, so as to avoid unintended consequences; legislation should not affect established contractual relationships and should apply only prospectively and with reasonable notice.

Until the introduction of H.R. 1858, advocates of database protection had proposed database protection terms of up to 25 years. Given the speed at which new products are introduced in information industries, critics have expressed the view that the 15-year or 25-year terms in other database protection proposals were unnecessarily long. The Administration currently believes that there is no single, optimal term of protection for the wide range of products subject to protection as "databases" or "collections of information." In order to implement the suggestion, it will be necessary to specify the acts that initiate the term of protection.

In the absence of strong indicators of the optimal term for an ex ante incentive structure, the Administration has expressed the view that there are virtues to a 15-year term of protection, as proposed in H.R. 354, and that the Administration would be troubled by any efforts to establish a term of protection exceeding 15 years. We do not support the basic premise of H.R. 1858 . that a codification of misappropriation principles should provide an open-ended term of protection because common law misappropriation principles do not impose any fixed duration to such claims. We also believe that legislation must specify the acts that initiate the term of protection. The codification of these principles presents Congress with the opportunity and, in some sense, the responsibility to draw limits on when misappropriation claims should be entertained. Because any database protection law will have some impact on the dissemination of information, we think that time limits should be established, and we favor a term of protection no longer than 15 years.

Of course, there is a risk that attempts might be made to circumvent the limitations caused by fixed term of protection. Because users would be unable to differentiate between protected and unprotected data, they would consequently be chilled in their use of the unprotected data. We have suggested in the past that where the database that is the subject of a litigation is the descendant of a now unprotected database and has substantial elements in common with that unprotected database, the defendant should be able to raise, as a defense, that the most recent unprotected iteration of the database is not reasonably publicly available. In other words, if Smith Industries has been issuing the "Smith Industrial Database" annually since 1980, and then in 1999 if Smith Industries sues someone for unauthorized distribution of the "1999 Smith Industrial Database," the defendant can raise as a defense that the 1983 Smith Industrial Database is no longer reasonably publicly available. If the 1983 database is reasonably publicly available, there is no such defense.

E. Fifth Principle -- Balance protection with permitted uses

Any database misappropriation regime should provide exceptions analogous to fair use principles of copyright law; in particular, any effects on non-commercial research should be de minimis .

Last summer, we expressed concern that then-H.R. 2652 lacked a balancing mechanism analogous to the fair use doctrine in copyright sufficient to address the wide range of circumstances in which information is aggregated, used, and reused; we expressed the same concern more recently in relation to H.R. 354. So it will come as no surprise that the Administration is concerned that Title I of H.R. 1858 does not have a general "permitted uses" provision analogous to fair use in copyright law.

Section 103(d) provides an exception directed at scientific, educational, and research uses. We intend to examine this provision more carefully, but initially we are concerned that this exception is both ambiguous and possibly overbroad. We note that section 103(d) shields the activity of "duplicat[ing] the same information"; it does not shield distribution . the focus of the basic prohibition. As used in section 103(d), "duplicates" could be understood in either of two senses. First, a scientific researcher could "duplicate" a database in the sense of independently recreating the same database . but this type of activity already falls outside the basic prohibition and is further shielded by section 103(a). Second, "duplicates" could mean reproduces, as when an educator leaves a hard-bound database on a reserve shelf with instructions for his students to individually photocopy the database for use in class.

It appears that this latter type of activity could be shielded by section 103(d) because while the activity might be "in competition" with the database. s sales (section 101(5)), section 103(d) requires a higher barrier that it be in "direct commercial competition." In the circumstance described, the educator might be able to orchestrate a pattern of extensive copying of a database and avoid all liability. The phrase "direct commercial competition" creates a high barrier, such that even if section 103(d) shielded "duplicates and/or distributes," it appears that an educator e-mailing a database to 100 of his students would still incur no liability . because her activities would not be in direct commercial competition. We note that this type of conduct could occur even without section 103(d) on the grounds that the basic prohibition requires distribution "to the public," an ambiguous phrase that could be argued to exclude a distribution limited to students in a particular class, members of a particular learned society, or all members of senior executives of a corporation. In respect to original works of authorship, these types of activities are often well beyond the scope of the fair use doctrine of copyright law. As discussed above, we believe that one of the greatest challenges in drafting database protection legislation is providing database producers with some type of protection against such kinds of patterns of repeated individual acts of duplication that undermine the market for a database product without prohibiting uses of data by individuals that should be permissible under the First Amendment.

F. Sixth Principle -- Ensure protection for U.S. companies abroad and promote harmonization

Consistent with the goals of the World Trade Organization (WTO) and U.S. trade policy, legislation should aim to ensure that U.S. companies enjoy available protection for their database products in other countries on the same terms as enjoyed by nationals of those countries.

There has been some discussion in the United States about the effects of the European Union. s 1996 Database Directive (EU Directive) on American database producers. The EU Directive requires European Union Member States to provide sui generis protection for databases, but denies this protection to nationals of any foreign country unless that country offers "comparable protection to databases produced" by EU nationals.

The Administration opposes such "reciprocity" requirements, both domestically and internationally. We believe that commercial laws (including intellectual property and unfair business practices laws) should be administered on national treatment terms, that is, a country. s domestic laws should treat a foreign national like one of the country. s citizens. This principle is embodied in Article 3 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) as well as more generally in the Paris Convention for the Protection of Industrial Property and the Berne Convention for the Protection of Literary and Artistic Works.

The Administration believes that Congress should craft U.S. database protection legislation to meet the needs of the American economy. A database protection law properly balanced for the robust digital economy of the United States will serve as a model for other countries that hope to build businesses, employment, and economic activity in the new millennium.

At the same time, we believe that a misappropriation law along the lines of H.R. 1858 or H.R. 354 (with proper attention to the concerns we have identified with respect to each bill) will amply provide protection "comparable" to that provided by national laws implementing the EU Directive. From the perspective of a private database producer, the question should be whether a U.S. misappropriation law provides a cause of action and meaningful remedies in the same range of situations in which the laws implementing the EU Directive provide a cause of action and meaningful remedies.

For the reasons stated above, the Administration would oppose any effort to put automatic reciprocity provisions into American law in this area. In fact, United States Trade Representative Charlene Barshefsky cited the reciprocity provision of the EU Directive as a subject of concern in announcing the Administration. s 1998 Special 301 Review. While we believe that a United States database protection law should adhere to a national treatment model, the Administration would support an appropriately crafted provision that would allow the President to affirmatively deny database protection to foreign nationals on the appropriate finding by Executive Branch agencies such as the USTR and/or the Department of Commerce. This could, for example, be achieved by statutory language or legislative history making database protection for foreign nationals subject to USTR. s Special 301 process.

G. Additional Issues

1. Administration Study

Section 108 of H.R. 1858 provides that the FTC will report to the Congress on the effects of the database protection legislation not later than 36 months of the date of enactment of the legislation. While the Administration has advocated and continues to advocate the study of the effects of any database protection legislation, we believe that an interagency process would be preferable to analysis resting solely in the hands of an agency, particularly the agency being called upon to enforce the legislation. The Administrations believes that such a government study should be conducted with the participation of the Department of Commerce, the Office of Science and Technology Policy, and the Department of Justice in consultation with the Register of Copyrights. These agencies have, over the past few years, devoted the most resources to the study of this issue and their expertise should be utilized.

2. The Misuse Doctrine

The Administration supports the idea that the intellectual property misuse doctrine should be extended to any database protection law, but we have not had sufficient time to study the effects of the various provisions of section 106(b). We note that these provisions appear to expand the misuse doctrine from its traditional tests (for example, subsections 106(b)(1), (3) and (6)) into relatively untested areas (for example, subsection 106(b)(4)). We believe this requires careful consideration, but this may be a valuable device to ensure that the economics of database production do not convert protection against free-riding into a license to monopolize information markets at the expense of industries and disciplines for which data is a critical input.

I thank the Subcommittee for the opportunity to appear before you today and look forward to working with you during the legislative process. I would be pleased to answer any questions you may have at this time.

United States Patent and Trademark Office
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Last Modified: 7/4/2009 2:56:00 PM