Intellectual Property and the National Information Infrastructure The Report of the Working Group on Intellectual Property Rights Bruce A. Lehman Assistant Secretary of Commerce and Commissioner of Patents and Trademarks Chair Information Infrastructure Task Force Ronald H. Brown Secretary of Commerce Chair Intellectual Property and the National Information Infrastructure The Report of the Working Group on Intellectual Property Rights Bruce A. Lehman Assistant Secretary of Commerce and Commissioner of Patents and Trademarks Chair Information Infrastructure Task Force Ronald H. Brown Secretary of Commerce Chair September 1995 Single copies of this Report may be obtained, free of charge, by sending a written request to: "Intellectual Property and the NII" c/o Terri A. Southwick, Attorney-Advisor Office of Legislative and International Affairs U.S. Patent and Trademark Office Box 4 Washington, D.C. 20231 Copies will also be available from the IITF Bulletin Board. The Bulletin Board can be accessed through the Internet by pointing the Gopher Client to iitf.doc.gov or by telnet to iitf.doc.gov (log in as gopher). The Bulletin Board is also accessible at 202-501- 1920 using a personal computer and a modem. Library of Congress Cataloging-in-Publication Data United States. Information Infrastructure Task Force. Working Group on Intellectual Property Rights. Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights / Bruce A. Lehman, Chair. 1. Intellectual property -- United States. 2. Copyright -- United States. 3. Information superhighway -- United States. 4. Information technology -- United States. I. Lehman, Bruce A. II. Title. KF2979.U55 1995 346.7304'8--dc20 [347.30648] ISBN 0-9648716-0-1 Table of Contents INTRODUCTION 1 BACKGROUND 7 I. LAW 19 A. COPYRIGHT 19 1. PURPOSE OF COPYRIGHT LAW 19 2. SUBJECT MATTER AND SCOPE OF PROTECTION 23 A. ELIGIBILITY FOR PROTECTION 23 B. PUBLISHED AND UNPUBLISHED WORKS 28 C. WORKS NOT PROTECTED 32 D. CATEGORIES OF PROTECTIBLE WORKS 35 3. COPYRIGHT OWNERSHIP 45 A. TRANSFER OF OWNERSHIP 47 B. LICENSING 49 C. ON-LINE TRANSACTIONS 53 4. TERM OF PROTECTION 59 5. NOTICE, DEPOSIT AND REGISTRATION 60 6. EXCLUSIVE RIGHTS 63 A. THE RIGHT TO REPRODUCE THE WORK 64 B. THE RIGHT TO PREPARE DERIVATIVE WORKS 66 C. THE RIGHT TO DISTRIBUTE COPIES 67 D. THE RIGHT TO PERFORM THE WORK PUBLICLY 70 E. THE RIGHT TO DISPLAY THE WORK PUBLICLY 72 7. LIMITATIONS ON EXCLUSIVE RIGHTS 73 A. FAIR USE 73 B. LIBRARY EXEMPTIONS 84 C. FIRST SALE DOCTRINE 90 D. EDUCATIONAL USE EXEMPTIONS 95 E. OTHER LIMITATIONS 96 8. COPYRIGHT INFRINGEMENT 100 A. GENERAL 100 B. INFRINGING IMPORTATION 107 C. CONTRIBUTORY AND VICARIOUS LIABILITY 109 D. ON-LINE SERVICE PROVIDER LIABILITY 114 E. CIVIL REMEDIES 124 F. CRIMINAL OFFENSES 126 G. DEFENSES 128 9. INTERNATIONAL IMPLICATIONS 130 A. BACKGROUND 130 B. INTERNATIONAL FRAMEWORK 132 C. INTERNATIONAL TREATIES AND AGREEMENTS 135 D. COPYRIGHT COMPARED TO AUTHORS' RIGHTS 139 E. NATIONAL TREATMENT 140 F. PRIVATE COPYING ROYALTY SYSTEMS 144 G. MORAL RIGHTS 145 H. CONFLICT OF LAWS 147 I. HARMONIZATION OF INTERNATIONAL SYSTEMS 147 B. PATENT 155 1. PATENTABILITY DETERMINATIONS 162 2. INFRINGEMENT DETERMINATIONS 165 3. PATENTABILITY OF SOFTWARE 166 C. TRADEMARK 168 D. TRADE SECRET 173 II. TECHNOLOGY 177 A. CONTENT SECURITY AND USER ACCESS NEEDS 178 B. THE INTERNET EXPERIENCE 179 C. ACCESS AND USE TECHNOLOGICAL CONTROLS 183 1. SERVER AND FILE LEVEL CONTROLS 183 2. ENCRYPTION 185 3. DIGITAL SIGNATURES 187 4. STEGANOGRAPHY 188 D. CONTROLLING USE OF PROTECTED WORKS 189 E. MANAGING RIGHTS IN PROTECTED WORKS 191 F. ENCRYPTION EXPORT CONTROL 194 G. DEVELOPMENT OF STANDARDS 197 III. EDUCATION 201 A. BACKGROUND 201 B. COPYRIGHT AWARENESS CAMPAIGN 203 IV. RECOMMENDATIONS 211 A. COPYRIGHT 211 1. THE TRANSMISSION OF COPIES AND PHONORECORDS 213 A. THE DISTRIBUTION RIGHT 213 B. RELATED DEFINITIONAL AMENDMENTS 217 C. THE IMPORTATION PROVISIONS 221 2. PUBLIC PERFORMANCE RIGHT FOR SOUND RECORDINGS 221 3. LIBRARY EXEMPTIONS 225 4. REPRODUCTION FOR THE VISUALLY IMPAIRED 227 5. CRIMINAL OFFENSES 228 6. TECHNOLOGICAL PROTECTION 230 7. COPYRIGHT MANAGEMENT INFORMATION 235 B. PATENT 236 C. TRADEMARK 237 APPENDICES Introduction In February 1993, President Clinton formed the Information Infrastructure Task Force (IITF) to articulate and implement the Administration's vision for the National Information Infrastructure (NII). The IITF is chaired by Secretary of Commerce Ronald H. Brown and consists of high-level representatives of the Federal agencies that play a role in advancing the development and application of information technologies. Guided by the principles for government action described in NII Agenda for Action1 and GII Agenda for Cooperation,2 the participating agencies are working with the private sector, public interest groups, Congress, and State and local governments to develop comprehensive telecommunications and information policies and programs that will promote the development of the NII and best meet the country's needs. To drive these efforts, the IITF is organized into three committees: the Telecommunications Policy Committee, which formulates Administration positions on relevant telecommunications issues; the Committee on Applications and Technology, which coordinates Administration efforts to develop, demonstrate and promote applications of information technologies in key areas; and the Information Policy Committee, which addresses critical information policy issues that must be dealt with if the NII is to be fully deployed and utilized. In addition, the IITF established a Security Issues Forum to assess the security needs and concerns of users, service providers, information providers, State and local governments and others. Finally, the U.S. Advisory Council on the National Information Infrastructure (NII Advisory Council) was established within the Department of Commerce to advise the Secretary of Commerce on a national strategy for promoting the development of the NII.3 The Working Group on Intellectual Property Rights, which is chaired by Assistant Secretary of Commerce and Commissioner of Patents and Trademarks Bruce A. Lehman, was established within the Information Policy Committee to examine the intellectual property implications of the NII and make recommendations on any appropriate changes to U.S. intellectual property law and policy.4 This Report represents the Working Group's examination and analysis of each of the major areas of intellectual property law, focusing primarily on copyright law and its application and effectiveness in the context of the NII.5 The approach of this Report is to discuss the application of the existing copyright law and to recommend only those changes that are essential to adapt the law to the needs of the global information society.6 By providing a generalized legal framework, based on the extensive analysis and discussion of the way in which the law has been and should be interpreted, we can lay the groundwork for the rapid and efficient development of the NII. To prepare this Report, the Working Group drew upon expertise within the participating departments and agencies of the Federal government.7 In addition, the Working Group received and considered views of the public, including those of the NII Advisory Council. The Working Group held a public hearing in November 1993, at which 30 witnesses testified.8 The Working Group also solicited written comments and received some 70 statements during a public comment period which closed on December 10, 1993.9 Following its review of the public comments and analysis of the issues, the Working Group released a preliminary draft of its report ("Green Paper") on July 7, 1994.10 The Working Group issued the report in preliminary draft form to ensure broad dissemination and ample opportunity for public comment prior to making final recommendations and issuing this Report. Thousands of copies of the Green Paper were distributed in paper form as well as electronically via the IITF Bulletin Board.11 Following the release of the Green Paper, the Working Group heard testimony from the public in four days of hearings in Chicago, Los Angeles and Washington, D.C., in September 1994.12 In addition, more than 1,500 pages of written comments on the Green Paper and reply comments were filed, in paper form and through the Internet, by more than 150 individuals and organizations -- representing more than 425,000 members of the public -- during the comment period, which extended over four months.13 The Working Group convened a Conference on Fair Use (CONFU) to bring together copyright owner and user interests to discuss fair use issues and, if possible, to develop guidelines for uses of copyrighted works by librarians and educators. Some 60 interest groups are participants in the Conference and have been meeting regularly since September 1994 in sessions that are open to the public. The Working Group also kicked off a Copyright Awareness Campaign (CAC) in March 1995. Approximately 40 participating individuals and organizations are coordinating their educational efforts and joining with the Working Group and the Department of Education to raise public awareness of copyright. Meetings of the Campaign are also open to the public. Interested parties had numerous opportunities to submit their views on the intellectual property implications of the development and use of the NII and on the Working Group's Green Paper, including its preliminary findings and recommendations. The open process instituted by the Working Group resulted in a well-developed, voluminous record indicating the views of a wide variety of interested parties, including various electronic industries, service providers, the academic, research, library and legal communities, and individual creators, copyright owners and users, as well as the computer software, motion picture, music, broadcasting, publishing and other information and entertainment industries. The special intellectual property concerns and issues raised by the development and use of the NII are the subject of this Report.14 It does not, however, provide all of the answers. It may not even present all of the questions. There is much that we do not -- and cannot -- now know about how the NII will develop. Technology is advancing at such an incredible pace that issues will certainly continue to arise in the future, perhaps demanding more comprehensive legislation. However, because there is much that we do know, the fact that future developments will raise additional issues not currently ripe should not deter us from addressing those that are.15 Background Intellectual property is a subtle and esoteric area of the law that evolves in response to technological change.16 Advances in technology particularly affect the operation and effectiveness of copyright law. Changes in technology generate new industries and new methods for reproduction and dissemination of works of authorship, which may present new opportunities for authors, but also create additional challenges. Copyright law has had to respond to those challenges, from Gutenberg's moveable type printing press to digital audio recorders and everything in between -- photocopiers, radio, television, videocassette recorders, cable television and satellites.17 Uses of computer technology -- such as digitization -- and communications technology -- such as fiber optic cable -- have had an enormous impact on the creation, reproduction and dissemination of copyrighted works. The merger of computer and communications technology into an integrated information technology has made possible the development of the National Information Infrastructure which will generate both unprecedented challenges and important opportunities for the copyright marketplace. An information infrastructure already exists, but it is not integrated into a whole. Telephones, televisions, radios, computers and fax machines are used every day to receive, store, process, perform, display and transmit data, text, voice, sound and images in homes and businesses throughout the country. Fiber optics, wires, cables, switches, routers, microwave networks, satellites and other communications technologies currently connect telephones, computers and fax machines. The NII of tomorrow, however, will be much more than these separate communications networks; it will integrate them into an advanced high- speed, interactive, broadband, digital communications system. Computers, telephones, televisions, radios, fax machines and more will be linked by the NII, and users will be able to communicate and interact with other computers, telephones, televisions, radios, fax machines and more -- all in digital form.18 The NII has tremendous potential to improve and enhance our lives. It can increase access to a greater amount and variety of information and entertainment resources that can be delivered quickly and economically from and to virtually anywhere in the world in the blink of an eye. For instance, hundreds of channels of "television" programming, thousands of musical recordings, and literally millions of "magazines" and "books" can be made available to homes and businesses across the United States and around the world.19 The NII can provide access to rich cultural resources around the world, transforming and expanding the scope and reach of the arts and humanities. It will provide opportunities for the development of new markets for cultural products. It can broaden our cultural experiences through diversity of content, and increase our understanding of other societies. The NII can support our education systems by, for example, linking students and educators in remote locations around the world. It can also improve the nation's health care systems by increasing public awareness of health issues, providing continuing education of health care professionals, and allowing patients to take a more active role in their own health care. The NII can dramatically increase the opportunity for democratic participation in government. The Task Force has shown some of the potential in its work. For instance, the IITF Bulletin Board makes available copies of Task Force reports, testimony, speeches, meeting schedules and minutes, hearing notices, transcripts, and other documents related to the work of the Administration and opportunities for public participation.20 The Task Force has also accepted comments from the public through the Internet and has conducted an on-line public conference.21 Individuals and entities that heretofore have been predominately consumers of works can now become authors and providers through the NII. It can put easier, more sophisticated communication and publishing tools in the hands of the public, increasing the ability to communicate with, and disseminate works of authorship to, others. The NII can boost the ability of U.S. firms to compete and succeed in the global economy, thereby generating more jobs for Americans. It can spur economic growth. More than half of the U.S. work force is in information-based jobs, and the telecommunications and information sector is growing faster than any other sector of the U.S. economy. New job opportunities can be created in the processing, organizing, packaging and dissemination of the information and entertainment products flowing through the NII. The NII can provide benefits to authors and consumers by reducing the time between creation and dissemination. It will open additional markets for authors. If authors choose to enter those new markets, it will provide a wider variety and greater number of choices for consumers, which should increase competition and reduce prices. The availability of these benefits is by no means assured, however. Authors are wary of entering this market because doing so exposes their works to a higher risk of piracy and other unauthorized uses than any of the traditional, current modes of dissemination. Therefore, authors may withhold their works from this environment. Further, even if authors choose not to expose their works to this more risky environment, the risk is not eliminated. Just one unauthorized uploading of a work onto a bulletin board, for instance -- unlike, perhaps, most single reproductions and distributions in the analog or print environment -- could have devastating effects on the market for the work. Thus, the full potential of the NII will not be realized if the education, information and entertainment products protected by intellectual property laws are not protected effectively when disseminated via the NII. Creators and other owners of intellectual property rights will not be willing to put their interests at risk if appropriate systems -- both in the U.S. and internationally -- are not in place to permit them to set and enforce the terms and conditions under which their works are made available in the NII environment. Likewise, the public will not use the services available on the NII and generate the market necessary for its success unless a wide variety of works are available under equitable and reasonable terms and conditions, and the integrity of those works is assured. All the computers, telephones, fax machines, scanners, cameras, keyboards, televisions, monitors, printers, switches, routers, wires, cables, networks and satellites in the world will not create a successful NII, if there is no content. What will drive the NII is the content moving through it. Ensuring consumer access to and enjoyment of both copyrighted works and new technologies is an attainable goal, and recent experience has confirmed this.22 For example, the introduction of digital audio tape recorders recently posed significant problems for copyright owners. Congress responded to the increased threat of rampant unauthorized use with legislation that incorporated both technological and legal measures to protect the interests of both consumers and copyright owners.23 Advances in digital technology and the rapid development of electronic networks and other communications technologies raise the stakes considerably. Any two-dimensional work can readily be "digitized" -- i.e., translated into a digital code (usually a series of zeros and ones). The work can then be stored and used in that digital form. This dramatically increases: the ease and speed with which a work can be reproduced; the quality of the copies (both the first and the hundredth "generation" are virtually identical); the ability to manipulate and change the work; and the speed with which copies (authorized and unauthorized) can be "delivered" to the public. Works also can be combined easily with other works into a single medium, such as a CD-ROM, which contributes to a blurring of the lines that typically divide types of works and the rights and limitations applicable thereto. The establishment of high-speed, high- capacity electronic information systems makes it possible for one individual, with a few key strokes, to deliver perfect copies of digitized works to scores of other individuals -- or to upload a copy to a bulletin board or other service where thousands of individuals can download it or print unlimited "hard" copies. The emergence of integrated information technology is dramatically changing, and will continue to change, how people and businesses deal in and with information and entertainment products and services, and how works are created, reproduced, distributed, adapted, displayed, performed, owned, licensed, managed, presented, organized, sold, accessed, used and stored. This leads, understandably, to a call for adaptation of -- or change in -- the law. Thomas Jefferson stated: I am not an advocate for frequent changes in laws and constitutions. But laws and institutions must go hand and hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy . . . .24 Our task is to determine whether the coat still fits in this new information age. An effective intellectual property regime must (1) ensure that users have access to the broadest feasible variety of works by (2) recognizing the legitimate rights and commercial expectations of persons and entities whose works are used in the NII environment. For more than two centuries, copyright law, with periodic amendment, has provided protection for an increasing variety of works of authorship. The most recent complete revision of the law -- The Copyright Act of 197625 -- was enacted in response to "significant changes in technology [that had] affected the operation of the copyright law."26 The legislative history of the 1976 Act notes that those changes had "generated new industries and new methods for the reproduction and dissemination of copyrighted works, and the business relations between authors and users [had] evolved new patterns."27 We are once again faced with significant changes in technology that upset the balance that currently exists under the Copyright Act. Our goal is to maintain the existing balance. Some assert that copyright protection should be reduced in the NII environment. The public wants information to be free and unencumbered on the NII, it is argued, and the law should reflect the public interest. Without doubt, this is a valid concern. Information per se should not be protected by copyright law -- nor is it. Facts and ideas from any work of authorship may be freely copied and distributed; the Copyright Act expressly excludes such information from the scope of the protection it accords.28 The copyright law should also serve the public interest -- and it does. While, at first blush, it may appear to be in the public interest to reduce the protection granted works and to allow unfettered use by the public, such an analysis is incomplete. Protection of works of authorship provides the stimulus for creativity, thus leading to the availability of works of literature, culture, art and entertainment that the public desires and that form the backbone of our economy and political discourse. If these works are not protected, then the marketplace will not support their creation and dissemination, and the public will not receive the benefit of their existence or be able to have unrestricted use of the ideas and information they convey. Others assert that technological advances justify reduced protection. Since computer networks now make unauthorized reproduction, adaptation, distribution and other uses of protected works so incredibly easy, it is argued, the law should legitimize those uses or face widespread flouting. This argument is not valid. Technology makes many things possible. Computer networks can be and have been used to embezzle large sums of money and to commit other crimes. Yet, these acts are prohibited by law. Simply because a thing is possible does not mean that it should be condoned. Finally, there are those who argue that intellectual property laws of any country are inapplicable to works on the NII or GII because all activity using these infrastructures takes place in "Cyberspace," a sovereignty unto itself that should be self- governed by its inhabitants, individuals who, it is suggested, will rely on their own ethics -- or "netiquette" -- to determine what uses of works, if any, are improper. First, this argument relies on the fantasy that users of the Internet, for instance, are somehow transported to "chat rooms" and other locations, such as virtual libraries. While such conceptualization helps to put in material terms what is considered rather abstract, activity on the Internet takes place neither in outer space nor in parallel, virtual locations. Satellite, broadcast, fax and telephone transmissions have not been thought to be outside the jurisdiction of the nations from which or to which they are sent. Computer network transmissions have no distinguishing characteristics warranting such other-world treatment. Further, such a legal free-for-all would transform the GII into a veritable copyright Dodge City. As enticing as this concept may seem to some users, it would hardly encourage creators to enter its confines. Nonetheless, content providers are currently experimenting with a number of business models in the networked environment, and it is already clear that a wide variety of such models may coexist. Some content providers will choose not to enforce all -- or any -- of their rights; others may change their business practices. For instance, some newspaper publishers are selling individual articles using electronic payment mechanisms, in addition to selling subscriptions and individual issues. Some software companies are making their "client" software freely available for individual use in an effort to increase the market share of their "server" software. Some hypermedia magazine publishers on the World Wide Web are choosing to give away their product but charge sponsors for advertising space. A number of information service providers are charging for the use of the search engines that add value to freely available public domain content. Some content providers will not be motivated by any commercial considerations. For instance, certain scientific communities are working together to create archives of freely available electronic pre-prints on the Internet. The copyright law allows copyright owners to exercise the rights granted to them, to license their rights to others, or to give them away. Those creators who wish to dedicate their works to the public domain may, of course, do so notwithstanding the availability of protection under the Copyright Act. Nothing in the law prevents those who do not wish to claim copyright from waiving their rights and allowing unrestricted reproduction, distribution and other use of their works. Indeed, notices to that effect are not uncommon on the Internet. The absence on the NII of copyrighted works for which authors do wish to exercise their rights -- fully or to some limited extent -- under the copyright law, of course, would not necessarily result in its demise. The Internet, for instance, could continue to serve as a communications tool and resource for Government, public domain and works of willing authors. However, unless the framework for legitimate commerce is preserved and adequate protection for copyrighted works is ensured, the vast communications network will not reach its full potential as a true, global marketplace. Copyright protection is not an obstacle in the way of the success of the NII; it is an essential component. Effective copyright protection is a fundamental way to promote the availability of works to the public. Preserving the framework does not require, however, a dramatic increase in authors' rights, such as more limited or no further applicability of the fair use doctrine in the NII environment. Some have argued that because it may now be technically feasible to "meter" each use of a copyrighted work, and to charge a user a fee for the use, the concept of fair use has no place in the NII environment. They argue equally that other limitations on rights should be abolished or narrowed for similar reasons. The Working Group believes that weakening copyright owners' rights in the NII is not in the public interest; nor would a dramatic increase in their rights be justified. With no more than minor clarification and limited amendment, the Copyright Act will provide the necessary balance of protection of rights -- and limitations on those rights -- to promote the progress of science and the useful arts.29 Existing copyright law needs only the fine tuning that technological advances necessitate, in order to maintain the balance of the law in the face of onrushing technology. There must be, however, effort in three disciplines -- law, technology and education -- to successfully address the intellectual property issues raised by the development and use of the NII. I. Law A.Copyright 1.Purpose of Copyright Law The Constitution of the United States provides that Congress has the power to "promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."30 The framers of the Constitution did not discuss this clause at any length prior to or after its adoption.31 The purpose of the clause was described in the Federalist Papers by James Madison: The utility of this power will scarcely be questioned. The copyright of authors has been solemnly adjudged, in Great Britain, to be a right of common law. The right to useful inventions seems with equal reason to belong to the inventors. The public good fully coincides in both cases with the claims of individuals.32 The Constitution outlines both the goal that Congress may try to achieve (to promote the progress of science and useful arts) and the means by which they may accomplish it (by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries).33 The Supreme Court has often spoken about the purpose of copyright: [I]t should not be forgotten that the Framers intended copyright itself to be the engine of free expression. By establishing a marketable right to the use of one's expression, copyright supplies the economic incentive to create and disseminate ideas.34 We have often recognized the monopoly privileges that Congress has authorized, while "intended to motivate the creative activity of authors and inventors by the provision of a special reward," are limited in nature and must ultimately serve the public good.35 The primary objective of copyright is not to reward the labor of authors, but "[t]o promote the Progress of Science and useful Arts." To this end, copyright assures authors the right in their original expression, but encourages others to build freely upon the ideas and information conveyed by a work.36 The economic philosophy behind the [Constitutional] clause . . . is the conviction that encouragement of individual effort by personal gain is the best way to advance the public welfare through the talents of authors and inventors . . . . Sacrificial days devoted to such creative activities deserve rewards commensurate with the services rendered.37 The monopoly privileges that Congress may authorize are neither unlimited nor primarily designed to provide a special private benefit. Rather, the limited grant is a means by which an important public purpose may be achieved. It is intended to motivate the creative activity of authors . . . by the provision of a special reward, and to allow the public access to the products of their genius after the limited period of exclusive control has expired.38 [C]opyright is intended to increase and not to impede the harvest of knowledge . . . . [T]he scheme established by the Copyright Act . . . foster[s] the original works that provide the seed and substance of this harvest. The rights conferred by copyright are designed to assure contributors to the store of knowledge a fair return for their labors.39 The copyright law, like the patent statutes, makes reward to the owner a secondary consideration . . . . It is said that reward to the author or artist serves to induce release to the public of the products of his creative genius.40 Copyright is "intended definitely to grant valuable, enforceable rights to authors . . . 'to afford greater encouragement to the production of literary works of lasting benefit to the world.'"41 The purpose is not to reward the author, but the law does so to achieve its ultimate purpose -- "to induce release to the public of the products of his creative genius."42 The "immediate effect" of the copyright law is that authors receive a "fair return for [their] creative labor"; however, the "ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good."43 Congress also interpreted the clause when it enacted the Copyright Act of 1909: The enactment of copyright legislation by Congress under the terms of the Constitution is not based upon any natural right that the author has in his writings, . . . but upon the ground that the welfare of the public will be served and progress of science and useful arts will be promoted by securing to authors for limited periods the exclusive rights to their writings . . . .44 By granting authors exclusive rights, the authors receive the benefit of economic rewards and the public receives the benefit of literature, music and other creative works that might not otherwise be created or disseminated. The public also benefits from the limited scope and duration of the rights granted.45 The free flow of ideas is promoted by the denial of protection for facts and ideas.46 The granting of exclusive rights to the author "does not preclude others from using the ideas or information revealed by the author's work."47 While copyright law "ultimately serves the purpose of enriching the general public through access to creative works,"48 copyright law imposes no obligation upon copyright owners to make their works available. While it is hoped that the potential economic benefits to doing so will induce them, copyright owners are not obligated to provide access to their works -- either during the term of protection or after. Hence, unpublished works never distributed to the public are granted as much (if not more) protection as published works. However, once an author publishes a work, copies of the work must be deposited with the Library of Congress for the benefit of the public. 2.Subject Matter and Scope of Protection a.Eligibility for Protection The subject matter eligible for protection under the Copyright Act is set forth in Section 102(a): Copyright protection subsists . . . in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.49 From this provision, the courts have derived three basic requirements for copyright protection -- originality, creativity and fixation.50 The requirements of originality and creativity are derived from the statutory qualification that copyright protection extends only to "original works of authorship."51 To be original, a work merely must be one of independent creation -- i.e., not copied from another. There is no requirement that the work be novel (as in patent law), unique or ingenious. To be creative, there must only be a modicum of creativity. The level required is exceedingly low; "even a slight amount will suffice."52 The final requirement for copyright protection is fixation in a tangible medium of expression. Protection attaches automatically to an eligible work of authorship the moment the work is sufficiently fixed.53 A work is fixed "when its embodiment in a copy or phonorecord . . . is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration."54 Congress provided considerable room for technological advances in the area of fixation by noting that the method of fixation in copies or phonorecords may be "now known or later developed."55 The Copyright Act divides the possible media for fixation into "copies" and "phonorecords": "Copies" are material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.56 "Phonorecords" are material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.57 According to the House Report accompanying the Copyright Act of 1976, Congress intended the terms "copies" and "phonorecords" to "comprise all of the material objects in which copyrightable works are capable of being fixed."58 The form of the fixation and the manner, method or medium used are virtually unlimited. A work may be fixed in "words, numbers, notes, sounds, pictures, or any other graphic or symbolic indicia"; may be embodied in a physical object in "written, printed, photographic, sculptural, punched, magnetic, or any other stable form"; and may be capable of perception either "directly or by means of any machine or device 'now known or later developed.'"59 In digital form, a work is generally recorded (fixed) as a sequence of binary digits (zeros and ones) using media specific encoding. This fits within the House Report's list of permissible manners of fixation.60 Virtually all works also will be fixed in acceptable material objects -- i.e., copies or phonorecords. For instance, floppy disks, compact discs (CDs), CD-ROMs, optical disks, compact discs-interactive (CD-Is), digital tape, and other digital storage devices are all stable forms in which works may be fixed and from which works may be perceived, reproduced or communicated by means of a machine or device.61 The question of whether interactive works are fixed (given the user's ability to constantly alter the sequence of the "action") has been resolved by the courts in the context of video games and should not present a new issue in the context of the NII. Such works are generally considered sufficiently fixed to qualify for protection.62 The sufficiency of the fixation of works transmitted via the NII, however, where no copy or phonorecord has been made prior to the transmission, may not be so clear. A transmission, in and of itself, is not a fixation. While a transmission may result in a fixation, a work is not fixed by virtue of the transmission alone. Therefore, "live" transmissions via the NII will not meet the fixation requirement, and will be unprotected by the Copyright Act, unless the work is being fixed at the same time as it is being transmitted.63 The Copyright Act provides that a work "consisting of sounds, images, or both, that are being transmitted" meets the fixation requirement "if a fixation of the work is being made simultaneously with its transmission."64 To obtain protection for a work under this "simultaneous fixation" provision, the simultaneous fixation of the transmitted work must itself qualify as a sufficient fixation. A simultaneous fixation (or any other fixation) meets the requirements if its embodiment in a copy or phonorecord is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration."65 Works are not sufficiently fixed if they are "purely evanescent or transient" in nature, "such as those projected briefly on a screen, shown electronically on a television or cathode ray tube, or captured momentarily in the 'memory' of a computer."66 Electronic network transmissions from one computer to another, such as e-mail, may only reside on each computer in RAM (random access memory), but that has been found to be sufficient fixation.67 b.Published and Unpublished Works Historically, the concept of publication has been a major underpinning of copyright law. Under the dual system of protection which existed until the 1976 Copyright Act took effect, unpublished works were generally protected under state law. Published works, on the other hand, were protected under Federal copyright law.68 On the effective date of the 1976 Act, Federal copyright protection became available for unpublished as well as published works.69 The concept of publication thus lost its "all-embracing importance" as the threshold to Federal statutory protection.70 However, while the importance of publication has been reduced through amendment to the law (e.g., granting Federal protection to unpublished works and removing the notice requirement for published works), the status of a work as either published or unpublished still has significance under the Copyright Act. For example: Ñ only works that are published in the United States are subject to mandatory deposit in the Library of Congress;71 Ñ deposit requirements for registration with the Copyright Office differ depending on whether a work is published or unpublished;72 Ñ the scope of the fair use defense may be narrower for unpublished works;73 Ñ unpublished works are eligible for protection without regard to the nationality or domicile of the author;74 Ñ published works must bear a copyright notice if published before March 1, 1989;75 and Ñ certain limitations on the exclusive rights of a copyright owner are applicable only to published works.76 The Copyright Act provides a definition of "publication" to draw the line between published and unpublished works: "Publication" is the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display, constitutes publication. A public performance or display of a work does not of itself constitute publication.77 The definition uses the language of Section 106 describing the exclusive right of distribution, and was intended to make clear that "any form of dissemination in which a material object does not change hands -- performances or displays on television, for example -- is not a publication no matter how many people are exposed to the work."78 It also makes clear that the distribution must be "to the public."79 In general, the definition continues principles that had evolved through case law under previous copyright laws,80 including the doctrine of limited publication.81 The doctrine was developed by courts to save works from losing copyright protection when copies of the work were only distributed to a restricted number of people and for a restricted purpose without a copyright notice.82 Those works would not be considered distributed to the public (i.e., published) and, therefore, not subject to the notice requirement. Although the notice requirement has been eliminated, and thus the most critical justification for the doctrine, the few cases dealing with publication since 1989 suggest that courts will continue to apply the doctrine of limited publication.83 c.Works Not Protected Certain works and subject matter are expressly excluded from protection under the Copyright Act, regardless of their originality, creativity and fixation. Titles, names, short phrases, and slogans generally do not enjoy copyright protection under the Copyright Act.84 Other material ineligible for copyright protection includes the utilitarian elements of industrial designs;85 familiar symbols or designs; simple geometrical shapes; mere variations of typographic ornamentation, lettering or coloring; and common works considered public property, such as standard calendars, height and weight charts, and tape measures and rulers. Copyright protection also does not extend to any "idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied" in such work even if it meets the criteria for protection.86 Thus, although a magazine article on how to tune a car engine is protected by copyright, that protection extends only to the expression of the ideas, facts and procedures in the article, not the ideas, facts and procedures themselves, no matter how creative or original they may be. Anyone may "use" the ideas, facts and procedures in the article to tune an engine - - or to write another article on the same subject. What may not be taken is the expression used by the original author to describe or explain those ideas, facts and procedures.87 Copyright does not prevent subsequent users from copying from a prior author's work those constituent elements that are not original -- for example . . . facts or materials in the public domain -- as long as such use does not unfairly appropriate the author's original contributions.88 This idea/expression dichotomy "assures authors the right to their original expression, but encourages others to build freely upon the ideas and information conveyed by a work."89 Although it "may seem unfair that much of the fruit of the [author's] labor may be used by others without compensation," it is "a constitutional requirement" -- the "means by which copyright advances the progress of science and art."90 As a matter of law, copyright protection generally is not extended under the Copyright Act to works of the U.S. Government.91 Therefore, nearly all works of the U.S. Government -- including this Report -- may be reproduced, distributed, adapted, publicly performed and publicly displayed without infringement liability in the United States under its copyright laws.92 While the Copyright Act leaves most works created by the U.S. Government unprotected under U.S. copyright laws, Congress did not intend for the section to have any effect on the protection of U.S. government works abroad.93 d.Categories of Protectible Works The Copyright Act enumerates eight broad categories of protectible subject matter: (1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works; (5) pictorial, graphic and sculptural works; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works.94 Literary Works Although many categories of works will be available via the NII, the majority of works currently available on computer networks such as the Internet are literary works. "Literary works" are works, other than audiovisual works, expressed in words, numbers, or other verbal or numerical symbols or indicia, regardless of the nature of the material objects, such as books, periodicals, manuscripts, phonorecords, films, tapes, disks, or cards, in which they are embodied.95 Literary works include computer programs,96 articles, novels, directories, computer databases, essays, catalogs, poetry, dictionaries, encyclopedias, and other reference materials.97 Musical Works A musical work consists of the musical notes and lyrics (if any) in a musical composition.98 A musical work may be fixed in any form, such as a piece of sheet music or a compact disc.99 Musical works may be "dramatic," i.e., written as a part of a musical or other dramatic work, or "nondramatic," i.e., an individual, free- standing composition. Dramatic Works Generally, a dramatic work is one in which a series of events is presented to the audience by characters through dialogue and action as the events happen, such as in a play.100 Pantomimes and Choreographic Works This category was first added to the list of protectible subject matter in 1976.101 While pantomimes and choreographic works, such as dances, can be fixed in a series of drawings or notations, they are usually fixed on film or videotape. Pictorial, Graphic and Sculptural Works A significant number of works traveling through the NII will be pictorial and graphic works. Works in this category include: [T]wo-dimensional and three- dimensional works of fine, graphic, and applied art, photographs, prints and art reproductions, maps, globes, charts, diagrams, models, and technical drawings, including architectural plans.102 A work of art which is incorporated into the design of a useful article, but which can stand by itself as art work separate from the useful article, is copyrightable, but the design of the useful article is not.103 Motion Pictures and other Audiovisual Works The Copyright Act provides definitions of "audiovisual works" and the subcategory "motion pictures": "Audiovisual works" are works that consist of a series of related images which are intrinsically intended to be shown by the use of machines, or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any, regardless of the nature of the material objects, such as films or tapes, in which the works are embodied.104 "Motion pictures" are audiovisual works consisting of a series of related images which, when shown in succession, impart an impression of motion, together with accompanying sounds, if any.105 The House Report notes that the key to the subcategory "motion pictures" is the conveyance of the impression of motion, and that such an impression is not required to qualify as an audiovisual work.106 Sound Recordings A "sound recording" is the work that results from the fixation of sounds, including those that are musical or spoken.107 When those sounds are included in an audiovisual work, such as a music video, they are considered part of the audiovisual work rather than a sound recording.108 Architectural Works An "architectural work" is "the design of a building as embodied in any tangible medium of expression, including a building, architectural plans, or drawings."109 It includes the overall form as well as the "arrangement and composition of spaces and elements" in the design of the building.110 Compilations and Derivative Works A compilation is "a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship."111 Directories, databases, magazines and anthologies are types of compilations. A derivative work is a work "based upon" one or more preexisting works.112 A derivative work is created when one or more preexisting works is "recast, transformed, or adapted" into a new work, such as when a novel is used as the basis of a movie or when a drawing is transformed into a sculpture.113 Translations, musical arrangements and abridgments are types of derivative works. The Copyright Act makes clear that the subject matter of copyright specified in Section 102 (literary works, musical works, sound recordings, etc.) includes compilations and derivative works.114 The copyright in a derivative work or compilation, however, extends only to the contribution of the author of the derivative work or compilation (the compiler), and does not affect the copyright protection granted to the preexisting material.115 Protection for an individual musical work, for instance, is not reduced, enlarged, shortened or extended if the work is included in a collection, such as a medley of songs. Moreover, copyright in a compilation or derivative work does not imply any exclusive right in the preexisting material employed in the compilation or derivative work.116 The copyright in a compilation, for example, is limited to the original selection or arrangement of the facts or other elements compiled; protection for the compilation in no way extends to the facts or elements.117 Copyright protection is not granted simply for the hard work that may be involved in compiling facts. The Supreme Court struck down the doctrine that had protected such efforts, known as the "sweat of the brow" or "industrial collection" theory.118 "Multimedia" Works Increasingly, works from different categories are fixed in a single tangible medium of expression.119 This will certainly be true as development of the NII progresses and the ability to create and disseminate interactive "multimedia" or "mixed media" products increases. A prefatory note may be warranted because of the manner in which these terms are used in the context of copyright law. The terms "multimedia" and "mixed media" are, in fact, misnomers. In these works, it is the types or categories of works that are "multiple" or "mixed" -- not the types of media. The very premise of a so-called "multimedia" work is that it combines several different elements or types of works (e.g., text (literary works), sound (sound recordings), still images (pictorial works), and moving images (audiovisual works)) into a single medium (e.g., a CD-ROM) -- not multiple media.120 However, in recognition of the prevalent use of the term, this Report refers to this type of work as a "multimedia" work. Multimedia works are not categorized separately under the Copyright Act; nor are they explicitly included in any of the eight enumerated categories. While most current multimedia works would be considered compilations,121 that classification does not resolve the issue of subject matter categorization.122 Despite the fact that the Copyright Act enumerates eight categories of works, works that do not fit into any of the categories may, nevertheless, be protected. The list of protectible works in Section 102 is intended to be illustrative rather than inclusive.123 The House Report explains that the categories of works "do not necessarily exhaust the scope of 'original works of authorship' that the [Copyright Act] is intended to protect."124 However, absent the addition of a new category, a work that does not fit into one of the enumerated categories is, in a sense, in a copyright no-man's land.125 Under the current law, the categorization of a work holds a great deal of significance under the Copyright Act. For instance, two of the exclusive rights granted in Section 106 apply only to certain categories of works.126 In addition, many of the limitations on rights in Sections 108 through 120 are not applicable to all types of works.127 Therefore, categorization of multimedia and other new types of works is an important issue. Generally, multimedia works include two or more of the following preexisting elements: text (literary works), computer programs (literary works), music (musical works and sound recordings), still images (pictorial and graphic works) and moving images (audiovisual works). The definition of "literary works" begins with the phrase "works, other than audiovisual works . . . ."128 Therefore, a reasonable interpretation may be that text and computer programs that would otherwise be categorized as literary works may be considered part of an audiovisual work if included in a work of that type. Such is also the case with sound recordings. A music video is not categorized as both a sound recording and an audiovisual work; it is categorized as an audiovisual work.129 Audiovisual works also include still images - - at least related ones.130 Therefore, in many instances, a multimedia work may be considered -- as a whole -- an audiovisual work. The legislative history makes clear that a work in one category may contain works in other categories.131 The somewhat strained analysis needed to find a category for multimedia works and the increasing "cross-breeding" of types of works demonstrate that categorization may no longer be useful or necessary. While the Working Group does not recommend at this time the consolidation or elimination of categories (and harmonization of the differing application of rights and limitations on those rights), it is likely that such consolidation or elimination will be appropriate in the future. 3.Copyright Ownership Copyright ownership in a work initially vests in the author of the work.132 If the work is a "joint work" (a work with two or more authors), the authors are co-owners of the copyright in the work.133 Under certain circumstances, the copyright in a work is not granted to the actual preparer of the work. In the case of "works made for hire," the employer of the preparer or the person for whom the work was prepared is considered the "author" for purposes of the Copyright Act.134 There are two types of works made for hire -- those prepared by an employee and those prepared by an independent contractor by special order or commission. The copyright in a work prepared by an employee within the scope of employment vests in the employer, and the employer is the author.135 The copyright in a work specially ordered or commissioned vests in the person for whom the work was prepared if the work falls into one of nine specified categories and if the parties expressly agree in writing that the work will be considered a work made for hire.136 Copyright ownership entitles the copyright owner to: Ñ exercise the exclusive rights granted under Section 106; Ñ authorize others to exercise any of those exclusive rights; and Ñ prevent others from exercising any of those exclusive rights. An important distinction to understand is the difference between ownership of a copyright in a work and ownership of a copy of a work. Ownership of a copy -- the material object in which a copyrighted work is embodied (e.g., a book, CD or videocassette) -- carries with it no interest in the copyright.137 Ownership of a copyright, or any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.138 Ownership, possession or any other attachment to or relationship with a copy of a copyrighted work (including obtaining access to it through a computer network or other service) does not entitle one to exercise any of the exclusive rights of the copyright owner (e.g., to reproduce it or to perform it publicly). a.Transfer of Ownership Copyright ownership, or ownership of any of the exclusive rights (in whole or in part), may be transferred to one or more persons.139 A transfer of rights must be in writing and must be signed by the transferor.140 A transfer may occur through an assignment, exclusive license, mortgage, "or any other conveyance, alienation, or hypothecation" of a copyright or any of the exclusive rights.141 A transfer of copyright ownership may be limited in time or in place, but it must be an exclusive transfer of whatever right or rights are involved (i.e., nonexclusive licenses are not considered transfers of ownership).142 Any of the exclusive rights in the work143 may be separately transferred and owned, and the owner of a particular right is considered the "copyright owner" with respect to that right.144 In the case of any copyrighted work other than a "work made for hire," all transfers of copyright ownership (as well as all nonexclusive licenses) executed by the author of the work may be terminated by the author 35 years after the transfer.145 This right to terminate, intended to protect authors, cannot be waived by contract or other agreement.146 However, termination is not automatic; an author must assert his or her termination rights and comply with certain statutory requirements to regain copyright ownership.147 b.Licensing The exclusive rights of a copyright owner may be licensed on an exclusive basis (i.e., copyright ownership in one or more rights is transferred by the copyright owner) or on a nonexclusive basis (i.e., the copyright owner retains ownership of the copyright and may grant similar licenses to others). A nonexclusive licensee is not a copyright owner and thus does not have standing to sue for any infringement of the copyright in the work by others.148 Unlike exclusive licenses, nonexclusive licenses need not be in writing.149 Limitations on the exclusive rights, such as the first sale doctrine, fair use or library exemptions, may be overridden by contract.150 However, such contract terms can be enforced only under state law. For instance, the fair use of a work (outside the scope of the license) by a licensee whose license precludes any use other than that specified by the license would not be an infringement of copyright, but would be a breach of the license agreement. Licenses and other contracts cannot transform noninfringing uses (such as fair uses) into infringements; they can, however, make such uses violations of the terms and conditions of the agreements: A library that has acquired ownership of a copy is entitled [under the Copyright Act] to lend it under any conditions it chooses to impose. This does not mean that conditions on future disposition of copies or phonorecords, imposed by a contract between their buyer and seller, would be unenforceable between the parties as a breach of contract, but it does mean that they could not be enforced by an action for infringement of copyright.151 Licensing issues are, and will continue to be, significant in the context of the development of the NII. Services on the NII will provide the opportunity for new uses for copyrighted works. If rights with respect to these new uses are not expressly granted or retained in license agreements, conflicts will arise between copyright owners and licensees. For instance, public display on a bulletin board system may not have been contemplated in licenses granting a public display right that were executed before the advent or proliferation of such systems. Some argue that new uses which were not contemplated at the time of licensing but which fall within rights granted, such as the public display example above, should automatically fall within the scope of the license. Others contend that new uses which are not contemplated and, therefore, not specifically mentioned in a grant of rights should be considered retained by the licensor -- even in the case of a complete assignment of rights. Failure to contemplate possible future developments, of course, is not a new problem, and is one based primarily in contract rather than copyright law. Whenever new technologies have produced a new use for works, courts have been called upon to decide whether the new use is covered by old licenses.152 That is the proper jurisdiction for such determinations. License agreements must be interpreted individually and under the law of the governing state. A variety of licensing methods will be possible as the NII develops. For instance, rights in copyrighted works offered via the NII may be licensed off-line or on-line. They may be licensed directly (through individual transactions between the rightsholder and the licensee) or through other licensing arrangements, such as voluntary collective licensing. Licensing of rights may be on a per-use, per-work or other basis. The licensing of rights for the creation of multimedia works -- whose creators may wish to include dozens of preexisting works (or portions thereof) -- can be difficult. Because registration and copyright notices are not required for copyrighted works, identification of copyright owners alone can be complicated. Furthermore, the relative newness of the multimedia industry can result in an uncertainty on the part of copyright owners and multimedia creators with regard to appropriate terms and conditions for such uses. With limited exceptions, intellectual property law leaves the licensing of rights to the marketplace. In certain circumstances, particularly where transaction costs are believed to dwarf per-transaction royalties, Congress has found it necessary to provide for compulsory licenses.153 The Working Group finds that, under current conditions, additional compulsory licensing of intellectual property rights is neither necessary nor desirable. Compulsory licensing disregards marketplace forces. Such licensing schemes treat all works alike, even though their value in a competitive marketplace would likely vary dramatically. It also treats all users alike. It alters the free market relationship between buyers and sellers. Moreover, transaction costs -- and the attendant savings from compulsory licensing -- can be minimized in a digital environment. Technology will facilitate individual licensing schemes.154 Many projects and studies have been initiated to explore ways in which technology can be used to enhance a user's ability to identify the rightsholder of a work and license its use. The inclusion of copyright management information in copies of works will also facilitate licensing.155 The marketplace should be allowed to develop whatever legal licensing systems may be appropriate for the NII. However, the Working Group encourages copyright owners to explore with libraries and schools special, institutional licenses. These licenses would enable the costs to be borne, for instance, by the library so that its patrons might access and use works without direct costs, as they generally do in the print domain.156 The Working Group also endorses increased funding for libraries and educational institutions to assist their ability to purchase and license works in digital form. c.On-Line Transactions The NII will be a conduit for many types of commercial transactions.157 Electronic purchasing of goods facilitates the ordering, shipment, and tracking of inventory for nearly any manufactured product. Consumers increasingly will have access to on-line banking, catalogues, video tours of homes, and countless other services. Payment for these goods and services may be made through conventional methods, such as checks or credit cards, or through "digital cash" -- on- line funds transfers between a consumer's bank and an on-line provider.158 In addition, certain NII uses of protected works will be regulated through electronic licenses. The law dealing with electronic commerce is not clear -- especially for totally paperless transactions.159 On-line contracting and licensing raise a number of concerns about the validity and enforceability of such transactions. The NII will not be used to its fullest commercial potential if providers and consumers cannot be confident that their electronic agreements are valid and enforceable. Considering a number of different transactions that may take place on the NII helps identify where contract law is strained and the impact of this strain on NII users. Although some of the transactions identified may not involve the license or transfer of rights in a copyrighted work, examination of the principles involved in, for example, the on-line sale of copies of copyrighted works in the NII environment may provide useful background and understanding of the overall legal atmosphere for on-line transactions. On-Line Contracts Not Involving the Sale of Goods At common law, a contract is formed when the contracting parties manifest mutual, voluntary assent to be bound by a set of terms -- typically through an offer and acceptance.160 In addition, under the "mirror image rule," the parties must agree to identical terms before a contract is formed - - the so-called "meeting of the minds." The threshold question is whether an electronic message of offer or acceptance or the simple use of the "accept" or "return" key in response to a provider's offer or consumer's request is assent.161 A second issue is whether an electronic manifestation of assent meets the mirror image rule162 -- that is, whether there was a meeting of the minds. If the seller provides an on-line contract form with terms that are essentially non-negotiable, then, like the "shrink wrap" licenses used by software publishers,163 the purchaser can only accept or reject the terms. If the purchaser accepts, the mirror image rule is met. However, when a consumer assents to such a "standard form" contract, and there is no alternative source for a similar service, the result may be a contract of adhesion.164 Assent in contracts of adhesion has been considered in the context of on-line services and shrink wrap licenses.165 While there is no clear "rule," a traditional analysis looks to the reasonableness of terms and the applicability of the agreement's terms to similarly situated parties.166 The status of shrink wrap licenses for software provides some guidance; however, shrink wrap licenses have not been treated consistently.167 In some cases, the U.C.C. has been applied, thus avoiding the question of adhesion by inferring formation.168 In addition, Illinois and Louisiana have both attempted to statutorily "validate" such shrink wrap licenses.169 A third issue involves writing and signature requirements for certain contracts.170 In the NII, where transactions may be entirely paperless, it may be unclear whether electronic messages are written and what will be considered an adequate signature.171 On-Line Sale of Goods with Conventional Delivery For the sale of goods, the U.C.C. alleviates many of these common law concerns.172 With regard to assent, the U.C.C. states that, "[a] contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract."173 Likewise, "an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances."174 Thus, application of the U.C.C. may infer assent through any reasonable conduct -- including transmission of electronic messages. Similarly, the U.C.C. loosens the requirements of the mirror image rule. The U.C.C. infers formation and focuses on establishing the contract's controlling terms.175 The formalities necessary for enforceability are also relaxed by the U.C.C.176 As sales of goods become more common via the NII, the U.C.C. will likely become more useful based on the flexible "course of dealing" and "usage of trade" definitions.177 On-line Sale of Goods with Electronic Delivery A third transaction is where goods are both ordered and delivered via the NII. The primary difference between goods delivered via the NII and those discussed earlier is that the goods themselves may not "exist" prior to the delivery. Rather, they are reproduced upon transmission to the buyer's computer system. Because the goods do not exist prior to the sale, the goods are considered "future goods" under the U.C.C., and remedies for breach of contract are limited.178 On-Line Licenses for Uses of Works The licensing of copyrighted works via the NII is more problematic. Application of U.C.C. Article 2 is questionable, because the works involved may not be "goods" under the U.C.C., and because the transaction itself is not a "sale," but rather a license to use or access the work.179 Common law principles of contract law, therefore, may apply to on-line licenses.180 Amendment of Article 2 of the U.C.C. to cover such licensing transactions is being actively considered by the Permanent Editorial Board for the Uniform Commercial Code.181 The challenge for commercial law, as for intellectual property law, is to adapt to the reality of the NII by providing clear guidance as to the rights and responsibilities of those using the NII. Without certainty in electronic contracting, the NII will not fulfill its commercial potential. The Working Group believes that, regardless of the type of transaction, where parties wish to contract electronically, they should be able to form a valid contract on- line. In particular, on-line licenses should be encouraged because they offer efficiency for both licensors and licensees. Moreover, state validating statutes -- similar to those used to validate shrink wrap licenses -- can be used for on-line licenses to help overcome concerns regarding adhesion; and such statutes should not be preempted as long as they do not attempt to grant rights equivalent to any of the exclusive rights within the general scope of copyright.182 Thus, a statute that merely recognizes the validity of on-line licenses -- even those licenses which cover the exclusive rights of the copyright owner -- would not usurp Federal power and should be upheld. Further, just as the copyright law needs minor clarifications to account for new technology, so too might commercial law. Historically, the U.C.C. has been extremely successful in clarifying the law. However, as technology advances, the way in which business is conducted places strains upon the U.C.C. -- especially Article 2. Therefore, the Working Group supports the efforts presently underway to revise Article 2 of the U.C.C. to encompass licensing of intellectual property. 4.Term of Protection Generally, a copyrighted work is protected for the length of the author's life plus another 50 years.183 In the case of joint works, copyright protection is granted for the length of the life of the last surviving joint author plus another 50 years.184 Works made for hire, as well as anonymous and pseudonymous works, are protected for a term of either 75 years from the year of first publication or 100 years from the year of creation, whichever is shorter.185 When the term of protection for a copyrighted work expires, the work falls into the "public domain."186 5.Notice, Deposit and Registration Prior to the United States accession to the Berne Convention and the concomitant amendments to the Copyright Act, a copyright notice was required on all publicly distributed copies or phonorecords of works. Omission of the notice could result in the loss of copyright protection for the work. However, in 1989, the use of a copyright notice became permissive rather than required.187 Section 401(a) of the Copyright Act provides: Whenever a work protected under this title is published in the United States or elsewhere by authority of the copyright owner, a notice of copyright . . . may be placed on publicly distributed copies from which the work can be visually perceived, either directly or with the aid of a machine or device.188 If a copyright notice is used, it generally must consist of three elements: Ñ the letter "C" in a circle (¨) or the word "Copyright" or the abbreviation "Copr." (in the case of sound recordings embodied in phonorecords, the letter "P" in a circle); Ñ the year of first publication of the work; and Ñ the name of the owner of copyright in the work.189 As a general rule, two copies of a published work must be deposited in the Copyright Office within three months of publication for the benefit of the Library of Congress.190 The Register of Copyrights may exempt categories of works from the deposit requirements. The Register may also require only one copy of the work or allow alternative forms of deposit.191 Although required by the Copyright Act, the deposit of copies is not a prerequisite to or condition of copyright protection. Failure to deposit copies of a work after a written demand by the Register of Copyrights, however, generally results in the imposition of a fine.192 Registration with the Copyright Office is permissive, rather than mandatory. It is not a prerequisite to the grant of exclusive rights.193 It is, however, generally a prerequisite to the enforcement of those rights in court.194 The copyright owner of a work (or the owner of any of the exclusive rights) may register the copyright in the work by depositing with the Copyright Office a completed application form, registration fee and a copy or copies of the work.195 The deposit requirement under the Act may be fulfilled through the registration procedures.196 Although not required, registration may be advisable. A certificate of copyright registration constitutes prima facie evidence of the validity of the copyright and the facts stated in the certificate, if registration is made within five years of first publication.197 In addition, certain remedies are available in infringement suits only if registration is made prior to the date of the infringement or within three months of first publication.198 The lack of notice and registration requirements may make it harder to differentiate between protected and unprotected works, including those in the public domain and those in which the author does not wish to claim copyright. It may also make it more difficult to identify the copyright owner. This has led some to suggest, at least with respect to works disseminated via computer networks, that one should be free to copy any work that does not contain a copyright notice and that registration should be required. While these arguments may have some merit, the balance of interests has not changed since these issues were considered by Congress and the requirements were eliminated. Conditioning copyright protection on the affixation of copyright notices and/or registration would be inconsistent with our obligations under the Berne Convention.199 Further, the benefits of utilizing Copyright Management Information should encourage copyright owners to include or affix information historically included in copyright notices, as well as additional useful information for consumers, such as the terms and conditions for use. 6.Exclusive Rights The Copyright Act grants copyright owners certain exclusive rights that, together, comprise the bundle of rights known as copyright. (Limitations on the exclusive rights and infringement of the rights are discussed in subsequent sections. The fact that a particular use of a copyrighted work is said to implicate one or more of the rights, therefore, does not necessarily mean that such use is an infringement or unlawful.) The exclusive rights of the copyright owner include -- (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; and (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly.200 These rights, in most instances, have been well elaborated by Congress and the courts in both "conventional" and digital contexts. For the most part, the provisions of the current copyright law serve the needs of creators, owners, distributors, users and consumers of copyrighted works in the NII environment. In certain instances, small changes in the law may be necessary to ensure public access to copyrighted works while protecting the rights of the intellectual property owner. a.The Right to Reproduce the Work The fundamental right to reproduce copyrighted works in copies and phonorecords201 will be implicated in innumerable NII transactions. Indeed, because of the nature of computer-to-computer communications, it will be implicated in most NII transactions. For example, when a computer user accesses a document resident on another computer, the image on the user's screen exists -- under contemporary technology -- only by virtue of the copy that is reproduced in the user's computer memory. It has long been clear under U.S. law that the placement of copyrighted material into a computer's memory is a reproduction of that material (because the work in memory then may be, in the law's terms, "perceived, reproduced, or . . . communicated . . . with the aid of a machine or device").202 The 1976 Copyright Act, its legislative history, the CONTU Final Report, and repeated holdings by courts make it clear that in each of the instances set out below, one or more copies is made.203 Ñ When a work is placed into a computer, whether on a disk, diskette, ROM, or other storage device or in RAM for more than a very brief period, a copy is made.204 Ñ When a printed work is "scanned" into a digital file, a copy -- the digital file itself -- is made. Ñ When other works -- including photographs, motion pictures, or sound recordings -- are digitized, copies are made. Ñ Whenever a digitized file is "uploaded" from a user's computer to a bulletin board system (bbs) or other server, a copy is made. Ñ Whenever a digitized file is "downloaded" from a bbs or other server, a copy is made. Ñ When a file is transferred from one computer network user to another, multiple copies generally are made.205 Ñ Under current technology, when an end- user's computer is employed as a "dumb" terminal to access a file resident on another computer such as a bbs or Internet host, a copy of at least the portion viewed is made in the user's computer. Without such copying into the RAM or buffer of the user's computer, no screen display would be possible. b.The Right to Prepare Derivative Works The copyright law grants copyright owners the right to control the abridgment, adaptation, translation, revision or other "transformation" of their works.206 A user who modifies -- by annotating, editing, translating or otherwise significantly changing -- the contents of a downloaded file creates a derivative work. Derivative works may also be created by transforming a work, such as an audiovisual work, into an interactive work. c.The Right to Distribute Copies Before addressing issues raised by the distribution right in the context of the NII, it is necessary to understand its application and limitations with respect to conventional modes of exploitation and infringement. The right to distribute legitimate copies of works is substantially circumscribed by the "first sale" doctrine: Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.207 This means that the copyright owner generally has only the right to authorize or prohibit the initial distribution of a particular lawful copy of a copyrighted work.208 It is important to understand, however, that the distribution of an unlawfully made (i.e., infringing) copy will subject any distributor to liability for infringement.209 One court decision has construed the unauthorized downloading of digitized photographic images (whose reproduction was unauthorized) by bbs subscribers as "implicating" the distribution right.210 The discussion in Playboy Enterprises Inc. v. Frena211 reflects the reach of the distribution right with respect to infringing copies: Public distribution of a copyrighted work is a right reserved to the copyright owner, and usurpation of that right constitutes infringement . . . . [Playboy Enterprise's] right under 17 U.S.C. ñ106 to distribute copies to the public has been implicated by Defendant Frena [the bbs operator]. Section 106(3) grants the copyright owner "the exclusive right to sell, give away, rent or lend any material embodiment of his work." There is no dispute that Defendant Frena supplied a product containing unauthorized copies of a copyrighted work. It does not matter that Defendant Frena claims it did not make the copies itself.212 The court may not have focused on the reproduction right, apparently because of its uncertainty whether the operator of the bulletin board system could itself be held to have reproduced a work that was (a) uploaded by one subscriber213 and (b) downloaded by another. (As discussed below, the bbs operator publicly displayed the works by the same conduct, and was found liable by the court for infringing the display right.) Whether the litigants in Playboy put the issue properly in dispute or not, the right to distribute copies of a work has traditionally covered the right to convey a possessory interest in a tangible copy of the work. Indeed, the first sale doctrine implements the common law's abhorrence of restraints on alienation of property by providing that the distribution right does not generally prevent owners of lawfully made copies from alienating them in a manner of their own choosing.214 It is clear that a Frena subscriber, at the end of a transaction, possessed a copy of a Playboy photograph, but it is perhaps less clear whether, under the current law, Frena "distributed" that photograph and whether Frena or the subscriber "reproduced" it (and, if the latter, whether current law clearly would have made Frena contributorily liable for the unauthorized reproduction).215 In a similar case, Sega Enterprises Ltd. v. MAPHIA,216 a court, on a motion for a preliminary injunction, made findings of fact regarding (a) the use of a bulletin board system to "make and distribute" copies of copyrighted video games, (b) the "unauthorized copying and distribution" of the games on the bulletin board, and (c) the profits made by the defendant from the "distribution" of the games on the bulletin board. The court's conclusions of law held that the reproduction right was infringed but apparently did not reach a like conclusion with respect to the distribution right. d.The Right to Perform the Work Publicly The public performance right is available to all types of "performable" works -- literary, musical, dramatic, and choreographic works, pantomimes, motion pictures, and other audiovisual works -- with the exception of sound recordings.217 While some have urged that many, if not all, NII transactions be characterized as "performances," it is important to understand: Ñ the definition of "perform" in the copyright law,218 Ñ that only "public" performances are covered by the copyright law,219 and Ñ the limitations set out in the statute that render the performance right inapplicable in a variety of circumstances (mostly of a nonprofit nature).220 A distinction must be made between transmissions of copies of works and transmissions of performances or displays of works.221 When a copy of a work is transmitted over wires, fiber optics, satellite signals or other modes in digital form so that it may be captured in a user's computer, without the capability of simultaneous "rendering" or "showing," it has rather clearly not been performed. Thus, for example, a file comprising the digitized version of a motion picture might be transferred from a copyright owner to an end user via the Internet without the public performance right being implicated. When, however, the motion picture is "rendered" -- by showing its images in sequence -- so that users with the requisite hardware and software might watch it with or without copying the performance, then, under the current law, a "performance" has occurred. The "public" nature of a performance -- which brings it within the scope of copyright -- is sufficiently broadly defined to apply to multiple individual viewers who may watch a work being performed in a variety of locations at several different times. Courts have repeatedly imposed public performance infringement liability upon entities that, for example, develop novel modes of delivering motion picture performances to customers and advance novel legal arguments as to why their performances are not "public."222 Therefore, in the context of the NII, the fact that performances and displays may occur in diverse locations and at different times will not exempt them from the public performance and public display rights. e.The Right to Display the Work Publicly The right to display a work publicly is extremely significant in the context of the NII. To display a work means to "show a copy of it, either directly or by means of a . . . television image, or any other device or process . . . ."223 The complex analyses to determine whether a particular transmission might amount to a "distribution" or a "performance" are rarely necessary in this context. The definition of "display" clearly encompasses, for instance, the actions of the defendant bbs operator in the Playboy case.224 Thus, when any NII user visually "browses" through copies of works in any medium (but not through a list of titles or other "menus" that are not copies of the works),225 a public display of at least a portion of the browsed work occurs. A display is "public" on the same terms as a performance is "public"; therefore, many NII uses would appear to fall within the law's current comprehension of "public display."226 Whether such acts would be an infringement would be determined by separate infringement analyses. 7.Limitations on Exclusive Rights The copyright law provides a number of exceptions to the "exclusive" rights of copyright owners. The Copyright Act specifies that certain uses of copyrighted works are outside the control of the copyright owner.227 While many regard these exceptions as rights of users, they are, as a technical matter, outright exemptions from liability or affirmative defenses to what would otherwise be acts of infringement. a.Fair Use The most significant and, perhaps, murky of the limitations on a copyright owner's exclusive rights is the doctrine of fair use.228 Fair use is an affirmative defense to an action for copyright infringement.229 It is potentially available with respect to all manners of unauthorized use of all types of works in all media. When it exists, the user is not required to seek permission from the copyright owner or to pay a license fee for the use. The doctrine of fair use is rooted in some 200 years of judicial decisions. The most common example of fair use is when a user incorporates some portion of a pre-existing work into a new work of authorship.230 For example, quotation from a book or play by a reviewer, or the incidental capturing of copyrighted music in a segment of a television news broadcast is fair use. In the recent Campbell case, the Supreme Court expressly accepted the proposition that such "transformative" uses are more favored in fair use analyses than uses that amount to little more than verbatim copying.231 As one moves away from such transformative uses into the area of uses that -- for practical purposes -- compete with the copyright owner's exploitation of the work, the analysis becomes more difficult (as the number of litigated cases grows). Before examining the doctrine developed by the courts, it is useful to examine the statutory language concerning fair use. Section 107 of the Copyright Act provides: Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section [sic], for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include -- (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.232 The language may usefully be divided into two parts: the first sentence, which is largely tautological ("fair use . . . is not an infringement of copyright"), and the analysis required by the second sentence. The recitation of assorted uses in the middle of the first sentence has been held neither to prevent a fair use analysis from being applied to other "unlisted" uses nor to create a presumption that the listed uses are fair.233 It does, however, provide some guidance on the types of activities which might be considered fair use. The core of Section 107 is the second sentence, in which Congress elaborates a test similar to that articulated by Justice Story more than 150 years ago.234 It is clear that courts must evaluate all four factors in determining whether a particular use is fair, but may also take into account unenumerated "extra" factors, when appropriate. The Purpose and Character of the Use Although the fourth factor has repeatedly been held to be the most important of the four factors, the first factor often plays a major role in determining the result when a defendant asserts a fair use defense. The first factor contrasts "commercial" uses with "nonprofit educational" uses. There is, of course, a continuum between these two opposites, with most uses falling neatly into neither the favored nor disfavored pigeonhole. The weight of the factor may be inferred from the Supreme Court's very limited fair use jurisprudence: In the four fair use cases that it has decided, one noncommercial, noneducational use was held fair,235 two commercial uses were held unfair,236 and one commercial use was held potentially fair.237 In the Sony case, the Court announced a "presumption" that helps explain courts' near universal rejection of fair use claims in commercial contexts. It declared that all commercial uses were to be presumed unfair,238 thus placing a substantial burden on a defendant asserting that a particular commercial use is fair. The Campbell case made clear that the Sony presumption was of greatest applicability in the context of verbatim copying, thus giving greater leeway to commercial but transformative uses. For the most part, "mere reproduction" has fared rather badly in court under the Copyright Act, even in actual and ostensible educational contexts.239 Courts have denied fair use,240 for example, to: Ñ a teacher's reproduction, in text materials, of the copyrighted material of another teacher;241 Ñ a school system's practice of taping educational broadcasts for later use in classrooms;242 and Ñ off-campus copy shops' manufacture -- per teachers' specifications -- and distribution of photocopies of anthologies containing portions of textbooks and periodicals.243 The Nature of the Copyrighted Work This second factor tends to play a less significant role than the first in fair use litigation. Courts have held that this factor weighs in the copyright owner's favor when works of fiction244 and unpublished works245 are copied, and in the defendant's favor when factual works246 and published works247 are copied. In the NII context, it is quite possible that a court might evaluate whether a work in digital form should be treated differently from a work in a conventional print or other analog form for the purposes of evaluating this factor. The Amount and Substantiality of the Portion Used This is probably the least important factor, given that the taking of even a small amount -- if it is considered the "heart" of the work -- can lead to a finding of infringement.248 Indeed, the most frequently cited copyright treatise devotes only four sentences to its discussion: The third factor listed in ñ 107 is "the amount and substantiality of the portion used in relation to the copyrighted work as a whole." This raises an issue discussed in a preceding section [concerning the quantum of copying that constitutes infringement], and may be regarded as relating to the question of substantial similarity rather than whether the use is "fair." This includes a determination of not just quantitative, but also qualitative substantiality. In any event, whatever the use, generally it may not constitute a fair use if the entire work is reproduced.249 The Economic Effect of the Use Courts have repeatedly identified this as the most significant of the four factors.250 It is important to recall that it weighs against a defendant not only when a current market exists for a particular use, but also when a potential market could be exploited by the copyright owner. Harm in either market will, in most instances, render a use unfair.251 The Supreme Court's decisions demonstrate the significant weight given this factor: Ñ In Sony, the absence of any market for home taping licenses, combined with the testimony of some copyright owners that they were indifferent to home copying, led the Court to conclude that there was no cognizable harm.252 Ñ In Harper & Row, the Court accepted the argument that the defendant's "scooping" of "Time" magazine's right to make the first serial publication of President Ford's memoirs, which caused cancellation of the magazine's contract with Harper & Row, caused harm to the copyright owner.253 Ñ In Stewart v. Abend, performances of a movie palpably harmed the economic interests of the owner of the copyright in the underlying short story.254 Ñ In Campbell, the Court -- because the parody was "transformative" -- rejected the court of appeals' determination that the commercial purpose of the parody required the parodist to overcome Sony's presumption of market harm.255 It is reasonable to expect that courts would approach claims of fair use in the context of the NII just as they do in "traditional" environments. Commercial uses that involve no "transformation" by users and harm actual or potential markets will likely always be infringing, while nonprofit educational transformative uses will likely often be fair. Between these extremes, courts will have to engage in the same type of fact-intensive analysis that typifies fair use litigation and frustrates those who seek "bright lines" clearly separating the lawful from the unlawful.256 Courts in two cases decided to date concerning the unauthorized "uploading" and "downloading" of copyrighted materials to and from bulletin board services have held that such uses were not fair uses.257 In the Playboy case, the court characterized the issue as whether "unrestricted and widespread conduct of the sort engaged in by the defendant bulletin board system operator (whether in fact engaged in by the defendant or others) would result in a substantially adverse impact on the potential market for or value of [Playboy's copyrighted photographs],"258 and determined that it would. This, in turn, led the court to conclude that there was market harm and, thus, infringement. In the MAPHIA case,259 the court found that Sega established a prima facie case of direct and contributory infringement in the operation of the defendant's bulletin board system (where Sega's copyrighted video game programs were uploaded and downloaded). In issuing a preliminary injunction, the court found that each of the four factors weighed against a finding of fair use, but found that the fourth factor, in particular, weighed "heavily" against such a finding: Based on Defendants' own statement that 45,000 bulletin boards like MAPHIA operate in this country, it is obvious that should the unauthorized copying of Sega's video games by Defendants and others become widespread, there would be a substantial and immeasurable adverse effect on the market for Sega's copyrighted video game programs.260 Cases already decided in other contexts will give valuable guidance to courts confronted with NII-related cases. Just as courts have distinguished between home use of a VCR to make time-shifting tapes of materials broadcast over the air (fair use) and school systems' attempts to use VCRs to download broadcast instructional materials for the creation of an educational film library (not fair use), courts will subject users of copyrighted works available via the NII to like scrutiny. Educational uses that serve the same ends and are constrained in the same manner as the copying permitted under the Classroom Guidelines261 will likely be fair, while attempts to supplant the market for books, films, software and other materials by proliferating them without permission via the NII will likely be infringing. Finally, it may be that technological means of tracking transactions and licensing will lead to reduced application and scope of the fair use doctrine. Thus, one sees in American Geophysical Union v. Texaco Inc.,262 a court establishing liability for the unauthorized photocopying of journal articles based in part on the court's perception that obtaining a license for the right to make photocopies via the Copyright Clearance Center was not unreasonably burdensome. The court also speculated that should the proprietors fail to establish a licensing system for the use in question, then the balance might shift in favor of a finding of fair use. Fair Use Guidelines for Libraries and Educational Institutions The fair use, library copying and educational use provisions of the current copyright law have been the subject of four sets of "guidelines" for libraries and educational institutions, to which contending parties agreed, that are enshrined at various places in the legislative history.263 The result has been, in certain circumstances, a quantitative gloss on the construction of fair use and library copying privileges. For instance, the classroom guidelines generally permit the copying, for educational purposes, of short extracts of works, provided that the copying is spontaneously done or requested by the instructor (and the copies are neither used nor re-made repeatedly over time).264 The Conference on Fair Use To determine whether educational or library guidelines of a similar nature might prove attainable in the NII context, the Working Group has convened a conference of more than 60 interested parties who have met more or less monthly since September 1994. To date, no formal guidelines have been the subject of agreement, but it appears reasonable to anticipate that drafts now in preparation may be formalized as guidelines before the end of 1995. The participants in the conference are discussing several areas, including multimedia, library preservation, "browsing" and "distance learning." In most such instances, current law often provides clear rules while the "digital difference" tests, bends or sometimes breaks those rules. For example, library preservation is covered in some detail in the analog context (paper, microfiche, etc.) in Section 108 of the law, but that section's terms do not appear to encompass digital copying in the quantities to which libraries have become accustomed,265 and many conventional distance learning issues are arguably covered -- with respect to the performance but not the reproduction of works -- in Section 110. Some participants have suggested that the United States is being divided into a nation of information "haves" and "have nots" and that this could be ameliorated by ensuring that the fair use defense is broadly generous in the NII context. The Working Group rejects the notion that copyright owners should be taxed -- apart from all others -- to facilitate the legitimate goal of "universal access."266 Should the participants in the Conference on Fair Use fail to agree on appropriate guidelines, the Working Group may conclude that the importance of such guidelines may necessitate regulatory or legislative action in that area. b.Library Exemptions Section 108 of the Copyright Act provides that in certain circumstances and under certain conditions it is not an infringement of copyright for a library or archives, or its employees acting within the scope of their employment,267 to reproduce or distribute one copy or phonorecord of a work268 under circumstances that would typically not amount to fair use. The conditions of the library exemption are that (1) the reproduction or distribution must be made without any purpose of direct or indirect commercial advantage; (2) the collections of the library must be open to the public or available not only to researchers affiliated with the library, but also to other persons doing research in a specialized field; (3) the reproduction or distribution of the work must include a notice of copyright;269 and (4) a specific exemption in subsections (b) through (g) of Section 108 applies. The exemptions granted under Section 108 extend only to isolated and unrelated reproduction of a single copy or phonorecord of the same material on separate occasions,270 and do not apply to (1) musical works; (2) pictorial, graphic, or sculptural works; or (3) motion pictures or other audiovisual works, except news programs.271 The circumstances under which a library may reproduce or distribute a copyrighted work without infringement liability include: Archival Copies A library may reproduce and distribute a copy or phonorecord of an unpublished work reproduced in facsimile form if the sole purpose is preservation and security, and if the copy or phonorecord reproduced is currently in the collection of the library.272 The House Report notes that this right "would extend to any type of work, including photographs, motion pictures and sound recordings." However, the copy or phonorecord made must be in "facsimile form." A library may "make photocopies of manuscripts by microfilm or electrostatic process, but [may] not reproduce the work in 'machine-readable' language for storage in an information system."273 Thus, this exemption does not allow for preservation in electronic or digital form. Replacement Copies A library may reproduce a published work duplicated in facsimile form solely for the purpose of replacing a copy or phonorecord that is damaged, deteriorated, lost or stolen, if the library has, after reasonable efforts, determined that an unused replacement cannot be obtained at a fair price.274 Again, the copy or phonorecord made must be in "facsimile form." The exemption does not allow for replacement of a published work by reproduction in digital form (at least when the original copy of the published work was not in digital form). Articles and Short Excerpts for Users A library may make and distribute a copy of one article or other contribution to a copyrighted collection or periodical issue, or a copy or phonorecord of a small part of any other copyrighted work at the request of a user, subject to two conditions.275 First, the copy or phonorecord must become the property of the user, and the library or archives must have no notice that the copy or phonorecord will be used for any purpose other than private study, scholarship, or research. Second, the library or archives must prominently display a warning of copyright at the place where orders are accepted and on its order form.276 Out-of-Print Works for Scholarly Purposes A library may make and distribute a copy or phonorecord of an entire work if it has determined that a copy or phonorecord of the copyrighted work cannot be obtained at a fair price, subject to two additional conditions.277 First, the copy or phonorecord must become the property of the user, and the library or archives must have no notice that the copy or phonorecord will be used for any purpose other than private study, scholarship, or research. Second, the library or archives must prominently display a warning of copyright at the place where orders are accepted and on its order form.278 News Programs A library may reproduce and distribute by lending a limited number of copies of an audiovisual news program.279 Interlibrary Loan The Copyright Act allows a library to make single copies of copyrighted works and to enter into interlibrary arrangements, but prohibits copying "in such aggregate quantities as to substitute for a subscription to or purchase of [a copyrighted] work."280 CONTU offered its offices to the interested parties -- copyright owners, educators and libraries -- to develop guidelines to interpret the quoted phrase. The parties were successful in defining when such copying for the purpose of "borrowing" was not done in such aggregate quantities as to substitute for the subscription to or purchase of a work. These so-called CONTU Guidelines were later included in the Conference Report on the Copyright Act of 1976.281 The guidelines provide that a library may "borrow" not more than five copies per year of articles from the most recent five years of any journal title.282 The CONTU Guidelines have been an effective means to protect both the interests of copyright owners and to provide libraries a clear "safe" guide to follow in "borrowing" from other libraries. 283 In 1976, there were no readily available systems for the supply of single copies of, or for the licensing of the reproduction of multiple copies of copyrighted works. Now, that situation has changed and the continuing evolution of the NII will permit the establishment of licensing systems to supply copies or to permit users to make reproductions of works or portions of works more widely available. Indeed, a publisher's license to access or download all or a portion of the aggregated copyrighted works on a server might be viewed as the on-line equivalent of a subscription. A publisher might allow free access to a table of contents and then through an appropriate payment mechanism such as electronic cash or a credit card, license the downloading of a single article. This "publication on demand" might become an effective and economic substitute for interlibrary loan on the NII. While the precise nature of all such systems cannot be known at this time, it is clear that the CONTU Guidelines, while remaining effective for print materials, cannot readily be generalized to "borrowing" electronic publications. The Working Group emphasizes that the existence of systems for the supply of licensed copies of works or portions of works by electronic means does not negate the privileges conferred on libraries in Section 108(g)(2), nor do they limit "borrowing" permitted under existing voluntarily negotiated guidelines or such guidelines to set rules for interlibrary loan via the NII that may be negotiated in the future.284 While it is clear that Section 108 does not authorize unlimited reproduction of copies in digital form, it is equally clear that Section 108(g)(2) permits "borrowing" in electronic form for interlibrary loan in the NII environment, so long as such "borrowing" does not lead to "systematic" copying. However, the existence of such licensing systems in a world of electronic publishing may make it difficult, if not impossible, to define "subscription or purchase" as intended, and equally impossible to apply the existing guidelines to all electronic transactions. Therefore, new scenarios should be considered to avoid ambiguity and to continue to protect both the interests of copyright owners and to continue to provide libraries with a safe "borrowing" guide. Such scenarios are being considered in the on- going Conference on Fair Use. Should the parties fail to reach agreement in that forum, as noted earlier, a regulatory or legislative solution may be appropriate. Appropriate use of such electronic publishing systems by libraries can provide a ready means for avoiding not only liability for "borrowing" that exceeds that which is permitted under Section 108(g)(2) or any voluntarily negotiated guidelines developed by the concerned parties but also any need to devote resources to consider whether the "nth" transaction is "safe." c.First Sale Doctrine A fundamental tenet of copyright law, and another limitation on the exclusive rights, is the "first sale doctrine," which prevents an owner of copyright in a work from controlling subsequent transfers of copies of that work. Once the copyright owner transfers ownership of a particular copy (a material object) embodying a copyrighted work, the copyright owner's exclusive right to distribute copies of the work is "extinguished" with respect only to that particular copy.285 Section 109(a) of the Copyright Act provides: Notwithstanding the provisions of section 106(3) [which grants copyright owners the exclusive right to distribute copies or phonorecords of a work], the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.286 This limitation on the copyright owner's distribution right allows wholesalers who buy books to distribute those copies to retailers and retailers to sell them to consumers and consumers to give them to friends and friends to sell them in garage sales and so on -- all without the permission of (or payment to) the copyright owner of the work. The first sale doctrine allows the owner of a particular copy of a work to dispose of possession of that copy in any way -- for example, by selling it, leasing it, loaning it or giving it away. However, there is an exception to this exemption with respect to two types of works -- computer programs and sound recordings. The owner of a particular copy of a computer program or a particular phonorecord of a sound recording may not rent, lease or lend that copy or phonorecord for the purpose of direct or indirect commercial advantage.287 These exceptions were enacted because of the ease with which reproductions of those works can be made at a lower cost than the original with minimum degradation in quality.288 The rationale for these exceptions may apply to other types of works as more types of works become available in digital form and the "nexus" of rental and reproduction of those works "may directly and adversely affect the ability of copyright holders to exercise their reproduction and distribution rights under the Copyright Act."289 This provision of the first sale doctrine limits only the copyright owner's distribution right; it in no way affects the reproduction right. Thus, the first sale doctrine does not allow the transmission of a copy of a work (through a computer network, for instance), because, under current technology the transmitter retains the original copy of the work while the recipient of the transmission obtains a reproduction of the original copy (i.e., a new copy), rather than the copy owned by the transmitter. The language of the Copyright Act, the legislative history and case law make clear that the doctrine is applicable only to those situations where the owner of a particular copy disposes of physical possession of that particular copy.290 If the owner of a particular copy transmits a copy to another person without authorization (either from the copyright owner or the law), such a transmission would involve an unlawful reproduction of a work, and the first sale doctrine would not shield the transmitter from liability for the reproduction nor for the distribution. Under the first sale doctrine, the owner of a particular copy of a copyrighted work may distribute it, but may not reproduce it.291 Therefore, the transmission would constitute infringement of the copyright owner's reproduction right.292 If the reproduction is unlawful, further distribution of the unlawful reproduction would not be allowed under the first sale doctrine because the copy distributed would not be one "lawfully made" under the Copyright Act, as required by the statute. The requirement that copies distributed under the doctrine be "lawfully made" under the Copyright Act does not limit the doctrine's application to copies made or authorized by the copyright owner.293 A copy could be "lawfully made," for example, if the reproduction is lawful under the fair use provision; the distribution of such a copy would be permitted within the limits of the first sale doctrine. It has also been suggested that the scope of the first sale doctrine be narrowed to exclude copies obtained via transmission. This would mean, for instance, that if a copy of a literary work is legally purchased on- line and the copy so purchased is downloaded onto the purchaser's disk, the disk could not be resold. Clearly, the first sale doctrine should apply if the particular copy involved is in fact the copy that is further distributed, even if the copy was first obtained by transmission. Further, if the technology utilized allows the transmission of a copy without making an unlawful reproduction -- i.e., no copy remains with the original owner -- the first sale doctrine would apply and the transmission would not be an infringement. Some argue that the first sale doctrine should also apply to transmissions, as long as the transmitter destroys or deletes from his or her computer the original copy from which the reproduction in the receiving computer was made. The proponents of this view argue that at the completion of the activity, only one copy would exist between the original owner who transmitted the copy and the person who received it -- the same number of copi