U.S. GOVERNMENT PRINTING OFFICE

57–446CC WASHINGTON : 1999

THE CONSUMER AND INVESTOR ACCESS TO

INFORMATION ACT OF 1999

HEARING

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS,

TRADE, AND CONSUMER PROTECTION

OF THE

COMMITTEE ON COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

ON

H.R. 1858

JUNE 15, 1999

Serial No. 106–49

Printed for the use of the Committee on Commerce

(

COMMITTEE ON COMMERCE

TOM BLILEY, Virginia, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

MICHAEL G. OXLEY, Ohio

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

Vice Chairman

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

BRIAN P. BILBRAY, California

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

TOM A. COBURN, Oklahoma

RICK LAZIO, New York

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

RON KLINK, Pennsylvania

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

THOMAS C. SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

JAMES E. DERDERIAN, Chief of Staff

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman

MICHAEL G. OXLEY, Ohio,

Vice Chairman

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ROBERT L. EHRLICH, Jr., Maryland

TOM BLILEY, Virginia,

(Ex Officio)

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

BILL LUTHER, Minnesota

RON KLINK, Pennsylvania

THOMAS C. SAWYER, Ohio

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

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C O N T E N T S

Page

Testimony of:

Baptiste, Donald, President and CEO, USADemocracy.com ........................ 61

Black, Edward J., President and CEO, Computer & Communications

Industry Association ..................................................................................... 20

Casey, Timothy D., Chief Technology Counsel, Law and Public Policy,

MCI WorldCom ............................................................................................. 45

Henderson, Lynn O., President, Doane Agricultural Services Corporation,

on behalf of the Agricultural Publishers Association ................................. 53

Horbaczewski, Henry, Vice President and General Counsel, Reed Elsevier

Inc .................................................................................................................. 32

Neal, James G., Dean of Libraries, Johns Hopkins University Libraries,

Milton S. Eisenhower Library ...................................................................... 48

O’Brien, Gregory M., Chancellor, University of New Orleans, on behalf

of the National Association of State Universities and Land Grant Colleges, the Association of American Universities, and the American

Council on Education .................................................................................... 56

Pincus, Andrew J., General Counsel, Department of Commerce ................. 8

Politano, Frank, Trademark and Copyright Counsel, AT&T Corporation .. 25

Rightmire, Matthew, Director of Business Development, Yahoo! Inc .......... 28

Schlafly, Phyllis, President, Eagle Forum ...................................................... 40

Material submitted for the record by:

Association of Directory Publishers, prepared statement of ......................... 88

Carpenter, Jot D., Jr., Director, Federal Government Affairs, AT&T, letter dated July 9, 1999, enclosing response for the record ......................... 91

Federal Trade Commission, prepared statement of ....................................... 78

(III)

(1)

THE CONSUMER AND INVESTOR ACCESS TO

INFORMATION ACT OF 1999

TUESDAY, JUNE 15, 1999

HOUSE OF REPRESENTATIVES, COMMITTEE ON COMMERCE, SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION, Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2123, Rayburn House Office Building, Hon. W.J. ‘‘Billy’’ Tauzin

(chairman) presiding.

Members present: Representatives Tauzin, Oxley, Stearns, Deal,

Largent, Cubin, Shimkus, Blunt, Bliley (ex officio), Markey, Boucher, Luther, Sawyer, Green, and McCarthy.

Staff present: Justin Lilley, majority counsel; Cliff Riccio, legislative clerk; and Andy Levin, minority counsel.

Mr. TAUZIN. The subcommittee will please come to order. Members will be coming in as we commence, but I would like to get

started. We have a very large panel this morning.

The subcommittee meets today to discuss H.R. 1858, Consumer

and Investor Access to Information Act of 1999, which was introduced by our own Chairman, Tom Bliley, and has received strong

bipartisan support from members of this committee.

Before we begin, I would like to extend a warm welcome to Dr.

Gregory O’Brien, Chancellor of the University of New Orleans. We,

of course, are delighted whenever we have a hometown guest here,

and it is particularly good to see Chancellor O’Brien.

Given the intensified appeal and growth of the Internet, it is no

longer clear what information, what analysis is proprietary and

what is freely available to the public. Last week I read about a case

which clearly demonstrates why this hearing is so important to the

future of the Internet and electronic commerce in general.

Amazon.com the online book retailer, has a page on its Web site

which lists the books on the New York Times best seller list. For

each book on the list, Amazon presents a picture of the cover, the

title, the name of author, the number of pages, the list price, the

Amazon price, and a box to click if you want to purchase the book.

Moreover, you can click on another box to link to other information about the book, including published reviews, a biography of

the author, a list of other books by the author offered by Amazon,

and links to similar books.

In short, Amazon has taken a simple list of best selling books

and converted it into quite a wonderful resource for consumers.

The New York Times, however, may not see it that way. The Times

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believes that Amazon.com is somehow misappropriating its property by identifying the books on the New York Times best seller

list. It has sent a demand letter to Amazon.com, and Amazon.com

has filed a declaratory judgment action.

It is unclear whether the New York Times will prevail on its

copyrighted trademark theory. However, it is unquestionably clear

that the New York Times would prevail if broad data base protection legislation were in place. In my opinion that would be a troubling result.

It is true that the New York Times best seller list is widely considered to be one of the most authoritative lists of which books are

selling the most in American bookstores, and one must recognize

the Times has invested resources in assembling the list.

That does not alter the reality that the list is nothing more than

a collection of publicly available facts. The list represents the results of a survey, and those results are no less facts than the results of any other sampling done by scientists and pollsters every

day, and the facts, once released, belong in the public domain.

Why should someone be civilly, not to mention criminally, liable

for making use of publicly available facts, particularly in a freespeech society such as ours. The Times best seller list is not a list

that the newspaper editors believe to be most worth reading; instead it purports to be a list of the books the American public,

rightly or wrongly, is choosing to buy.

If the Times owns the identity of the books on its best seller list

then the NBA by analysis owns the identity of the players with the

highest scoring average. And United Airlines owns the information

about published prices on its flights to New Orleans and NBC owns

its broadcast schedule.

And if all these well-heeled entities own all this information,

then surely they can prevent an Internet company from incorporating it in a larger data base to create a value for consumers, such

as Amazon.com’s bestseller page, or an electronic TV Guide, for

that matter.

Let me make it clear that I don’t think that people should have

access to trade secret information. People should not be able to reproduce a copyrighted expression in a database. The selection and

arrangement of the data as opposed to the data itself. Further, I

don’t think that companies should be able to engage in unfair competition with respect to databases.

I should not be able to copy a database compiled by Congressman

Markey and publish it in substantially the same form and manner

which competes with his database. There may be a narrow gap in

the law that currently permits this in certain circumstances, and

that gap should be filled. For that reason, I join my colleagues in

cosponsoring Chairman Bliley’s legislation, but we must take care

not to overprotect databases.

As Alex Kozinski, a judge in the 9th circuit recently wrote, overprotecting intellectual property is as harmful as underprotecting it.

Creativity is impossible without a rich public domain. Nothing

today likely since we obtained fire is genuinely new. Culture, like

science and technology, grows by accretion, each new creator building on the works of those who came before.

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Overprotection stifles the very creative forces it is supposed to

nurture. This is a fascinating issue as evidenced by a very diversified panel today. We just recently on this committee completed our

work on the WIPO legislation, protecting intellectual property

rights; and this committee has some good experience in understanding the very delicate relationship between fair use and protected use and protected rights of intellectual property.

Today we expand upon that information base. We grow in knowledge, and we ask you to share a little data with us today on whether or not Mr. Bliley’s bill, as we believe, is taking the right cut in

this very delicate balance.

We look forward to hearing our witnesses as to whether or not,

in fact, we have struck that right balance today.

The Chair in anticipation of Mr. Markey’s arrival will recognize

the gentleman, Mr. Luther, if he is prepared for an opening statement.

Mr. LUTHER. No thank you, Mr. Chairman. Thank you for holding this hearing, and I do expect that Mr. Markey will have an

opening statement that he wishes to put into the record. I do not

have anything to add other than to thank you for holding the hearing, and I look forward to the testimony. You are indeed correct

that this is a timely and important issue. Thank you very much.

Mr. TAUZIN. I thank the gentleman. With Mr. Markey it is always a great expectation.

The Chair is now pleased to yield to the chairman of the full

committee, Mr. Bliley, for an opening statement.

Chairman BLILEY. Mr. Chairman, thank you for holding this

hearing on H.R. 1858; and let me say at the outset that I thank

my colleagues for their support of this legislation.

This bill is a critical component of the committee’s electronic

commerce agenda, and I look forward to working with them on ensuring swift enactment.

For many years economists have wondered whether our country’s

enormous investment in information technology, in computers and

advanced telecommunications networks, actually increase productivity; but now even the economists are believers. No less an expert

than Alan Greenspan, chairman of the Federal Reserve, recently

observed that the current economic prosperity we are enjoying in

the United States is largely attributable to our investment in information technology.

Just the other day, the University of Texas released its study titled The Internet Economy, which finds that in 1998 alone the

Internet generated more than $300 billion in revenue and was responsible for 1.2 million jobs. This is a mere 5 years after the birth

of the World Wide Web.

To give my colleagues some sense of comparison, it took the automobile industry 100 years to scale such heights. The investment

both public and private sectors have made in our information infrastructure are finally paying dividends in terms of allowing us to access and use information in a manner unprecedented in history.

A farmer in the Virginia Piedmont is now able to access from his

home a wealth of information critical to his business. He can learn

about soil conditions, weather trends, new pesticides, genetically

enhanced seeds, and potential buyers in distant States.

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A soccer mom in suburban Richmond is able to do price comparison on a new refrigerator, plan a family vacation, find a support

group for her child with special educational needs, and even do her

shopping.

All of the members of this committee are committed to promoting

electronic commerce. We want to preserve consumers’ privacy, protect security, and we want to promote the deployment of bandwidth, but let’s be clear about what this is all about. It is about

information and consumers’ apparently insatiable demand for it.

That is why today’s hearing is so important. This hearing will

address a bedrock issue: Who will control information in the information age? On the one hand, we need to make sure that the compilers of information have sufficient incentive to engage in their

difficult, but essential, work.

But at the same time, we need to make sure that we do not lock

facts up; that we do not give anyone monopoly control over facts,

for if we were able to do that, we would greatly restrict the ability

of new firms to create innovative databases incorporating those

facts.

As a practical matter, this would limit many of the wonderful

uses of information the Internet permits. How do we achieve this

delicate balance? Does existing law get it right or is some fine-tuning necessary? Can this fine-tuning be accomplished in a manner

that does not run afoul of the first amendment of the Constitution

or copyright laws?

My own view is that some targeted fine-tuning is needed, and it

is for that reason that I introduced H.R. 1858, the Consumer and

Investor Access to Information Act of 1999. I will be interested in

hearing from today’s witnesses whether H.R. 1858 embodies the

appropriate approach for attacking this complex issue. Again, Mr.

Chairman, thank you for holding today’s hearing, and I yield back

the balance of my time.

Mr. TAUZIN. Thank you. The Chair is now pleased to recognize

the ranking minority member of the subcommittee, Mr. Markey, for

an opening statement.

Mr. MARKEY. Thank you, Mr. Chairman, very much; and I would

like to commend you, Chairman Tauzin, for calling this hearing

today.

Mr. Chairman, the legislation that is the subject of today’s hearing is an attempt to strike an appropriate balance between two important goals. The first goal is to halt the outright theft or misappropriation of databases. Individuals and entities spend time and

effort to compile facts into databases, and their efforts should be

legally protected from theft or misappropriation. I think everyone

agrees with that basic concept.

The second goal is to ensure that in protecting against misappropriation, that Congress does not unwittingly stifle commerce, legitimate research and creativity. This country’s economic future depends upon our Nation’s ability to capture the lion’s share of information-age jobs. If we thwart the ability of creative entrepreneurs

to obtain and use facts to create new products, we are hurting our

prospects for generating the knowledge-based markets we will need

for job growth in a post GATT, post-NAFTA world.

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Balancing these two goals is no doubt going to be a difficult task.

Yet addressing these issues is an undertaking that this committee

and this Congress must press forward on in order to put appropriate legal protections on the books for marketplace participants,

and these protections should serve to both safeguard property from

piracy and encourage competition in the electronic environment for

our consumers.

Not surprisingly, the effort developed in this committee to balance these two legitimate policy goals treats databases as key

items in electronic commerce, and recognizes that two or three people or 200 or 300 people can utilize exactly the same underlying

data yet attempt to create distinctive new products.

This ability to utilize the same facts and to create new innovative

services of products will be at the heart of our new electronic economy. Obviously, the people who create new databases or services

from those root facts will want protection against piracy and misappropriation, and they should get that protection.

Creative expressive elements or originality should be permitted

copyright protection because this is the appropriate role for copyright protection. However, such copyright protection should not extend to the underlying facts themselves.

Today we will hear from an expert panel, and I think that the

panel will help us to better fine-tune the balance struck in the bill

introduced by the chairman of the committee, Mr. Bliley; and I

hope that by the end of the day each member of the committee will

have a far better understanding of what ultimately a final piece of

legislation should look like. I thank you, Mr. Chairman.

Mr. TAUZIN. Thank you, Mr. Markey; and the Chair is now

pleased to recognize the Vice Chairman of the subcommittee, Mr.

Oxley, from Ohio.

Mr. OXLEY. Thank you, Mr. Chairman. Before I make my opening statement, I would like to congratulate the new free throw

champion for the House of Representatives, the last free throw

champion of this century, the gentleman from Massachusetts, who

converted 46 out of 50, one short of the record, I might point out,

but still a very strong performance.

Mr. TAUZIN. Would the gentleman yield.

Mr. OXLEY. I would be glad to yield.

Mr. TAUZIN. We don’t want any of you publishing that information.

Mr. OXLEY. My thanks to Chairman Bliley for H.R. 1858. This

legislation is the next logical step for the law in the digital age. We

are dealing with new digital technology and its use on the Internet.

That invention has become the social phenomenon that will no

doubt symbolize this decade.

Never before has it been so easy or so profitable to copy the intellectual creations of another. The bill is a fine addition to copyright

law, bringing digital media under the legal concept that has stood

for decades.

Despite the modern nature of the technology we consider today,

the problem is as old as squatters in the old West who claimed

land as their own. Sometimes you need a digital sheriff and a digital posse to keep everyone in line. I don’t worry that we will have

less information as a result of this bill. Those that create databases

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deserve some modicum of protection of their work; that is what we

seek to provide.

My committee, Finance and Hazardous Materials, will soon hold

a hearing on title II of this legislation which specifically addresses

stock data. We look forward to that in a few weeks. With that, I

yield back the balance of my time.

Mr. TAUZIN. The Chair thanks the gentleman. The gentleman

from Illinois, Mr. Shimkus, is recognized for an opening statement.

Mr. SHIMKUS. Thank you. As we found out last week in the

markup of H.R. 10, database security, sharing information, trademark infringement, and privacy are at the core of the debate of the

future. Hence, the importance of this meeting and this hearing.

I would like to take this time to personally extend my welcome

to one of my almost-constituents, Mrs. Phyllis Schlafly. While she

technically lives in Missouri, she rose to prominence as a leader of

the conservative movement in south western Illinois. Phyllis, welcome to the hearing.

I apologize for missing the majority of the hearing, as I am

scheduled to work on the House floor as Chairman of the Committee as a Whole, and with that, Mr. Chairman, I yield back the balance of my time.

Mr. TAUZIN. I thank the gentleman.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF FLORIDA

Mr. Chairman: This hearing on electronic database collection brings us across the

threshold of the undefined legal area of the Internet.

As all of us who use the Internet on a daily basis knows, the remarkable growth

of the Internet has largely been based on the lack of legal encumbrances and the

lack of multi-layered tax structures.

The Internet is the democratic dream of pursuing and making use of information

as the individual sees fit. But the question needs to be asked: What propriety interests do web sites and database collectors have from having the brunt of their offering to the public copied?

What are public facts that are free to retrieve and what does creative originality

really mean in the world of the Internet?

The Committee staff has given us a news story detailing the use of the New York

Times bestseller list by Amazon.com and the resulting litigation from its use. I hope

the witnesses address the case and give us their view on whether the bestseller list

is a propriety property or whether it is a public fact.

I know I have seen other newspapers in the country use the New York Times bestseller list. Have they done so on their own or have they engaged in a contractual

relationship with the Times to do so? If Amazon.com or other web sites are prevented from using the list, do they have the legal protections to copy the Times list

and use it on their own site and list it as a ‘‘Famous Newspaper Bestseller List.’’

Where is the law in this regard or where should it be through new legislation?

I appreciate the work of Chairman Bliley in introducing a constructive bill that

attempts to seek the middle ground in this area of database collection.

PREPARED STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF WYOMING

Thank you, Mr. Chairman, for holding this legislative hearing on H.R. 1858, the

Consumer and Investor Access to Information Act of 1999.

This is a very timely hearing as the Subcommittee continues to wrangle with

issues related to the Internet and the information age in general.

It is also timely in the fact that we have all heard so much lately about the dispute between the New York Times and Amazon.com.

7

Because of the fact that this industry evolves at the speeds in which it transfers

information, it is extremely important that the Subcommittee consider legislation

that moves and adapts just as quickly.

It is certainly my belief, and has long been the philosophy of many of the members of the Subcommittee, that regulating the Internet and the information gathered

and disseminated on the Internet will only harm this vibrant medium.

Where would Amazon.com, Yahoo!, Netscape, and other online companies be if the

sharing of information and data was stifled or limited in any way?

H.R. 1858, I believe, walks that fine line in addressing what is currently at issue,

the misappropriation and piracy of databases, without delving into issues that may

or may not come up in the future.

To continue to keep information databases robust and allow investors to feel reasonably secure that databases are protected, Chairman Bliley’s bill provides a distinction between the facts and information that reside in the public forum and how

that information should or should not be shared and/or protected.

Ideally, it should be the marketplace—not government regulation or legislation—

that governs the information industry.

Absent that, H.R. 1858 is a reasonable solution to this problem. Chairman Bliley

should be commended for putting this initiative forward.

Thank you, Mr. Chairman, I look forward to hearing from our witnesses and yield

back the balance of my time.

PREPARED STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

Thank you Mr. Chairman for holding this hearing on database information, the

internet, and the future of electronic commerce and access to information.

The internet is the network connection of the thousands of different databases in

our country and throughout the world. The internet has become a part of our everyday lives. We use the internet to accomplish everything from reading newspapers

to researching specific issues to searching for the scores of our favorite sports teams.

Everyday millions of Americans use a search engine such as, America-On-Line or

Yahoo to access the thousands of different databases. Without any databases to provide this information the internet would have never succeeded and we would not

have the thriving economy or the information explosion that we have today.

Accessing information on the internet is vital for our schools to maintain the open

access to educational materials and resources. Schools spend thousands and thousands of dollars on purchasing access licenses to these materials. If we go too far

in protecting information and databases will that hinder the access to educational

materials or the growth of the internet?

We are living in a digital age, where access to information is vital to the continued growth of the internet. We do need to create a balance in this area. We need

to protect the work, the thousands of hours it takes to compile and input information that companies have put into developing these databases, while fostering the

competition and access necessary to keep the internet growing.

Again thank you Mr. Chairman for holding this hearing.

PREPARED STATEMENT OF HON. THOMAS C. SAWYER, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF OHIO

Mr. Chairman, I want to thank you and the Ranking Member, Mr. Markey, for

holding this legislative hearing today on H.R. 1858, the Consumer and Investor Access to Information Act. I also want to thank our witnesses for coming to testify on

the merits of this legislation.

Intellectual property has been the driving force for innovation and economic

growth in the United States from the very beginning. In fact, it is what has given

us a basis and backbone to sustain a democracy. Accordingly, at various points in

our history, there has come a point where there has been a pressing need to modify

our national and international intellectual property policies. We are, once again, at

a turning point in modernizing those laws for the digital era.

Contemporary technology has made it easier for copyrighted materials to be pirated. Capturing such information and widely distributing it without the consent of the

author is illegal and should continue to be. However, the Internet has also given

us a means of instantly tapping into information databases for a myriad of purposes—from comparing prices of airline flights to getting the most up-to-date information on medical treatments. In many instances, the publisher of the database

that was used as a search engine would like to have some copyright protection for

8

the information they collected. However, the Supreme Court ruled earlier this decade that copyright protection does not apply to databases that do not contain creativity or originality; facts, ideas and discoveries are not protected. Therefore, what

used to have copyright protection because of a publisher’s time and the amount of

financial investment that was put into the database no longer applies.

Under H.R. 1858, pirating copyrighted material would still be unlawful. The legislation would also make it illegal to duplicate an existing database and using that

information to compete against the database’s creator. I recognize the need to strike

a balance with respect to giving database publisher’s protection. However, there is

an area that I think needs further clarification. If the average citizen took a database or parts of a database from another source, newspaper or magazine, and

downloaded to their personal web page, not for competing against the company who

created the database, would that person be in violation of the law under H.R. 1858?

There seems to be some confusion with this provision, and I think we need to clarify

that a little more for everyone.

I would also like to make a point that the opponents of this legislation object to

the provision that requires them to seek recourse with the Federal Trade Commission if they believe their information has been pirated or an entirely new database

was not created using their information. I hope the FTC’s authority does not supersede contractual agreements established between two parties, giving database publishers the ability to also seek legal recourse through the courts.

Mr. Chairman these are a few points I wanted to mention. Once again, thank you

for holding this hearing this morning. As we all know the Internet has profoundly

reshaped the way we do things. As I said before, I recognize there is a need to make

modest changes to current law to reflect the Internet’s capabilities. However, it

would be a shame to regulate it to the point where basic information gathering and

competition is stifled.

Mr. TAUZIN. I understand that Chancellor O’Brien is on his way

down. We will proceed with the panel.

By the way, Phyllis, we are not going to keep you to the end, we

are going to hear from you in the middle. We are anxious to hear

all of your testimony. For the record without objection all members’

written statements are made a part of the record, and for the

record all witnesses’ written statements are made a part of the

record without objection. Which means that we would like you to

summarize your statements, if you can, within what we call the 5-

minute rule and that little green and red light indicates when your

time is just about up.

Please summarize within 5 minutes the very key points of your

testimony in as conversational tone as you can so we can engage

you in the dialog. We will begin by recognizing a frequent visitor

to our subcommittee, Mr. Andrew Pincus, general counsel of the

Department of Commerce.

STATEMENT OF ANDREW J. PINCUS, GENERAL COUNSEL,

DEPARTMENT OF COMMERCE

Mr. PINCUS. Thank you, Mr. Chairman. It is an honor to appear

before the subcommittee on this very important issue related to our

digital economy.

In the last Congress it was an honor under Secretary Daley’s

leadership to work with you on the WIPO implementation bill, and

we think that bill was a tremendous achievement in leading the

world on the appropriate way, as Mr. Markey said, to balance these

two difficult interests; and we look forward to working with Chairman Bliley and the members of the subcommittee on this issue as

it moves forward in this Congress.

The issue of database protection is a matter of great interest to

a large number of Federal agencies for a variety of reasons. The

government collects, manages, and disseminates massive amounts

9

of information, perhaps more than any in the world. We fund research that produces information, and in our knowledge-based

economy, information is key.

We, of course, want to do everything we can to continue our remarkable economic growth; and we, therefore, want to maximize

incentives for data collection to expand the available universe of information without putting in place any unjustifiable obstacles to

competition, innovation, or use of that information.

And, of course, we want to be sure that any law enacted complies

with the Constitution. We have spent a great deal of time developing an administration position that takes account of these very perspectives, and I would like to summarize it. It is set forth at length

in my written statement.

We agree with Chairman Bliley and the other members of the

subcommittee that spoke that there is a gap in the law that should

be filled by new legislation. We support the enactment of a statute

to protect database creators against free-riding, the wrongful taking and distribution of database material with resulting infliction

of commercial harm on the database creator.

Digital technology permits the creation and distribution of a

large number of perfect copies of data files at the touch of a button

and therefore expands dramatically the risk that, in the absence of

adequate legal remedies, piracy, or the threat of piracy, will deter

investment in database creation.

Of course, we believe it is very important to craft this legal protection carefully to optimize the benefits and to minimize disruption of research activities, competition, and innovation that is essential for our economy to continue to grow. I know that the members of the subcommittee are sensitive to those concerns, and H.R.

1858 clearly works at balancing those competing concerns. We set

out in the written testimony a number of comments with respect

to the specifics of the legislation. Maybe I can highlight a few.

First is the question of how to enforce this new legal right. We

believe that a private right of action is necessary. As in other areas

where the question is how to provide a legal environment that will

provide an incentive for investment and deter piracy, there is a

need for certainty of enforcement; and we are very concerned that

the Federal Trade Commission will not have the resources, given

its other responsibilities, to provide a level of enforcement that will

be necessary to deter the bad actors that are out there.

Second is the question of a term of protection. We believe that,

as in other areas of—where there is some intellectual property like

protection, there should be a protection for a limited term of years;

and we have said that we think 15 years is really the outside limit.

Third, the question of protection of government data. We agree

with the basic premise of H.R. 1858 that government data should

not be protected, that if the public pays for it, sponsors its collection, it should not have to pay for it twice.

We think that H.R. 1858, perhaps, could be expanded to deal

with the question of government-financed collection of data where

there is a government—is not actually doing it itself, and that is

perhaps another area that we could work with you on.

Finally, the question of fair use. We want to be sure that whatever protections are ultimately put in law are tempered by fair use

10

1Feist Publications v. Rural Telephone Service Corp., 499 U.S. 340 (1991).

protection that is at least as broad as the fair use protection that

is available under the copyright laws, and that is an issue that we

would like to work with you on.

To summarize, this is a complicated area. We would very much

like to work with the subcommittee as the legislative process moves

forward. We agree on the basic principles, but there are some details that we would like to work with you on further.

[The prepared statement of Andrew J. Pincus follows:]

PREPARED STATEMENT OF ANDREW J. PINCUS, GENERAL COUNSEL, DEPARTMENT OF

COMMERCE

Mr. Chairman and Members of the Committee: Thank you for this opportunity to

present the Administration’s views on H.R. 1858, the ‘‘Consumer and Investor Access to Information Act of 1999.’’

I. INTRODUCTION

As we have stated in the past, the Administration views database protection legislation from a number of perspectives: as a creator of data and a user of it; as an

advocate both of economic incentives for socially useful investment and of open,

market-based competition free from artificial barriers; and as an entity committed

both to effective law enforcement and to the First Amendment. Reconciling these

perspectives is difficult in any context. The digital economy’s rapid and unpredictable change makes this challenge even greater.

The Administration believes strongly in free markets, in which firms can meet demand for new products and services without having to overcome artificial barriers

that keep consumers hostage to an undesirable status quo. However, we also recognize that there are circumstances in which markets need legal mechanisms in order

to function efficiently. The Feist decision 1 conclusively eliminated one form of legal

protection for databases. Undeniably, Feist has altered the landscape, but the topography is still changing in ways that pull in different directions as to the nature and

extent of protection that is needed.

In particular, the emerging digital environment has significant implications for

this issue. It has become commonplace to observe that information is the currency

of our economic age. That puts a premium on designing a legal schema that creates

sufficient incentives to maximize investment in data collection—to expand the available universe of information—without putting in place unjustified obstacles to competition and innovation. Moreover, digital technology permits the creation and distribution of a large number of perfect copies of data files at the touch of a button.

Those data files may constitute all, or significant portions of, commercial databases.

This new technology expands the risk that, in the absence of adequate legal remedies, piracy, or the threat of piracy, will deter investment in database creation. For

all of these reasons, it is important to calibrate new private rights carefully—to optimize overall economic and social benefits, to prevent unfairly undermining investments and agreements premised on the current law, and to preclude new opportunities for thwarting competition.

The U.S. Government has an unique stake in database legislation because it collects, manages, and disseminates massive amounts of information, possibly more information than any other entity in the world. In all these processes, it interacts with

the private sector in a variety of ways. In addition, Federal agencies are engaged

in funding research that produces tremendous amounts of information that the government does not undertake to manage itself.

These activities represent enormous investments in highly complex knowledge

management processes that are vital to human health, the environment, national

security, scientific progress, and technological innovation—and, in turn, to the economy as a whole. Changes in ground rules for the use and reuse of information must

be designed to minimize disruption of these critical activities and to avoid imposition of new costs that could hinder research.

The sections which follow discuss the Administration’s efforts to study database

protection and access issues (Part II) and summarize the six principles that we believe should guide both domestic legislative and international treaty efforts in this

area (Part III). Next, we elaborate on each principle, discussing the Administration’s

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2 Including the National Oceanic and Atmospheric Administration (NOAA), the National Institute of Standards and Technology (NIST), the U.S. Geological Survey, the Department of Energy, and the PTO.

concerns relating to that topic and particular provisions of H.R. 1858, as well as

some additional concerns with aspects of the bill. (Part IV).

The Administration congratulates Chairman Bliley and the other members of the

Committee involved in drafting H.R. 1858 for their thoughtful efforts to draft a simple bill that is targeted on the dangers of unchecked piracy. At the same time, the

Administration has had only a very limited amount of time to consider the provisions of H.R. 1858. For that reason, the comments provided below are not as extensive as other Administration analyses of database protection issues or legislative

proposals, such as H.R. 354. The Administration’s work on database protection has

been an intensive, interagency effort (as described in Part II below), and we have

not yet been able to bring all these resources to bear in our analysis of H.R. 1858.

For that reason, we hope that we may provide you, at a later date, with any further

comments that you may desire on this legislation.

II. HISTORY OF ADMINISTRATION STUDY OF DATABASE ISSUES

In response to legislative proposals in the Congress and developments in the

World Intellectual Property Organization (WIPO), the Administration devoted substantial energy in 1998 and 1999 to studying database protection and access issues.

The Administration’s review of these issues has included a variety of mechanisms

and fora:

• The Patent and Trademark Office (PTO) held a public conference on database protection and access issues on April 28, 1998.

• During the spring and summer of 1998, a variety of Executive Branch departments and agencies participated in an informal working group on database

issues led by the State Department, the Office of Science and Technology Policy

(OSTP), and the PTO.

• In January 1999, the National Research Council (NRC) held a two-day conference

on scientific databases at the Department of Commerce. This conference was

supported by the National Science Foundation, the National Institutes of

Health, and several other agencies. 2 The NRC is expected to issue a report this

summer.

• Various officials in the Executive Office of the President (including OSTP), the

Department of Commerce (including PTO), and the Justice Department have

held informational meetings with both proponents and opponents of database

protection legislation.

In addition to these efforts, the Administration has carefully studied a wide range

of reports, studies, legal opinions and legislation on database protection and access

from the United States, Canada, Japan, and the European Union, as well as participating in discussions of database protection issues at WIPO conferences in 1996,

1997, and 1998.

The Administration continues to discuss these issues with concerned parties and

to examine specific topics and areas where we believe further information will help

both the legislative process and any future study of the effects of database protection that might be mandated by legislation.

III. GENERAL PRINCIPLES

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

legislation.

Now, as then, Administration supports legal protection against commercial misappropriation of collections of information. We believe that there should be effective

legal remedies against ‘‘free-riders’’ who take databases gathered by others at considerable expense and reintroduce them into commerce as their own. This situation

has arisen in recent case law, and we believe that digital technology increases opportunities for such abuses.

At the same time, the Administration has significant concerns with provisions of

H.R. 1858, both on policy grounds and because the Constitution imposes significant

constraints upon Congress’s power to enact legislation of this sort. From a policy

perspective, the Administration believes that legislation addressing collections of information should be crafted with the following principles in mind:

12

3 A Framework for Global Electronic Commerce is available at: http://www.ecommerce.gov/

framewrk.htm. 4See, e.g., National Research Council, Bits of Power (1997) at 135; U.S. Patent and Trademark

Office, Report on and Recommendations from April 1998 Conference on Database Protection

(1998) at 4-7; Letter from Federal Trade Commission Chairman Robert Pitofsky to Congressman

Tom Bliley, September 28, 1998 at 6-7. See also Institute of Intellectual Property, Tokyo, Japan,

Database Protection on the Borderline of Copyright Law and Industrial Property Law 5 (1998);

Wendy Gordon, Asymmetrical Market Failure and Prisoner’s Dilemma in Intellectual Property,

17 U. DAYTON L. REV. 853, 863-865 (1992) (describing conditions when additional protection is

needed); Dan L. Burke, The Market for Digital Piracy, in BRIAN KAHIN AND CHARLES NESSON, EDS., BORDERS IN CYBERSPACE (1997), 205 (describing databases on the Internet as classic ‘‘public good’’ problem that may require special law); J.H. Reichman and Pamela Samuelson, Intellectual Property Rights in Data?, 50 Vanderbilt L. Rev. 51, 55 (1997) (critical of EU Database Directive and H.R. 3531 of the 104th Congress, but recognizing that risks of market failure may

keep data production at ‘‘suboptimal levels’’); M. Powell, The European Union’s Database Directive: An International Antidote to the Side Effects of Feist? 20 FORDHAM INTERNATIONAL L. J.

1215, 1250 (1997). 5There has been much discussion among commentators about the differences between a sui

generis form of protection as was proposed in H.R. 3531 in the 104th Congress and the ‘‘misappropriation’’ approach proposed in H.R. 1858 (as well as H.R. 354). The Administration believes that the misappropriation theory provides an appropriate model for database protection

in American law. The United States has substantial case law on the misappropriation of information as a form of unfair competition which should help courts interpret any database protection law built on a misappropriation model. Placing database protection in the framework of unfair competition will also allow courts and commentators to draw appropriately from the rich

body of cases in trademark law and unfair business practices.

1. A change in the law is desirable to protect commercial database developers from

commercial misappropriation of their database products where other legal protections and remedies are inadequate.

2. Because any database misappropriation regime will have effects on electronic

commerce, any such law should be predictable, simple, minimal, transparent,

and based on rough consensus in keeping with the principles expressed in the

‘‘Framework for Global Electronic Commerce.’’ 3 Definitions and standards of behavior should be reasonably clear to data producers and users prior to the development of a substantial body of case law.

3. Consistent with Administration policies expressed in relevant Office of Management and Budget circulars and Federal regulations, databases generated with

Government funding generally should not be placed under exclusive control, de

jure or de facto, of private parties.

4. Any database misappropriation regime must carefully define and describe the

protected interests and prohibited activities, so as to avoid unintended consequences; legislation should not affect established contractual relationships

and should apply only prospectively and with reasonable notice.

5. Any database misappropriation regime should provide exceptions analogous to

‘‘fair use’’ principles of copyright law; in particular, any effects on non-commercial research should be de minimis.

6. Consistent with the goals of the World Trade Organization (WTO) and U.S. trade

policy, legislation should aim to ensure that U.S. companies enjoy available protection for their database products in other countries on the same terms as enjoyed by nationals of those countries.

We believe that these principles also embody some of the Constitutional concerns

with legislation in this area. With these principles in mind, we turn to an analysis

of H.R. 1858.

IV. DISCUSSION

A. First Principle— Protect against commercial misappropriation

A change in the law is desirable to protect commercial database developers from commercial misappropriation of their database products

where other legal protections and remedies are inadequate.

As we have stated previously, the Administration supports enactment of a statute

to protect database creators against free-riding—the wrongful appropriation and distribution of database material with resulting infliction of commercial harm (loss of

customers) on the database creator. We believe that there is considerable, if not

complete, consensus that this kind of free-riding can occur without additional legal

protection for non-copyrightable databases and that such legal protection is necessary to prevent a diminution in database creation.4

Section 102 is the operative core of H.R. 1858 for databases outside the securities

markets; it provides the ‘‘basic prohibition’’ of this proposal to protect databases

through a misappropriation model.5 Section 102 prohibits unauthorized selling or

13

The Administration believes that any treaty on database protection that emerges from ongoing

discussions at the World Intellectual Property Organization should permit each treaty signatory

to provide any mandated database property protection through the legal mechanism most appropriate to its domestic law, whether through misappropriation, sui generis protection, or a simple

extension of their domestic copyright and neighboring rights laws. The critical issue is not the

legal framework used, but whether the law provides private citizens with comparable rights to

protect their investments in different jurisdictions. 6See Statement of Andrew J. Pincus before the Subcommittee on Courts and Intellectual Property, Committee on the Judiciary, U.S. House of Representatives, March 18, 1999, at 5. [hereinafter Administration Statement on H.R. 354]

distribution of a ‘‘database’’ that is a ‘‘duplicate’’ of a prior database ‘‘collected and

organized by another person’’ where the new database is sold or distributed ‘‘in competition’’ with the original database. Section 101 provides definitions of these key

concepts.

The drafters of H.R. 1858 have understood that the problem of misappropriation

includes the distribution of significant parts of databases as well as entire databases. To address this problem, section 101(1) provides that a discrete section of a

database ‘‘may be treated as a database.’’ We recognize that the intent of this ‘‘discrete section’’ provision is to protect identifiable subsections of databases from

wholesale misappropriations, but we very are concerned that this definition could

create liability for insubstantial distributions from databases, particularly in the

digital environment.

For example, the book edition of a national database of hotels might subdivide hotels by state and city; in such a situation, we understand that the intent of section

101(1) would be to create liability when a competitor misappropriated all of the Sacramento, California or Cincinnati, Ohio listings from the national database, even

though this might only be a small part of the national database. But in a digitized

form, the same national hotel database can have discrete sections organized by

state, by city, by neighborhood, by quality rating, by hotel ownership or chain participation, by price, by the availability of particular services (conference rooms of

such a size, gym facilities), etc.—so that many, if not most, distributions of material

from the database could trigger the ‘‘discrete section’’ provision.

Indeed, the coverage provided by section 101(1) appears likely to be more subject

to technological vicissitudes and manipulation by private parties than a ‘‘substantial’’ taking measure, i.e., defining a ‘‘database’’ as a complete database and providing that a ‘‘substantial’’ distribution of material appropriated from it could trigger

liability. A substantial appropriation requirement has the virtue of allowing courts

to apply reasonable, evolving standards against possible manipulation by private

parties. Defining a database to include a discrete subset of the database invites

database producers to format their products so as to make small amounts of the

data appear as ‘‘discrete,’’ therefore liability-triggering, subsets. We therefore recommend against this approach.

By requiring ‘‘extraction’’ from a pre-existing database, the definition of ‘‘duplicate’’ in section 101(2) seems intended to ensure that the basic prohibition of section

102 would not create liability for a database that was independently developed, but

was nonetheless a ‘‘duplicate’’ (in the everyday meaning) of the pre-existing database. We are not sure, however, that the definition achieves this purpose. Imagine,

for example, that a database was 98% independently gathered material, but the remaining 2% came from ‘‘extracting information from [a pre-existing] database.’’ It

could be argued that the new database ‘‘was made by extracting information from

[the] other database.’’ Because H.R. 1858 does not provide any express exception for

verification, it could also be said that a new database product ‘‘was made by extracting information from [another] database’’ when, in fact, all the new database producer did was to check the accuracy of its independently collected work against the

pre-existing database.

Of course, the scope of the basic prohibition of section 102 depends greatly on the

interpretation given to ‘‘in competition.’’ Section 102(5) provides a bifurcated test for

when a new database is in competition with a pre-existing database. The first element requires that the new database ‘‘displaces substantial sales or licenses of the

database of which it is a duplicate.’’ Our initial impression is that this is similar

to the standard we have advocated in relation to H.R. 354—that is, other conditions

being met, there would be liability when the new database causes ‘‘substantial

harm’’ to the pre-existing database’s market.6 This approach also is consistent with

the standard under many states’ general misappropriation laws.

The second element of the bifurcated test for ‘‘in competition’’ requires that the

new database ‘‘significantly threaten[s] the opportunity to recover a return on investment’’ in the pre-existing database. We are concerned that this standard is too

vague. Would a significant threat to any return on investment be sufficient for purVerDate 11-SEP-98 10:54 Sep 30, 1999 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 57446.TXT HCOM2 PsN: HCOM2
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7 105 F.3d 841, 852 (2d Cir. 1997). For the Administration’s discussion of this issue, see Administration Statement on H.R. 354 at 5. 8 18 U.S.C. § 1030 would appear to create some criminal liability for database misappropriation

by individuals in the on-line environment. Subsection 1030(a) (2) (C) creates criminal liability

when a person ‘‘intentionally accesses a computer... and thereby obtains... information from a

protected computer if the conduct involved an interstate or foreign communication,’’ while section 1030(a)(4) creates criminal liability when a person ‘‘knowingly and with intent to defraud,

accesses a protected computer without authorization... and by means of such conduct... obtains

anything of value’’ in excess of $5,000. We assume that the server holding a commercial database would fall within the definition of a ‘‘protected computer’’ because it would be ‘‘a computer... which is used in interstate or foreign commerce or communication [1030(e) (2)(B)]. Subsection 1030(g) also creates civil liability where there has been a ‘‘violation’’ of the section.

poses of the test, or is this intended to be a reasonable return on investment? Our

concern with this element of the ‘‘in competition’’ test is the same as we have expressed elsewhere concerning the ‘‘diminution of incentive’’ test inspired by the National Basketball Association v. Motorola case.7 While we agree that a misappropriation law should be focused on acts that do, in fact, have a tendency to reduce incentives in this manner, we think these types of tests do not comport with our principle

(described below) that a database protection law should be predictable, simple, and

transparent. Because a competitor cannot be expected to know much about the incentive structures that lead to the production of the first database, such a competitor would have no way to judge in advance whether or not her acts would ‘‘threaten’’

recovery of ‘‘a return on investment,’’ particularly where the statute does not say

what kind of return on investment.

In addition, this test is problematic because it does not take account of the cumulative effects of repeated acts of blatant piracy. Suppose several different persons

duplicated all or a substantial portion of the database, but the effect of each duplication fell just short of ‘‘significantly threatening to the opportunity to recover a return on the investment’’ under the test. Cumulatively, however, these acts would

indisputably deny a return on an investment. Our fear is that this standard, in comparison with a substantial harm approach, will not provide appropriate incentives

for people to invest in the creation of databases. For these reasons, we believe that

some variation of a harm test can achieve the necessary purposes and be both easier

for private parties to understand and for courts to apply.

Finally, we have previously testified before the House Committee on the Judiciary’s Subcommittee on Courts and Intellectual Property that while the Administration continues to believe that misappropriation for commercial purposes should

be the focus of any legislative efforts, we recognize that some acts of duplication by

individuals, when systematic, could conceivably undermine the commercial market

for a database product. We are not familiar with any reported cases or incidents of

this kind, but we recognize that such harm could occur. Such damage may occur

when those acts become customary in a particular economic sector or field of research. At present, if there is no contract with the individual or her organization,

the investor in a database has no effective civil remedy against such acts.8 We believe that one of the greatest challenges in drafting database protection legislation

is providing database producers with some type of protection against such patterns

of repeated individual acts of duplication without prohibiting uses of data by individuals that, in the opinion of many, should be treated as ‘‘fair uses’’ permissible

under the First Amendment. We are not certain whether a balance can be struck,

but we note that section 102 does not address this problem. We look forward to

working with the Subcommittee and all concerned parties on this problem as the

legislation moves forward.

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

Because any database misappropriation regime will have effects on electronic commerce, any such law should be predictable, simple, minimal,

transparent, and based on rough consensus in keeping with the principles expressed in the Framework for Global Electronic Commerce. Definitions and standards of behavior should be reasonably clear to data producers and users prior to the development of a substantial body of case

law.

The preceding section identified at least one of the ways in which Title I of H.R.

1858 does not fulfill the Administration’s goal of a database protection law which

is predictable and transparent. We also believe that there are some additional aspects of H.R. 1858 which may unnecessarily complicate the bill. For example, we

are concerned that some aspects of the definition of a ‘‘database’’ may complicate

application of the section 102, generating uncertainty and, possibly, unnecessary

litigation. The section 101(3) definition of ‘‘information’’ expressly excludes ‘‘works

15

of authorship,’’ making databases composed of such works ineligible for section 102

protection. It is unclear whether the phrase ‘‘works of authorship’’ is intended to

apply only to original works of authorship under 17 USC 102 or if it is intended

to encompass non-copyrightable works which, nonetheless, appear to be text written

by identifiable authors (that is, ‘‘non-original’’ works). For example, would real estate listings which may lack sufficient creativity for copyright be ineligible for database protection? Unless this is clarified, the express exclusion of ‘‘works of authorship’’ may cause unnecessary litigation in defining protected databases.

In the same vein, section 104(c)(2) would exclude from protection any database

integrated into a software program where the database is ‘‘an element necessary to

the operation of the computer program.’’ We appreciate the effort in section 104(c)(2)

to distinguish data entries from instructional software code, but a database embedded in software will often be ‘‘an element necessary to the operation’’ of the software

in the sense that the software will stop running if the data entries are not available

as inputs to the software code; that the database is ‘‘necessary’’ to the operation of

the software does not mean that it should lose the possibility of being covered by

a database protection law.

Of considerable concern are the enforcement provisions for Title I. While most, if

not all other proposals for database protection, provide for a private cause of action,

only the Federal Trade Commission (FTC) would be empowered to enforce the prohibition created in Title I of H.R. 1858. On policy grounds, the Administration is very

concerned about both the lack of a private cause of action and the placement of enforcement responsibilities with a single government entity. While vesting exclusive

jurisdiction in the FTC may reduce the risk of abusive litigation, we believe that

this is better addressed by establishing suitable thresholds for private causes of action.

Placing enforcement of the law solely in the hands of a government agency distinguishes H.R. 1858 from a wide range of laws which provide for both a private cause

of action and government enforcement (such as antitrust law, computer crimes and

eavesdropping). In short, Congress has generally considered it wise to permit private parties to enforce laws bearing on commerce. A database protection law will

stimulate database production only to the degree that it is perceived as having

meaningful enforcement. A database producer cannot be sure that a newly charged

government agency will protect its products from misappropriation in the same way

that the producer could plan to make provisions to willingly defend its own investment.

Inasmuch as subsection 105(b) expressly preempts state laws inconsistent with

the bill’s provisions, H.R. 1858 appears to eliminate private causes of action that

now exist under many state laws. This replacement of private causes of action with

exclusive government enforcement could be considered a step backward by many.

Even if the enforcing government agencies had sufficient resources and expertise,

this development would not be in keeping with the Administration’s commitment to

market mechanisms to develop the information economy. As a general approach, we

believe that is better for the government to establish ground rules for interaction

among private parties and then allow enforcement of those rules by the private parties concerned.

C. Third Principle— Preserve access to government data

Consistent with Administration policies expressed in relevant Office of

Management and Budget circulars and Federal regulations, databases

generated with Government funding generally should not be placed

under exclusive control, de jure or de facto, of private parties.

Section 101(6) defines a ‘‘government database’’ as a database ‘‘collected or maintained’’ by any agency or instrumentality or the United States or any database required to be collected or maintained by Federal statute or regulation. Section

104(a)(1) then provides that the basic prohibition does not extend to these databases. Section 104(a)(3) further provides that where a Federal, state, or local government substantially funds the creation or maintenance of a database, that government may ‘‘establish[] by law or contract’’ that the resulting database will not enjoy

protection under the bill’s basic prohibition.

As we have consistently stated, the Administration believes that a database protection law generally should not protect government investment in generating data.

There are three reasons for this conclusion. First, database protection proposals are

premised on the need to provide an incentive for investment in data gathering; in

the case of wholly government-funded information, no incentive is needed. If a government decides that it is in the public interest to collect information on smog levels, education scores, or solar flare activity, it will do so. Second, there is a widespread sentiment that once data generation has been paid for with government

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9Office of Management and Budget Circular A-130 Revised [Section 7.b, ‘‘Basic Considerations

and Assumptions’’], available at: http://www.whitehouse.gov/WH/EOP/OMB/ html/circular.html 10The U.S. Government’s position on the importance of the free exchange of such data has

been stated often, including in the ‘‘Bromley Statement’’ on climate change information. See

Data Management Global Change Research Policy Statement, Office of Science and Technology

Policy, The White House, July 2, 1991. 11One example is government agencies that offer their unique capabilities to the private sector on a reimbursable basis. At the Department of Energy, for example, these transactions can

be Cooperative Research And Development Agreements (CRADAs) which are ‘‘100% funds-in’’

agreements or ‘‘Work for Others’’ agreements or User Faculty agreements: that is, the private

entity provides 100% of the operating funds for the research which is conducted at a government

laboratory. We believe that these privately funded research projects could reasonably give rise

to collections of information protectable under a database protection law because in judging the

equities of the relative contributions to the final database product, there is little or no government investment. Failure to provide protection in such cases would discourage businesses from

entering into these agreements. This would sharply curtail the ability of the government to enhance the competitiveness of the private sector. 12The pending NRC Study may provide Congress and the Administration with additional information on this issue. 13This is in keeping with our recommendations in relation to parallel provisions in H.R. 354.

See Administration Statement on H.R. 354 at 8-9.

funds, taxpayers should not have to pay ‘‘twice’’ for the same data. Finally, the U.S.

Government has historically pursued policies that strongly favor public funding of

the creation and collection of information. The Administration believes that these

policies have contributed greatly to the success of America’s high technology and information industries as well as the strength of our democratic society. The Administration has stated previously:

‘‘Government information is a valuable national resource. It provides the public

with knowledge of the government, society, and economy—past, present, and future. It is a means to ensure the accountability of government, to manage the

government’s operations, to maintain the healthy performance of the economy,

and is itself a commodity in the marketplace.’’ 9

The Administration believes that the free flow of government-generated data is an

important engine of economic growth; it will be an increasingly important resource

for any society intent on creating jobs, businesses, and wealth in the ‘‘Information

Age.’’ Often, government-generated information is also critical to the health and

safety of the population; we must ensure that any database protection law does not

hamper the dissemination of such information.10

For these reasons, we believe that the definition of a ‘‘government database’’

should be broadened to encompass all databases created on behalf of the government or with substantial government funding —from any level of government, not

just Federal. The definition should be broadened to encompass all government-generated information, whether created as the result of direct government activity or

as a result of a government contract or grant. This matter should not be left to local,

state, and Federal agencies to decide.

Instead of drawing a distinction between information directly generated by the

government and information substantially funded by the government, we believe

that the focus should be on the funding source. Information generated with public

finances should be treated the same regardless of the vehicle used to generate the

information. We recognize, however, that many valuable cooperative efforts involve

funding for a variety of sources and in these cases, it may be desirable to give some

recognition to the non-government contributions.11 In exploring the need for such

flexibility,12 the Subcommittee should consider whether the presumption should be

reversed: instead of permitting agencies to expressly ‘‘opt-out’’ of database protection

in government contracts and grants (section 104(a)(3)), it would be better to create

a system that allowed agency-by-agency express determinations ‘‘opt-in’’ in favor of

database protection for information generated with substantial government funding.13

In the other direction, our initial conclusion is that section 104 does not provide

the best solution to the problem of ‘‘capture.’’ Section 104(2) implicitly indicates that

government information integrated into a private database continues to retain its

exclusion from section 102, such that third parties can copy the government information without any risk of liability to the private database producer. The Administration recognizes that this is one possible approach to the specter of government

information being ‘‘captured’’ in private database products, but we believe that this

approach may substantially reduce the incentive for the creation of value-added

products using government-generated information and, thus, the ‘‘flow’’ of government information to the public.

17

14This same balance was expressed by Weiss and Backlund as follows: ‘‘On the one hand, this

means that the Government should not try to duplicate value-added information products produced by the private sector. On the other hand, it means that the government should actively

disseminate its information—particularly the raw content from which value-added products are

created—at cost and not attempt to exert copyright-like controls or restrictions.’’ Peter N. Weiss

and Peter Backlund, International Information Policy in Conflict: Open and Unrestricted Access

versus Government Commercialization, in BRIAN KAHIN AND CHARLES NESSON, EDS., BORDERS

IN CYBERSPACE (1997), 300, 303. 15 A disclaimer capturing the spirit of this requirement is that found in the U.S. INDUSTRY

AND TRADE OUTLOOK (1998) published by McGraw-Hill in cooperation with the Department of

Commerce. The disclaimer states: ‘‘Portions of this publication contain work prepared by officers

and the employees of the United States Government as part of such person’s official duties. No

copyright is claimed as to any chapter or section whose designated author is an employee of

the United States Government, except that copyright is claimed as to tables, graphs, maps or

charts in any chapters or sections of this publication if the sole designated source is other than

the United States Government.’’ 16We have suggested that, as a condition for any database protection, a private database producer whose database includes a substantial amount of government-generated data should be

required to note that fact with reasonably sufficient details about the government source of the

data. By this, we mean, for example, ‘‘This database was compiled with substantial amounts

of data from the National Weather Service, National Oceanic and Atmospheric Administration,

Department of Commerce, Washington, D.C.’’ but not ‘‘This database was compiled with information from the Department of Defense.’’ In other words, the disclosure should reasonably direct

the user to the government source. Defendants could be given an express defense where the

database producer has included substantial amounts of government-generated information and

failed to make such a disclosure. See Administration Statement on H.R. 354 at 10-11.

Such disclosures might also give government agencies a stronger incentive to maintain the

raw data and keep it available to citizens, thus eliminating at least some sole source situations.

Generally, we are hopeful that the digital environment and the Internet will, over time, make

it possible for government agencies to provide more government-generated information at less

cost through public channels. See id.

Federal, state, and local governments generate tremendous amounts of information. Historically, these same government agencies have not done a commensurate

job disseminating the information to the public. Dissemination of government-generated data has always involved a mix of public and private resources. Through the

Congressionally mandated Federal Depository Library Program, the Federal Government uses public libraries, libraries of public universities, and libraries of private

institutions to make government-funded information widely available to citizens. At

the same time, in hundreds of cases ranging from the court system to the U.S. Geological Survey, private entities gather raw, government-generated data and then

process, verify, and repackage the data to produce value-added products which are

then widely disseminated.

Once there are such commercial products, any decisions to devote public resources

to disseminate the raw government data further must be weighed against other demands for government resources.14 If government-generated data does not remain

available to the public from government sources, there is the potential for capture

of data, with one or a few private entities becoming the ‘‘sole source’’ for important

data.

When a U.S. Government work is integrated into a private, value-added product,

copyright law requires that the U.S. Government portion remain unprotected and

available for copying.15 The Administration has considered whether a parallel solution to the ‘‘capture’’ problem with collections of information would be appropriate:

requiring private entities to identify government information in their value-added

products, and excluding such information from any database protection schema. The

problem with this approach is that a private entity may make a considerable investment in gathering government data from disparate sources, bringing it together,

and distributing it. This ‘‘value-added’’ would be lost—and the incentive for it destroyed—if all the data could be freely appropriated on the grounds that it is government-generated data in a private database.

While the Administration is committed to finding ways to increase public dissemination of government information and to avoid ‘‘capture’’ of data, we must recognize

that these private entities perform a valuable service, and may invest substantial

resources, in the production of data products. For this reason, the Administration

has advocated that private database producers provide clear notice of the source of

government data—so that users or would-be competitors may turn to the original

government source—in exchange for the right to prevent wholesale misappropriation

of government information embedded in the private database.16 Given the realities

of dissemination of government information, we believe that this is a better means

18

17This is similar to economists’ efforts to establish the optimal term of protection for copyrighted works where, for example, copyrighted software has a much shorter product cycle than

copyrighted books and films which retain significant commercial value for decades. 18For the Administration’s discussion of this issue, see Administration Statement on H.R. 354

at 25-27.

to transition into wider dissemination of government data by the government than

the approach embodied in section 104.

Section 101(6)(B) provides that databases collected or maintained because of Federal statute or regulation would be excluded from section 102’s protection. Perhaps

the most powerful argument for excluding ‘‘legally required databases’’ from any

database protection regime is that the production of these databases requires no further incentive. There is, however, an important distinction between legally required

databases that must be submitted to public authorities and those whose preparation

are legally required, but held privately by individuals and institutions. The Administration has not reached any conclusion on whether either kind of databases collected or maintained by requirement of law should be excluded from any database

protection regime

D. Fourth Principle— Avoid unintended consequences

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

Until the introduction of H.R. 1858, advocates of database protection had proposed database protection terms of up to 25 years. Given the speed at which new

products are introduced in information industries, critics have expressed the view

that the 15-year or 25-year terms in other database protection proposals were unnecessarily long. The Administration currently believes that there is no single, optimal term of protection for the wide range of products subject to protection as ‘‘databases’’ or ‘‘collections of information.’’ 17 In order to implement the suggestion, it will

be necessary to specify the acts that initiate the term of protection.

In the absence of strong indicators of the optimal term for an ex ante incentive

structure, the Administration has expressed the view that there are virtues to a 15-

year term of protection, as proposed in H.R. 354, and that the Administration would

be troubled by any efforts to establish a term of protection exceeding 15 years. We

do not support the basic premise of H.R. 1858—that a codification of misappropriation principles should provide an open-ended term of protection because common

law misappropriation principles do not impose any fixed duration to such claims. We

also believe that legislation must specify the acts that initiate the term of protection.18 The codification of these principles presents Congress with the opportunity

and, in some sense, the responsibility to draw limits on when misappropriation

claims should be entertained. Because any database protection law will have some

impact on the dissemination of information, we think that time limits should be established, and we favor a term of protection no longer than 15 years.

Of course, there is a risk that attempts might be made to circumvent the limitations caused by fixed term of protection. Because users would be unable to differentiate between protected and unprotected data, they would consequently be chilled

in their use of the unprotected data. We have suggested in the past that where the

database that is the subject of a litigation is the descendant of a now unprotected

database and has substantial elements in common with that unprotected database,

the defendant should be able to raise, as a defense, that the most recent unprotected

iteration of the database is not reasonably publicly available. In other words, if

Smith Industries has been issuing the ‘‘Smith Industrial Database’’ annually since

1980, and then in 1999 if Smith Industries sues someone for unauthorized distribution of the ‘‘1999 Smith Industrial Database,’’ the defendant can raise as a defense

that the 1983 Smith Industrial Database is no longer reasonably publicly available.

If the 1983 database is reasonably publicly available, there is no such defense.

E. Fifth Principle—Balance protection with permitted uses

Any database misappropriation regime should provide exceptions analogous to fair use principles of copyright law; in particular, any effects on

non-commercial research should be de minimis.

Last summer, we expressed concern that then-H.R. 2652 lacked a balancing mechanism analogous to the fair use doctrine in copyright sufficient to address the wide

range of circumstances in which information is aggregated, used, and reused; we expressed the same concern more recently in relation to H.R. 354. So it will come as

19

19This is established in Recital 56 of the EU Directive. Recital 56 also provides that a foreign

national will enjoy database protection when those ‘‘persons have their habitual residence in the

territory of the Community.’’ This may provide protection to American database producers who

have substantial business operations in EU Member States. Pursuant to Article 11/3 of the EU

Directive, a determination whether a foreign state offers ‘‘comparable’’ protection must be made

by the European Council based on recommendations from the European Commission.

no surprise that the Administration is concerned that Title I of H.R. 1858 does not

have a general ‘‘permitted uses’’ provision analogous to fair use in copyright law.

Section 103(d) provides an exception directed at scientific, educational, and research uses. We intend to examine this provision more carefully, but initially we are

concerned that this exception is both ambiguous and overbroad. We note that section 103(d) shields the activity of ‘‘duplicat[ing] the same information’’; it does not

shield distribution—the focus of the basic prohibition. As used in section 103(d), ‘‘duplicates’’ could be understood in either of two senses. First, a scientific researcher

could ‘‘duplicate’’ a database in the sense of independently recreating the same database—but this type of activity already falls outside the basic prohibition and is further shielded by section 103(a). Second, ‘‘duplicates’’ could mean reproduces, as

when an educator leaves a hard-bound database on a reserve shelf with instructions

for his students to individually photocopy the database for use in class.

It appears that this latter type of activity could be shielded by section 103(d) because while the activity might be ‘‘in competition’’ with the database’s sales (section

101(5)), section 103(d) requires a higher barrier that it be in ‘‘direct commercial competition.’’ In the circumstance described, the educator might be able to orchestrate

a pattern of extensive copying of a database and avoid all liability. The phrase ‘‘direct commercial competition’’ creates a high barrier, such that even if section 103(d)

shielded ‘‘duplicates and/or distributes,’’ it appears that an educator e-mailing a

database to 100 of his students would still incur no liability—because her activities

would not be in direct commercial competition. We note that this type of conduct

could occur even without section 103(d) on the grounds that the basic prohibition

requires distribution ‘‘to the public,’’ an ambiguous phrase that could be argued to

exclude a distribution limited to students in a particular class, members of a particular learned society, or all members of senior executives of a corporation. In respect to original works of authorship, these types of activities are often well beyond

the scope of the fair use doctrine of copyright law. As discussed above, we believe

that one of the greatest challenges in drafting database protection legislation is providing database producers with some type of protection against such patterns of repeated individual acts of duplication without prohibiting uses of data by individuals

that should be permissible under the First Amendment.

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

Consistent with the goals of the World Trade Organization (WTO) and

U.S. trade policy, legislation should aim to ensure that U.S. companies

enjoy available protection for their database products in other countries

on the same terms as enjoyed by nationals of those countries.

There has been some discussion in the United States about the effects of the European Union’s 1996 Database Directive (EU Directive) on American database producers. The EU Directive requires European Union Member States to provide sui

generis protection for databases, but denies this protection to nationals of any foreign country unless that country offers ‘‘comparable protection to databases produced’’ by EU nationals.19

The Administration opposes such ‘‘reciprocity’’ requirements, both domestically

and internationally. We believe that commercial laws (including intellectual property and unfair business practices laws) should be administered on national treatment terms, that is, a country’s domestic laws should treat a foreign national like

one of the country’s citizens. This principle is embodied in Article 3 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement)

as well as more generally in the Paris Convention for the Protection of Industrial

Property and the Berne Convention for the Protection of Literary and Artistic

Works.

The Administration believes that Congress should craft U.S. database protection

legislation to meet the needs of the American economy. A database protection law

properly balanced for the robust digital economy of the United States will serve as

a model for other countries that hope to build businesses, employment, and economic activity in the new millennium.

At the same time, we believe that a misappropriation law along the lines of H.R.

1858 or H.R. 354 (with proper attention to the concerns we have identified with reVerDate 11-SEP-98 10:54 Sep 30, 1999 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 57446.TXT HCOM2 PsN: HCOM2
20

20The EU Directive is not a national law. It ‘‘directs’’ the Member States of the EU to implement a legal framework. H.R. 1858 would have to be compared, for example, to German, Dutch,

and/or Italian law to make the proper comparison of national law to national law. Such a comparison is well beyond the scope of this statement.

spect to each bill) will amply provide protection ‘‘comparable’’ to that provided by

national laws implementing the EU Directive. From the perspective of a private

database producer, the question should be whether a U.S. misappropriation law provides a cause of action and meaningful remedies in the same range of situations in

which the laws implementing the EU Directive provide a cause of action and meaningful remedies.20

For the reasons stated above, the Administration would oppose any effort to put

automatic reciprocity provisions into American law in this area. In fact, United

States Trade Representative Charlene Barshefsky cited the reciprocity provision of

the EU Directive as a subject of concern in announcing the Administration’s 1998

Special 301 Review. While we believe that a United States database protection law

should adhere to a national treatment model, the Administration would support an

appropriately crafted provision that would allow the President to affirmatively deny

database protection to foreign nationals on the appropriate finding by Executive

Branch agencies such as the USTR and/or the Department of Commerce. This could,

for example, be achieved by statutory language or legislative history making database protection for foreign nationals subject to USTR’s Special 301 process.

G. Additional Issues

1. Administration Study

Section 108 of H.R. 1858 provides that the FTC will report to the Congress on

the effects of the database protection legislation not later than 36 months of the

date of enactment of the legislation. While the Administration has advocated and

continues to advocate the study of the effects of any database protection legislation,

we believe that an interagency process would be preferable to analysis resting solely

in the hands of an agency, particularly the agency being called upon to enforce the

legislation. The Administrations believes that such a government study should be

conducted with the participation of the Department of Commerce, the Office of

Science and Technology Policy, and the Department of Justice in consultation with

the Register of Copyrights. These agencies have, over the past few years, devoted

the most resources to the study of this issue and their expertise should be utilized.

2. The Misuse Doctrine

The Administration supports the idea that the intellectual property misuse doctrine should be extended to any database protection law, but we have not had sufficient time to study the effects of the various provisions of section 106(b). We note

that these provisions appear to expand the misuse doctrine from its traditional tests

(for example, subsections 106(b)(1), (3) and (6)) into relatively untested areas (for

example, subsection 106(b)(4)). We believe this requires careful consideration.

I thank the Subcommittee for the opportunity to appear before you today and look

forward to working with you during the legislative process. I would be pleased to

answer any questions you may have at this time.

Mr. TAUZIN. Thank you.

Next is Edward Black, president and CEO of the Computer &

Communications Industry Association.

STATEMENT OF EDWARD J. BLACK, PRESIDENT AND CEO,

COMPUTER & COMMUNICATIONS INDUSTRY ASSOCIATION

Mr. BLACK. Mr. Chairman, Mr. Markey, members of the subcommittee, thank you for having this hearing. I want to express

our support and gratitude to Chairman Bliley for introducing H.R.

1858, the Consumer Investor Access to Information Act, and to the

core cosponsors, Chairman Tauzin, Mr. Oxley, Dingell, Markey,

and Towns.

We have now entered the information age. The issue before us

requires striking the proper balance between legislating to halt the

misappropriation or theft of databases and overly broad legislative

proposals that stifle creativity in commerce.

21

It is critical that Congress address the single issue that it must

confront, misappropriation, and not attempt to create a broad regime of statutory protections that may well create more harm than

good. We should not expand or anticipate what is at issue and open

up this new electronic world to additional regulation, uncertainty,

and litigation.

Databases are compilations of facts, data and information. Facts

are always considered to be in the public domain. It is this basic

notion that allows two distinct authors to create two databases out

of the same set of facts.

The issue before the 106th Congress is the piracy, or the misappropriation, of the databases. Databases and legislation that address misappropriation, theft, or piracy are matters to be addressed

under the commerce clause.

Databases are items of commerce. The same facts used to create

one database may well be used to create others which address the

same subject matter, or they can be used to create new databases

that are different from the first. These other databases can offer

additional values or benefits to the market, and can often transform the facts in such a way not contemplated by the original creator.

The basic problem with an antipiracy solution based in copyright

law is that it necessarily grants the first organizer a significant

marketplace advantage. Copyright-like protection would give the

first organizer the right to control competition and other transformative value added or downstream uses of the information collected, as well as any worthwhile fraction of the collection.

This may be particularly unwise in the information age. The

Internet makes it easier for the average person to seek and use information from any subject or discipline. This is a great development. Searching for and using information will become even easier

in the future so long as we do not do harm to the exploding medium of the Internet.

Any legislation that restricts or constricts the Internet’s great

benefit and its growth and utility must meet, we think, a heavy

burden of necessity; and further, it should not run afoul of the law

of unintended consequences. The Web is an evolving medium, and

its growth can best be assured with as little government regulation

as possible.

CCIA and its members have strongly resisted unnecessary government regulation of the Internet. As a general rule, we believe

that the Internet will work best through self-regulation and agreements reached voluntarily among those that build and use it. Although people who create a work used by others understandably

want to benefit financially and recoup their investment, we cannot

support proposals that would confer huge market control to one

party simply because it was the first to publish.

The bill before you today adequately addresses the problem without conferring control of facts and information to an individual

which should properly reside in the public forum. It does not restrict use of data compiled in database form from being used in a

second database. It avoids establishing a new regime of onerous

Federal regulation.

22

1Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1985) 2 U.S. Const. art. I, Sec.8, cl. 8.

3Feist, 499 U.S. at 345.

With the adoption of the first amendment over 200 years ago, we

have operated as a Nation that values the free flow of facts and

information. Now with the Internet just a few years old, with information more available than ever, we should promote in every way

possible, not restrict, the flow of facts and data in the information

age. Mr. Chairman, thank you again for the opportunity to testify

today.

[The prepared statement of Edward J. Black follows:]

PREPARED STATEMENT OF EDWARD J. BLACK, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, COMPUTER & COMMUNICATIONS INDUSTRY ASSOCIATION

Chairman Tauzin, Ranking Democrat Markey, and members of the Subcommittee,

I am Ed Black, President of the Computer and Communications Industry Association. CCIA is made up of small, medium and large companies that market and sell

computer equipment, software, communications and network equipment, telecommunications and on-line services, re-sellers, system integrators and others in related business ventures. Our member companies employ well over half-million workers and generate annual revenues in excess of $300 billion. Established over 25

years ago, we are committed to ‘‘Open Markets, Open Systems, Open Networks and

Full, Fair and Open Competition.’’ Thank you for inviting me to testify today and

more importantly thank you for holding this hearing on the critical issue of database protection.

Let me begin by expressing our support and gratitude to Chairman Bliley for introducing H.R. 1858, the Consumer and Investor Access to Information Act of 1999

and to his original cosponsors, Chairmen Tauzin, Oxley and Ranking Democrats

Dingell, Markey and Towns as well as all of the other members of the House who

have expressed support for this legislation.

We have now entered the ‘‘Information Age’’ and we are faced with the issue of

striking the proper balance between legislating to halt the misappropriation or theft

of databases and overly broad legislative proposals that stifle creativity and commerce. The fact is that we do not adequately know what impact legislation on database development, enacted today will have in the future. Therefore, it is critical that

Congress address the single issue that it must confront—misappropriation—and not

attempt to create a broad regime of statutory protections that may well create more

harm than good. If there is a single guiding principle I could pass to you—the members of the Commerce Committee—it is that any legislation on this subject should

address the discreet issue in controversy, address thoroughly, but we should not expand or anticipate what is at issue and open up this new electronic world to additional regulation, uncertainty and litigation.

Please keep in mind that databases are compilations of facts and information. The

ability of databases to find a place or niche in our economy is based on the method

of organization and the demand for the underlying information. The bill you are currently considering and other legislative proposals are attempts to strike the proper

balance between pirating another’s work and promoting competition.

COMMERCE CLAUSE V. COPYRIGHT:

To the extent the issue before the 106th Congress is piracy or the misappropriation of databases, this is not a matter to be solved in Copyright Law. It seems clear

that the ability to obtain a copyright for a database is controlled by the Feist decision.1 In that decision, the Supreme Court held that the Copyright Clause 2 of the

Constitution protects only original works of authorship and does not allow for protection of factual information or data. In determining originality the Court required

that (1) the author originally created the work and (2) that it contain a minimal

degree of creativity.3 While it is important to remember that this is the state of current copyright law today, as it applies to databases, it does not mean that databases

cannot obtain copyright protections.

Yet while copyright protects the originality or expressive element of databases, it

does not protect the underlying facts used to create the database. Facts are always

considered to be in the public domain. It is this basic notion which allows two distinct authors to create two databases out of the same set of facts. This does not permit the second author to copy the first’s compilation and sell it in commerce. It also

23

does not allow the original author to lock-up the underlying facts used in his/her

compilation so that no other compilation could be created and compete for acceptance in commerce.

It is for this very reason that we should recognize that databases and legislation

that addresses misappropriation, theft or piracy are matters to be addressed under

the Commerce Clause. Databases are items of commerce and the same facts used

to create one database may well be used to create additional ones addressing the

same subject matter. However, it may be just as likely that these same facts would

be used to create new databases that are different from the first, that offer additional values or benefits in a market or that transform the facts in such a way not

contemplated by the original creator. The ability to take the same facts and make

a new ‘‘product’’ is basic to the creation and flow of commerce. To the extent that

legislation is needed, it must allow for two similar databases to compete as well as

to take the underlying information or facts and create new databases the marketplace to determine the ‘‘winner.’’

The basic problem with an anti-piracy solution based in copyright law is that it

necessarily grants the first author a significant marketplace advantage. Any other

party seeking to offer a competing database in commerce would almost certainly

have to obtain a license from the original author. That gives the first party the right

to control competition and other transformative, value-added or downstream uses of

the information collected as well as any worthwhile fraction of the collection. The

effects on commerce are readily apparent where one party can pick and choose

whether anyone would compete with them.

IMPACT ON THE INTERNET:

This problem is especially acute in the information age. The World Wide Web creates and publishes information in the blink of an eye. It takes facts, owned by the

public, and places them in a variety of files, uses, compilations or databases for

presentation to the consumer.

Some of these compilations are derivative of another’s work; some may take the

same facts and develop an entirely new product. But we all must agree that it has

never been easier for the average person to seek and use information from any subject or discipline for almost any use than it is now. We can be assured that the

search and use of information will become even easier in the future, so long as we

do not do harm to the exploding medium of the Internet. The growth of the web,

the amount of information it has currently, how much is being added at any given

time and how that information is being used may not be quantifiable with any degree of certainty. We do know that the web will become an increasingly significant

tool for commerce, education and research. Hence, any legislation that restricts or

constricts its growth and utility must be placed under heavy scrutiny. Furthermore,

this same legislation should be crafted so that it addresses the problem at hand and

does not run afoul of the law of unintended consequences. The web in an evolving

medium and its growth can best be assured with as little government regulation as

possible. Given the choice between a proposal that confers control for a period of

time and over a myriad of uses for facts and information in the public domain. Or

a proposal that simply addresses the threat of ‘‘parasitic’’ conduct by competitors

that infringes on rights that exist in contracts or Copyright law today; we should

choose the narrower approach. H.R. 1858 accords the necessary protections to ensure vigorous and robust competition in databases, protects the creation of new compilations or databases and appears to do little harm to the growth and promise of

the world wide web.

CCIA and its members have strongly resisted government regulation of the Internet. As a general rule, we believe that the Internet will work best through self-regulation and agreements reached voluntarily among those that build and use it. However, we must address a problem which goes to the ability of providers and users

to employ the Internet to its fullest. No one can support piracy or the gross misappropriation of another’s work. People who create a work used by others understandably want to benefit financially and to recoup their investment. However, we

cannot support proposals that would confer time periods and market control to a

one party simply because they were the first to publish. Chairman Bliley’s bill accomplishes the three goals of penalizing those who pirate another’s work, allowing

those who create to realize a benefit from their work and avoiding control of currently developed markets as well as those to come ‘‘downstream.’’ All of this is accomplished without the crushing burden of federal regulation of the Internet. It preserves the promise and the potential of the Information Age.

24

4 National Basketball Association v. Motorola, Inc., 105 F.3d 841 (2d.Cir. 1997).

THE EXTENT OF DATABASE PROTECTION:

As I mentioned earlier, databases are compilations of facts and information, these

underlying components are in the public domain and are generally available for any

party to employ or exploit. The use of facts are essential to the transfer of knowledge from one to another. Hence, a second-generation publisher has always been allowed to extract facts from a variety of sources, including existing compilations for

the purpose of creating a new compilation. While the organization of facts and information into databases has become a highly critical issue because of the development

of the Internet and the explosion of information sources online, we need to understand that both the original creator of a compilation and those who produce a compilation later can co-exist.

Furthermore, the person who first compiled facts into a compilation has recourse

if it is determined that someone has pirated the work. The original creator of the

compilation or database has protection under our Copyright law. Even with the

Feist decision regarding ‘‘sweat of the brow’’ copyrights, compilations that demonstrate a level of originality are still protected. Additionally, contract law, where

licensing agreements are used to protect against further dissemination, can protect

the compilation. This is a common tool for on-line databases.

Third, there is the tort of misappropriation, which was recently reviewed by the

U.S. Court of Appeals for the Second Circuit.4 In this case, the National Basketball

Association (NBA) claimed that the delivery of sports scores to fans through paging

devices was a misappropriation of its rights in its basketball games. The defendant

demonstrated that it gathered information from reporters who keyed appropriate information into personal computers. Finding no information proprietary to the NBA

was taken and the NBA was not in the pager sports score business, the court concluded there was no harm done to the NBA and found for the defendant. Nevertheless, the tort of misappropriation is a viable cause of action where the facts match

the criteria as enumerated in the NBA case. Finally, on-line databases can be protected by technological means, as you may recall the Digital Millennium Copyright

Act (DMCA) prohibits the manufacture and sale of devices that can circumvent technological protection measures.

Therefore, despite the Feist decision, judicial remedies exist to protect a compiler’s

creative work. It is also important to recognize that since Feist, the number of published databases continued to increase, as did their size. In the years immediately

following Feist, the current proponents of extensive database protections did not

lobby the Congress seeking protection. The ‘‘database’’ industry is healthy and growing.

It was only when the European Commission (EC) adopted (in 1996) a database

directive that prohibited extraction of a substantial part of another database did certain groups and interests lobby the Congress for legislation. The purpose of the EC

directive was to foster development of databases in Europe to compete with those

developed in the United States. While the directive caused a great deal of concern,

there have always been ways to address the problem without further legislation.

First, any U.S. publisher would have its works protected if it located a subsidiary

in Europe. Second, the appropriate forum for seeking relief from the EU directive

is before the World Trade Organization (WTO). It should be noted that since the

1996 adoption of the EU directive, there has been very little evidence of significant

harm to the U.S. database interests.

While there may be a suitable rationale for bolstering defenses against the piracy

of databases, there is no evidence to support proposals that confer significant marketplace advantages to one database publisher over another.

SPECIFICS OF H.R. 1858:

As I will discuss in this section, the Bliley bill provides a clear line between database piracy and creating a new database. In that regard it promotes certainty, a

willingness to invest and avoids litigation in which similar fact patterns could result

in dissimilar decisions.

In Title I of the bill, a duplicate of a database is one that is ‘‘substantially the

same,’’ therefore minor changes for the purpose of avoiding the penalties of this bill

will not save the creator of the second database. The second database need not be

identical to trigger action by the Federal Trade Commission (FTC). Additionally, the

bill recognizes that within one database, other databases may well exist and therefore, pirating only a section of a larger database is again likely to trigger FTC action. In order for liability to attach, there must be competition between the two

25

databases as defined in the bill; first a substantial displacement or loss of sales and

second, a significant threat to the creator of the first database to recover a return

on the investment made in creating the first database.

This title does not create a new private right of action; rather actions currently

permissible under contract, trademark, copyright, state common law on misappropriation remain available to the injured party. The bill does grant to the FTC the

right to bring a cause of action to protect against database piracy.

Title II of the bill covers the discreet issue of information concerning the buying

and selling of securities, such as real time stock quotes. It permits market information processors to require those who use their services to obtain permission before

disseminating that information. It also protects those who gather the same information independently to disseminate that information without seeking permission.

Let me touch on other beneficial aspects of the Bliley bill.

• It generally prohibits online service provider liability. Assuming the online service

provider did not place the duplicate database on its system, the OSP cannot be

held liable under H.R. 1858. • It does not create a time period of protection during which other and different

databases using the same facts and information could not be created. This promotes continued investment in database creation and ensures that no party has

the ability to ‘‘lock-up’’ facts and information from the public. • The Bliley bill only protects those databases created after enactment. It correctly

recognizes that there is no need to provide an incentive to create something that

already exists.

For these reasons, we urge the Subcommittee to report H.R. 1858 favorably and

in the near future.

CONCLUSION:

Mr. Chairman, we recognize that the members of the Commerce Committee are

confronted with a difficult decision. In addition to the inter-committee dispute over

jurisdiction, you will no doubt hear from those who feel that the Bliley bill fails to

address the issue of piracy or misappropriation of databases. The fact of the matter

is that the bill before you today adequately addresses the problem without conferring control of facts and information to an individual when it should properly reside

in the public forum. It also avoids restricting the use of data compiled in one fashion

from being compiled and used in another. This is an issue best left to the marketplace, allowing the consuming public to make the final determination.

Finally, this bill does not stray so far afield that it invites consequences not adequately thought out. While it effectively addresses and bolsters the defenses against

database piracy, it does not seriously hamper the flow of information and facts over

the Internet, nor does it constrict the development of new databases that will become available on-line. The greatest danger that prompted CCIA to become involved

in this dispute was the threat legislation that attempted to do too much would endanger the growth and development of the Internet. To the credit of Chairman Bliley and his cosponsors, H.R. 1858 strikes an appropriate balance and therefore encourages our continued movement into the information age with little government

regulation of the Internet.

Mr. Chairman thank you again for the opportunity to provide our views on this

legislation.

Mr. TAUZIN. Thank you, very much, Mr. Black.

The Chair would now like to recognize Mr. Frank Politano, trademark and copyright counsel for AT&T.

STATEMENT OF FRANK POLITANO, TRADEMARK AND

COPYRIGHT COUNSEL, AT&T CORPORATION

Mr. POLITANO. Thank you, Chairman Tauzin. I am also an adjunct professor of law at Seton Hall University School of Law in

New Jersey, where I teach intellectual property law and I practiced

in the field of intellectual property law for 25 years. I want to

thank you all for this opportunity to testify on behalf of AT&T regarding the Consumer and Investor Access to Information Act of

1999.

My testimony will describe AT&T’s views on what we consider

very important legislation. As you probably know, AT&T is among

26

the world’s communications leaders providing voice, data, and

video telecommunication services to large and small businesses,

consumers and government agencies.

AT&T also provides domestic, international, local, and Internet

communication transmission services and cellular telephone and

other wireless services. We also now supply cable transmission and

distribution services throughout the United States.

AT&T has had a long heritage of applying innovation to develop

and deliver communications services reliably; and it is this tradition of innovation that has enabled us to provide sophisticated

services around the world to stay ahead of our competitors.

You may be wondering why we are here today to testify about

database protection. We do not market databases for commercial

use. The reality, however, is that we depend upon and use extensively databases throughout our business, and in order to be successful we must use that information.

As has been just testified to, mastery of information is accelerating the development of a new digital economy. Advanced information technologies enable AT&T to gather, analyze, and react to

market data more efficiently and furnish telecommunication services to satisfy our customers.

I want to emphasize that at AT&T we rely heavily on databases

of factual information in virtually every aspect of our business, and

that is outlined in my written testimony. I won’t get into all of the

different ways that we use databases in my oral comments.

I also want to emphasize that our scientists at AT&T laboratories use factual data from many sources to perform research. Research is vital to AT&T. Many people may not realize this, but our

AT&T laboratories files one patent per day in the U.S. Patent and

Trademark Office. And after checking with our scientists, I can tell

the committee that factual information and databases are very important to practically everyone of those patents.

We therefore feel strongly that a new law focused on database

piracy must be very carefully crafted to address concerns of overprotection without unreasonably restricting innovation, and particularly the law must allow for downstream transformative uses of

information such as the ones I have described and are in my written comments.

We believe H.R. 1858 protects that necessary balance between

preserving protection in the database community and promoting

the growth of databases and innovation generally.

By protecting only against untransformed duplication for public

commercial exploitation, this bill affords protection for the entire

database or for a discrete section of the database, but recognizes

the unquestionable need for transformative uses.

We also think that the legislation has an important safety valve

by recognizing the concept of database misuse, and we think that

it addresses important issues which allow for Internet communications and communications under the telecommunications act.

We believe that the legislation is well balanced, and we appreciate the continued leadership of Chairman Bliley on telecommunications and technologies matters and we applaud the introduction

of this bill. We want to particularly thank Chairman Tauzin and

the members of this subcommittee for holding this hearing, and we

27

look forward to working with each of you to help enact this legislation.

I offer AT&T’s assistance to the committee as well as my own

and I would be glad to answer any questions you may have.

[The prepared statement of Frank Politano follows:]

PREPARED STATEMENT OF FRANK POLITANO, GENERAL ATTORNEY AND TRADEMARK

AND COPYRIGHT COUNSEL, AT&T

My name is Frank Politano, and I am a General Attorney and Trademark and

Copyright Counsel for AT&T. I am also an Adjunct Professor of Law at Seton Hall

University School of Law in Newark, N.J. where I teach intellectual property law.

I have practiced in the field of intellectual property law for 25 years. Thank you

for this opportunity to testify on behalf of AT&T regarding the Consumer and Investor Access to Information Act of 1999.

My testimony will describe AT&T’s views on this very important legislation.

AT&T is among the world’s communications leaders, providing voice, data and video

telecommunications services to large and small businesses, consumers and government agencies. AT&T provides domestic, international, local and Internet communication transmission services, and cellular telephone and other wireless services.

We also supply cable transmission and distribution services.

AT&T has a long heritage of applying innovation to develop and deliver communications services reliably and it is this tradition of innovation that has enabled us

to provide sophisticated services around the world to stay ahead of our competitors.

AT&T Laboratories is one of the premiere technology research facilities in the world

and out of our laboratories come at least one new patent filing per day, helping to

keep the United States competitive and at the frontier of telecommunications and

Internet services.

You may be wondering why AT&T is here today to testify about database protection. While we do not market databases for commercial use, the reality today is that

we all depend on the efficient use and management of information to be successful.

Mastery of information is accelerating the development of a new, digital economy.

Advanced information technologies have enabled AT&T to gather, analyze and react

to market data more efficiently. Furnishing telecommunications services with the

speed that satisfies customers requires efficient internal systems. At AT&T, we rely

heavily on databases of factual information in virtually every facet of our business.

AT&T uses data from many sources throughout our business activities, including

marketing and sales, credit, collections, billing and customer service. We use geographical and statistical market information and demographic data, and we often

combine this information with compilations of factual information about existing

and new customers that we obtain from outside suppliers such as Dun & Bradstreet. We use large volumes of data and factual information to develop innovative

new products and services. Because no single source can meet all of our needs for

data, we routinely combine pieces of information we receive from one source with

pieces of information from other sources, and with data contained within our own

business operations. We then create ‘‘customized’’ databases such as targeted marketing lists containing the piece parts of other databases that meet our specific business needs.

A key component of AT&T’s overall mission is the important contributions that

are made by AT&T Laboratories. Our scientists also use factual data from many

sources for research in a variety of areas.

We therefore feel strongly that a new law focused on database piracy must be

carefully crafted to address that important concern without unreasonably restricting

innovation, and particularly which allows for and in fact encourages downstream

‘‘transformative’’ uses of information such as the ones I’ve described. The Consumer

and Investor Access to Information Act does exactly that. H.R 1858 protects the necessary balance between preserving protection for the database community and promoting the growth of databases and innovation generally. By protecting only against

untransformed duplication for public commercial exploitation, this bill affords protection for an entire database or for a discrete section of a database but recognizes

the unquestionable need for transformative uses. Thus, while the bill would protect

against the narrow perceived gap in the law relating to systematic, unauthorized

commercial copying of databases, it does not afford protection against productive, socially useful purposes that transform rather than supercede the original. Significantly, this bill will not have a chilling effect on innovation and scientific development.

28

H.R. 1858 also features an important ‘‘safety valve’’ by recognizing, in Section

106(b), the concept of database misuse, and setting forth six, non-exclusive examples

a court should consider in determining misuse.

Another important feature of H.R. 1858 is that it recognizes and maintains the

many other forms of database protection that currently exist while protecting

against clearly defined direct misappropriation.

H.R. 1858 also contains three important provisions that are particularly vital to

the development of a robust, competitive digital economy.

The first is the very important provision that addresses databases related to

Internet communications. The Internet is in fact a network of databases, and information is made accessible through tables of routers and a standardized system of

IP addressing that enables the Internet to work. If the original compilers of those

‘‘databases’’ exerted monopoly control over, or prohibited, downstream uses of the

information compiled in those databases, the future operation of the Internet would

be threatened. As an aside, we do believe that it is important to make clear that

all databases associated with the operation of the Internet, including those related

to the registration of Internet domain names, are exempted from protection under

this bill. This important clarification will further strengthen the bill.

A second, vital provision exempts activities under the Telecommunications Act

from the scope of protection offered by the bill. A primary purpose of the Telecommunications Act is to open the local bottleneck to competition, and one necessary precursor to that goal is that the incumbent local telephone companies must

provide access to its many databases of information, such as directory assistance

databases and call switching databases, to new local carriers on nondiscriminatory

terms and conditions. Conceivably, if the original compilers of those databases (the

local incumbents) were to receive a new statutory right in those databases, it could

be even harder for new entrants such as AT&T to get reasonable access to those

systems.

Lastly, H.R. 1858 makes it clear that online service providers that do not initially

place duplicate databases in their networks will not be liable under the statute. This

provision ensures that those who are building and managing digital networks are

not deterred by the threat of potential liability for the actions of others.

We do suggest that the legislative history make it clear that the expression ‘‘substantially the same’’ in the definition of ‘‘duplicate of a database’’ does not mean

‘‘substantial similarity’’ used in copyright law as the test for copyright infringement.

H.R. 1858 is designed to protect against untransformative duplication that extracts

the bulk of facts from a database. Substantial similarity has a different meaning:

it refers to a defendant’s having access to an original work of authorship and the

consequent improper appropriation of the expressive elements of that work. The

substantial similarity test has been used to find infringement where the defendant

has taken only a few notes or a few lines of plaintiff’s work—clearly not the result

intended by this legislation. This clarification should avoid confusion and ambiguity

by ensuring that a copyright law concept is not applied to this statute, which is a

law designed to protect against unfair competition.

AT&T appreciates the continued leadership of Chairman Bliley on telecommunications and technology matters and applauds the introduction of H.R. 1858. We

want to particularly thank Chairman Tauzin and the Members of this Subcommittee for holding a hearing on this important issue, and we look forward to working

with each of you to help enact this legislation. I offer AT&T’s assistance to the Committee as well as my own, and I would be glad to answer any questions you may

have.

Mr. TAUZIN. Thank you, very much, Mr. Politano.

I think this is the first time Yahoo! has ever appeared before a

congressional committee. Our next witness is Mr. Matthew

Rightmire, director of business development.

STATEMENT OF MATTHEW RIGHTMIRE, DIRECTOR OF

BUSINESS DEVELOPMENT, YAHOO! INC.

Mr. RIGHTMIRE. Chairman Tauzin, members of the subcommittee, I am Matt Rightmire, director of business development at

Yahoo!. Thank you for the opportunity to appear today on an issue

that is close to our hearts but also those of our competitors in our

space, Lycos and ADVO and Excite, two other major Internet portals are pleased to associate themselves with this testimony.

29

Yahoo! is a global Internet media company that offers a branded

network of comprehensive information, communication and shopping services to more than 60 million users worldwide each month.

As the first online navigational guide to the Web, Yahoo! is the

leading guide in terms of traffic, advertising, household and business user reach, and is one of the most recognized brands associated with the Internet.

The information technology economy, which has been a major

contributor to the U.S. economy recently, is based on the broad

availability and flow of information. It has developed in large

measure because of the favorable environment created by our Nation’s historical information policy—that no one may own the facts

or information.

As the Supreme Court said in Feist v. Rural Telephone Service

Company, all facts, scientific, historical, biographical, and news of

the day, are part of the public domain available to every person.

The process of restricting the availability of information in the

information age is a cause of concern to anyone interested in the

future of the Internet. We could have the most powerful computers,

the most sophisticated search engines, and fully operational broad

band, but none of it will mean a thing if there is not information

to flow through those pipes.

Yahoo! is somewhat uniquely positioned to comment on this

issue. We have spent and continue to spend a great deal of effort

developing our own databases. At the same time, we aggregate and

disseminate large amounts of information from other sources. In

our view, legislating on the availability of information is not unlike

two porcupines making love: it has to be done very carefully. And

in both cases, there are significant unintended consequences which

have to be avoided.

We support the targeted approach of H.R. 1858 introduced by

Chairman Bliley, Tauzin, Oxley, and ranking members Dingell

Markey and Towns. It is balanced and measured, and we appreciate the thought and effort that went into crafting this compromise.

I mentioned the potential for unintended consequences in legislating on this issue. Any type of information that is currently provided on the Internet could be jeopardized by an overly broad statute or one that does not adequately define critical terms.

For example, as was reported in the Washington Post on June

5, the New York Times is challenging Amazon.com’s use of the

Times best seller list. The best seller list is by definition a database

since it lists those books of which the most copies have been sold.

While Amazon.com uses the list in its entirety, it is doubtful that

it is competing with the Times. It is also doubtful that someone

would not buy the Times just because the best seller list happens

to be available on Amazon.com. To the contrary, Amazon.com’s

publication of the list is an effective advertisement for the Times

that probably works to its benefit.

The Internet has become known as a rich source of information

for price-conscious consumers. For example, it may provide a service to consumers by disseminating lists of the lowest air fares to

various locations around the world. These listings are often compiled from a variety of sources.

30

Notwithstanding that a handful of facts are collected from each

of several sources, and notwithstanding that the new listing is

more comprehensive than any set of facts on which it is based, this

collection of lower air fares could be considered a misappropriation

if the statutory language sweeps too broadly. The effect of such uncertainty would be to chill the collecting and providing of such information to consumers.

Even a reasonable-use provision comparable to fair use under

copyright law would not compensate for lack of clarity in the definitions. It would require years of judicial interpretation in order for

those who develop transformative uses of data to understand what

we could and could not do.

The aggregating and dissemination of as many different types of

information as we can imagine would be subject to the same

chilling effect. Those who compile and analyze stock information,

restaurant and hotel rates, sports statistics, listings of concert

schedules from across the country, could be dissuaded from continuing to provide this valuable information.

One of the wonders of the Internet is making available to the average person a lot of information in a short time. Parents of a 10-

year-old child who has been diagnosed with a serious disease may

want to obtain as much information as possible about the disease

and quickly. If someone has collected information from this particular disease from a variety of sources, including a voluminous directory of all diseases, should this constitute a misappropriation?

Should a collection of information regarding hospitals that specialize in that disease be denied to those parents because it involves taking important information from each of several sources?

Mr. Chairman, this is directly antithetical to the constitutional

purpose of copyright, law which is to promote the progress of

science and useful arts.

Another strength of our medium is the development of new enterprises, creative ideas, and fresh approaches to difficult problems

is limited only by our imagination. Do you want the availability of

facts or information on the Internet to depend on a detailed legal

review to require every Web site that aggregates information to

have its own general counsel.

As a creator of databases, we appreciate the need for protection.

One of Yahoo!’s most important assets is our Internet directory,

which has required significant resources to assemble.

H.R. 1858 offers protection against those who would lift someone

else’s database, but this is not the only protection available. Existing copyright law gives database publishers significant protection.

In addition to copyright, database publishers can rely on numerous

other forms of protection including trademark, trade secret, contract, State common law, and technical protection.

One final point. H.R. 1858 has a critical provision which protects

Yahoo! and certain other search engines against liability for linking

to or listing categories of data. Absent such a provision, Yahoo! and

others could be liable simply for acting like a card catalog of facts

and information available on the Internet.

If you have any questions that you would like to ask, I will be

available for questions.

[The prepared statement of Matthew Rightmire follows:]

31

PREPARED STATEMENT OF MATTHEW RIGHTMIRE, DIRECTOR OF BUSINESS

DEVELOPMENT, YAHOO! INC.

Chairman Tauzin, Ranking Member Markey, and Members of the Subcommittee,

I am Matt Rightmire, Director of Business Development for Yahoo! Inc. Thank you

for the opportunity to appear before you today on a subject very close to our hearts.

Yahoo! is a global Internet media company that offers a branded network of comprehensive information, communication and shopping services to 60 million users

worldwide. As the first online navigational guide to the Web, Yahoo! is the leading

guide in terms of traffic, advertising, household and business user reach, and is one

of the most recognized brands associated with the Internet.

The information technology economy, which has been a major contributor to the

U.S. economy, is based on the broad availability and flow of information. It has developed in large measure because of the favorable environment created by our nation’s historical information policy—that no one may own facts or information. As

the Supreme Court said in Feist v. Rural Telephone Service Co. ‘‘all facts—scientific,

historical, biographical and news of the day... are part of the public domain available to every person.

The prospect of restricting the availability of information in the Information Age

is a cause for concern to anyone interested in the future of the Internet. We could

have the most powerful computers, the most sophisticated search engines, and a

fully operative broadband system, but none of it will mean much without the information to flow over those lines.

Yahoo! is somewhat uniquely positioned to comment on this issue. We have spent

and continue to spend a great deal of effort developing our own databases. At the

same time, we aggregate and disseminate large amounts of information. In our

view, legislating on the availability of information is not unlike two porcupines making love: it must be done very carefully. And, in both cases, there are significant

unintended consequences which must be avoided.

We support the targeted approach in H.R. 1858 introduced by Chairmen Bliley,

Tauzin, and Oxley and Ranking Members Dingell, Markey and Towns. It is balanced and measured and we appreciate the thought and effort that went into

crafting this compromise.

I mentioned the potential for unintended consequences in legislating on this issue.

Any type of information that is currently provided on the Internet could be jeopardized by an overly broad statute or one that does not adequately define critical terms.

For example, as was reported in The Washington Post on June 5, 1999, The New

York Times is challenging Amazon.com’s use of the Times’ bestseller list. The bestseller list is, by definition, a database since it lists those books of which the most

copies have been sold. While Amazon.com uses the list in its entirety, it is doubtful

that it is competing with the Times. It is also doubtful that someone would not buy

the Times just because the bestseller list was published on Amazon.com. To the contrary, Amazon’s publication of the list is an effective advertisement for the Times

that probably works to its benefit.

The Internet has become known as a rich source of information for price conscious

consumers. For example, it may provide a service to consumers by disseminating

lists of the lowest airfares to various locations around the world. These listings are

often compiled from a variety of sources. Notwithstanding that a handful of facts

are collected from each of several sources, and notwithstanding that the new listing

is more comprehensive than any set of facts on which it is based, this collection of

low airfares could be considered a misappropriation if the statutory language

sweeps too broadly.

The effect of such uncertainty would be to chill the collecting and providing of this

information to consumers. Even a reasonable use provision comparable to fair use

under copyright law would not compensate for lack of clarity in definitions. It would

require years of judicial interpretation in order for those who develop transformative

uses of data to understand what we could and could not do.

The aggregation and dissemination of as many different types of information as

we can imagine would be subject to the same chilling effect. Those who compile and

analyze stock information, restaurant and hotel rates, sports statistics, listings of

concert schedules from across the country, the cost of a wide variety of consumer

items and pertinent statistics about universities around the world could well be dissuaded from continuing to provide this valuable information to consumers.

One of the wonders of the Internet is making available to the average person a

lot of information in a short time. Parents of a 10 year old child who has been diagnosed with a serious disease may want to obtain as much information as possible

about the disease, and quickly. If someone has collected information about this particular disease from a variety of sources, including a voluminous directory of all disVerDate 11-SEP-98 10:54 Sep 30, 1999 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 57446.TXT HCOM2 PsN: HCOM2
32

eases, should this constitute a misappropriation? Should a collection of information

regarding hospitals that specialize in that disease be denied to those parents because it involves taking important information from each of several sources? Mr.

Chairman, do we want to require the individual creating these transformative uses

to start the research at ground zero or otherwise be relegated to a pay per fact system? This would be directly antithetical to the Constitutional purpose of copyright

law which is ‘‘to promote the progress of science and useful arts.’’

Another strength of our medium is that the development of new enterprises, creative ideas, and fresh approaches to difficult problems is limited only by our imagination. Do we want the availability of facts or information on the Internet to depend

on a detailed legal review and to require every web site that aggregates information

to have its own general counsel?

Let me make clear that in virtually every case in which Yahoo! places a database

on the Internet, we license the information from the originator or from one who has

developed transformative uses of the data. For example, Yahoo! gets information

from Sports Ticker, which is owned by ABC/ESPN which in turn collects the information from a variety of sources. If legislation were to create in effect, a statutory

monopoly on facts, then these sources of information might dry up or would only

be available at monopoly prices. That could, just to pick one example, make it impossible for Yahoo! to provide an analysis of LSU football to those who might be

interested but find themselves far from their home state more often than they would

like. As a creator of databases, we appreciate the need for protection. One of

Yahoo!’s most important assets is our Internet directory, which has required significant resources to assemble. H.R. 1858 offers protection against those who would lift

someone else’s database. But this is not the only protection available. Existing copyright law gives database publishers significant protection. In addition to copyright,

database publishers can rely on numerous other forms of protection, including trademark, trade secret, contract, state common law misappropriation, and technological

protection.

One final point. H.R. 1858 has a critical provision which protects Yahoo! and

other search engines against liability for linking to or listing categories of data. Absent such a provision, Yahoo! and others could be liable simply for acting like a card

catalogue for facts and information available on the Internet.

Mr. Chairman, Ranking Member Markey and Members of the Subcommittee, this

concludes my prepared testimony. I would be happy to answer any questions that

you might have.

Mr. TAUZIN. Thank you.

The Chair is pleased to recognize Henry Horbaczewski, vice

president and general counsel of Reed Elsevier, Inc., located in

Massachusetts.

STATEMENT OF HENRY HORBACZEWSKI, VICE PRESIDENT

AND GENERAL COUNSEL, REED ELSEVIER INC.

Mr. HORBACZEWSKI. Thank you for giving me this opportunity to

testify today. I am the general counsel of Reed Elsevier, Inc. And

I am testifying on behalf of the Coalition Against Data base Piracy,

an organization of many large and small database makers to which

we belong.

My company produces many databases, including Lexis/Nexis,

the Congressional Information Service, books in print and industrial databases for the construction, manufacturing, entertainment,

oil, gas and petrochemical industries. So we feel that we do have

some experience in this field.

I first of all would like to thank the subcommittee for recognizing

the importance of protecting databases against misappropriation.

The boom in telecommunications and computers has been largely

driven by the demand for easier and faster access to retrievable information, in other words databases; and a law which does not protect databases or the database creation process threatens the information economy itself.

33

I have submitted written testimony which outlines how regrettably, we believe, H.R. 1858 does not protect the database production process in some threshold ways. But I thought in the short

time available, it would be better if I illustrated my concerns with

specific examples.

For example, one of our subsidiaries, MDL, a relatively small

company which spends millions of dollars to produce several biochemical databases that allow both commercial and academic

chemists to identify and electronically manipulate molecular structures, MDL only has several hundred employees, but they are quality jobs.

They have many, many Ph.D.s. Its commercial customers are

large pharmaceutical companies that use the databases for new

drug research and development. They pay license fees established

by market forces which are not insubstantial, providing MDL with

a revenue needed for investment to maintain its databases and create new ones.

But MDL also licenses these databases to academic chemists.

The difference is that the not-for-profit users are charged a differential fee structure, which is less than one-tenth of what we

charge our commercial customers. This greatly reduced price is

only possible because we legitimately restrict the ability of our academic customers to use the databases for commercial purposes.

Under H.R. 1858, we believe that this would change. Let’s assume, for example, a pirate took 50,000 of the approximately

70,000 bioactivity datasets in one of our databases and then added

several thousand databases from another source. The resulting

database would probably not be a duplicate as defined by the bill

and therefore the taking would not violate it.

In addition, we would no longer be able to give academic institutions a reduced license fee for limited rights without running afoul

of the misuse definition in the bill. We would have no recourse to

prevent one of our giant commercial customers from taking a single

copy, even lawfully acquired, and making it available over the

Internet to hundreds of thousands, even if its research scientists—

because this would not be a public distribution which is the only

kind the bill prohibits.

In fact, the purpose would be research and the company could

use our databases without any restrictions or payment to us, even

though the research was commercial and it was intended to make

money for the customer.

And finally, even though the piracy met the narrow standards of

the bill, MDL could not sue to obtain an injunction to stop the

bleeding, nor could it sue to get compensation for its lost profits.

Instead it would have to depend on the FTC, which as Mr.

Pincus has pointed out, has limited resources and a different mission to cure consumer fraud and antitrust violations, to see whether they chose to investigate and prosecute, which I understand is

a 3 or 4 year process.

Even then, the best we could realistically expect would be a consent decree in which the pirate promised never to do it again, and

we would receive nothing. Also it is significant that the bill would

not help U.S. database makers internationally. We do not believe

that H.R. 1858 is comparable to the European Union directive on

34

database protection; and, therefore, American database producers

would still be open to illegal expropriation by their European competitors and customers unless they are willing to locate part of

their database operations in Europe.

Now, there was a bill which would have protected U.S. databases

which passed the House largely without opposition twice in the last

Congress, and we would like to thank you, Mr. Chairman and

members of the subcommittee, for making that possible.

We believe that that bill, while it required further refinement to

reflect users’ concerns, did reflect more than 3 years of hearings

and discussions and did balance users’ and producers’ needs, and

did substantially address administration concerns and satisfy the

European Union directive.

Also we believe it was based on sound economic principles. We

had an economic analysis conducted of last year’s bill that concluded that it not only preserved economic incentives for database

development but also guarantees access to users at competitive

prices.

While we urge the subcommittee to act quickly on this issue, we

hope that you would build on the progress that has already been

achieved. Thank you for your attention.

[The prepared statement of Henry Horbaczewski follows:]

PREPARED STATEMENT OF HENRY HORBACZEWSKI, SENIOR VICE PRESIDENT AND GEN- ERAL COUNSEL, REED ELSEVIER, INC., ON BEHALF OF THE COALITION AGAINST

DATABASE PIRACY

Mr. Chairman and Members of the Subcommittee, thank you for the opportunity

to appear before you today. My name is Henry Horbaczewski, Senior Vice President

and General Counsel for Reed Elsevier Inc. I am submitting this statement on behalf of the Coalition Against Database Piracy (‘‘CADP’’) of which Reed Elsevier is

a member. Mr. Chairman, CADP welcomes the opportunity to share with the Subcommittee its views on Title I of H.R. 1858, the Consumer and Investor Access to

Information Act of 1999. We will explain briefly why Title I fails both to provide

the incentive needed to encourage database producers to create and disseminate

their databases to the public and to create the protection needed to shield database

producers from piracy, particularly in a digital world. We will also explain why Title

I falls far short of the ‘‘comparability’’ requirement in the European Union (‘‘EU’’)

Database Directive, thereby leaving U.S. database companies vulnerable to piracy

abroad and putting U.S. database producers at a distinct competitive disadvantage

to their counterparts in the EU.

CADP is an ad hoc group composed of small and large U.S. database producers

who have joined together to secure enactment of effective and balanced federal database protection legislation. CADP’s members include the American Medical Association; The McGraw-Hill Companies; the National Association of Securities Dealers;

the Newsletter Publishers Association; the Newspaper Association of America; the

New York Stock Exchange; Phillips Publishing International, Inc.; Reed Elsevier

Inc.; Silver Platter Information, Inc.; Skinder Strauss Associates; the Software & Information Industry Association; the Thomas Publishing Company; The Thomson

Corporation; and Warren Publishing, Inc.

CADP’s members are an integral part of the U.S. database community. Today, the

United States is the world leader in the creation and distribution of information

databases. In fact, presently about two-thirds of the world’s databases are produced

in the United States. Our members employ or represent many thousands of editors,

researchers, and others who gather, update, verify, format, organize, index and distribute the information contained in their vast array of database products and services. They also invest millions of dollars annually in the hardware and software

needed to manage these large bodies of information.

Together, CADP’s members and others in the U.S. database industry provide the

world with information on everything from antidotes to zoology and everything in

between. They provide a vast array of comprehensive data vital to the successful

operation of our economy, including information about health, communications, finance, banking, business, news, travel and defense.

35

1Letter of Andrew J. Pincus, General Counsel, U.S. Dept. of Commerce, to the Honorable

Henry Hyde, Chairman, House Committee on the Judiciary, May 25, 1999.

By giving consumers and professionals comprehensive, reliable, and up-to-date

tools, database creators play a crucial role in our information-driven society. The effort they exert and the resources they expend to collect, compile, arrange, standardize, correct, index, update, cross-reference, and verify collections of information adds

immense value to a mass of unintelligible, disparate data typically unusable by the

public. Moreover, the investments of database producers in creating, organizing,

maintaining and disseminating their products and services greatly reduce the time

and effort consumers need to spend to conduct important research and ensure the

reliability of the facts included. Without the hard work of database producers, vast

amounts of valuable information would be useless to many users. Despite the fact

that these individuals would have access to raw data, they could not, or would not

want to, expend the financial and human investments made by the database compiler to assure that the database is comprehensive, accurate, up-to-date, and convenient to use. Hundreds of thousands of American jobs depend on a healthy, vibrant U.S. database industry.

CADP’s goal is simple and straightforward: the passage of legislation to deter piracy that causes commercial harm to database creators, while maintaining the traditional balance between the respective interests of the owners and users of information products. CADP understands that the stated purpose of H.R. 1858 was to

reach a similar goal. Title I of H.R. 1858 clearly fails to do so. The so-called ‘‘balancing’’ between database producers and database users established by Title I is so

heavily slanted toward database users, that, if enacted, it would provide little more

than a road map for database pirates. Commercial law does not countenance thievery in other areas, and it should not do so here.

Title I fails to provide database producers with sufficient marketplace stability or

security against piracy to encourage them to create and disseminate their databases

to the public. Consequently, CADP cannot support Title I of this bill.

I. TITLE I OF H.R. 1858 DOES NOT PROVIDE MEANINGFUL PROTECTION TO DATABASE

PROVIDERS.

Regrettably, Title I of H.R. 1858 does not offer database providers any meaningful

protection to help insulate their valuable information products from piracy—especially in a digital environment where perfect copies of databases can be made with

the click of a button and sent to others around the world instantaneously.

CADP respectfully submits, however, that such meaningful protection is offered

by H.R. 354, the Collections of Information Antipiracy Act. As reported by House Judiciary Committee last month, H.R. 354 represents the culmination of three years

of careful consideration of this important issue. In fact, twice in the last Congress

the House of Representatives passed by unanimous consent database protection legislation similar to the current version of H.R. 354. H.R. 354 remains fair and balanced and is also very much a compromise measure. Since its initial introduction

in October 1997, the legislation’s standard of protection has been narrowed time and

again. Most recently, both the Courts and Intellectual Property Subcommittee and

the full Judiciary Committee adopted a series of amendments to H.R. 354 in response to various concerns raised by the Administration and database users. According to the Administration, the resulting bill ‘‘now provides protection for research,

educational and other [including commercial] purposes . . . at least equivalent to ‘fair

use’ under the copyright law.’’ 1

It is our opinion that Title I of H.R. 1858 does not provide any significant protection against database piracy. Indeed, from the Coalition’s perspective almost every

section of Title I raises a concern of either ill-advised policy judgments or unintended consequences. For many important reasons, therefore, some of which we will

outline briefly below, CADP believes that no new legislation is better than the enactment of Title I of H.R. 1858.

II SPECIFIC CONCERNS ABOUT H.R. 1858

A. Private Parties Cannot Sue to Defend Their Interests

Title I denies injured database producers the ability to file lawsuits against those

who misappropriate their products. Instead, it places their fate exclusively in the

hands of a federal agency—the Federal Trade Commission (‘‘FTC’’)—which faces

myriad demands on its limited monetary and personnel resources. By definition, the

36

2Federal Trade Commission Act 15 U.S.C. § 45(a)(2) (1998); cf. H.R. Rep. No. 63-1142, at 18-

19 (1914) (refusing to enumerate prohibited acts of unfair competition in the Federal Trade

Commission Act, on the grounds that ‘‘[i]t is impossible to frame definitions which embrace all

unfair practices. There is no limit to human inventiveness in this field . . . If Congress were to

adopt the method of definition, it would undertake an endless task.’’). 3See Federal Trade Commission Act 15 U.S.C. § 53(b) (1998). Under this section, the FTC may

go directly to a district court and ask for immediate injunctive relief. This usually occurs if an

unfair or deceptive practice is obvious, ongoing or egregious. In cases that would likely arise

under H.R. 1858, a thorough investigation into the potential violation as well as detailed analysis of the meaning(s) of new and unfamiliar statutes would give the FTC stronger footing in

case of later appeal to the Federal Courts. The FTC’s findings of fact from administrative proceedings must be affirmed by a reviewing court if supported by substantial evidence. See id.

§ 45(c). A reviewing court must also give substantial deference to FTC constructions of the Federal Trade Commission Act reached by the Commission during administrative adjudication. See

Id. § 57(e)(3)(a-b). During a Section 13(b) proceeding directly to federal court, the FTC is given

no such deference. Thus, in cases that would probably arise under H.R. 1858, the FTC would

undoubtedly prefer the more thorough, and lengthy, administrative law path. 4The FTC’s Strategic Plan Under the Government Performance and Results Act: FY 1997-2002

at ‘‘Goal 1.’’ 5 Even if an action is ultimately brought, the FTC’s would likely view its task complete, as

long as the database pirate promises not to commit these acts in the future, since the CommisFTC’s jurisdiction is expansive to begin with: it must contend with all types of unfair competition and deceptive business practices.2

Despite the broad range of regulated activity, however, the voluminous statutes

administered by the Commission generally fall into two broad categories. First, the

Commission administers statutes which indirectly protect consumers by ensuring

that the marketplace functions properly—such as the Sherman and Clayton Acts.

In these types of cases, Congress has justifiably declined to leave the detection of

destructive market conduct solely to an agency with limited financial and personnel

resources. The market, and ultimately the consumer, is better served by giving parties materially harmed by this conduct a private cause of action. By giving the FTC

sole power to implement its operative provisions, Title I adopts a ‘‘command and

control’’ approach to the regulation of the database market. Given that this Committee has recently looked askance at bureaucratically centered market regulation, we

are surprised that it has chosen such an approach.

The second category of statutes enforced by the Commission relates to deceptive

conduct that affects consumers directly, such as truth in labeling, odometer laws,

and credit card fraud. Such laws regularly do not provide a right of action to the

individual consumer. Instead, the Commission, after investigation, acts to protect

the interests of consumers as a group after receiving complaints about a particular

practice or company.

Here, many potentially wrongful acts which Title I tries—but fails—to prevent fall

within the first category. By protecting the producer from piracy—which is, by definition, an anticompetitive act—a database protection statute indirectly protects consumers by: (1) preventing market failure caused by free-riders and (2) encouraging

dissemination of as wide a variety of databases as consumer demand will bear.

These goals are much more effectively achieved through a private right of action,

as they are in the vast majority of intellectual property as well as antitrust laws.

Moreover, as a practical matter, official movement within the FTC regularly commences only after lengthy industry-wide investigatory sweeps and numerous private

complaints. Indeed, it is our understanding that it is not unusual in complex or

novel situations—or in cases involving the application of new statutory authority—

for the FTC to investigate an alleged or suspected unfair practice for a full year

prior to initiating official action before an administrative law judge.3 Current digital

technology has given users the power to eviscerate the market for a database in a

fraction of that time. In fact, the emergence of new information technologies has

made the FTC’s job particularly difficult. The agency itself has warned that ‘‘rapid

increases in... Internet fraud could reduce the ability of this agency to achieve its

consumer protection goals... Continued growth of the merger wave and of competitive forces for change in important in important sectors of the economy strain the

agency’s ability to meet its goal of maintaining competition.’’ 4 Without the ability

to go into court for timely relief, many victims of database piracy will be out of business long before the Commission ultimately acts. It is therefore absolutely essential

that any meaningful database protection regime contain a private right of action.

However, even if H.R. 1858 were revised to give private parties a right of action,

the legislation would still prove an unworkable model. Indeed, the substantive provisions of the legislation as introduced place such a high burden of proof on the

agency that it appears virtually impossible to imagine a situation in which marketdestructive activity could be halted.5 This is true even after taking into account exVerDate 11-SEP-98 10:54 Sep 30, 1999 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6621 57446.TXT HCOM2 PsN: HCOM2
37

sion’s regular enforcement strategy is to settle cases via consent order. In exchange for no admission of past wrongdoing, the defendant agrees to a court order directing it to cease its allegedly wrongful conduct. From the Commission’s standpoint, these agreements efficiently restore

balance to the marketplace while preserving the Agency’s resources for cases in which the defendant insistently denies liability, or in which the statutory violations are so egregious that

justice dictates that the Commission litigate the case thoroughly. Although perhaps a sound way

to use the Commission’s limited resources, it provides scant comfort to the database producer

who has seen its product pirated; the wrongdoer keeps its ill-gotten gains, while the producer

is left with no remedy. By virtue of this provision alone, Title I provides no deterrent to wrongful conduct. 6The ‘‘return’’ threshold in H.R. 1858 would be inoperative in any practical sense, even if Congress defined ‘‘a return’’ with specificity. Database producers offer hundreds, if not thousands,

of discrete products and services. This, in itself, presents no problem. What makes the Section

101(5)(B) threshold inoperative is that the myriad of database products and services are produced under conditions of common and joint costs which, in simple economics language, means

that total costs cannot meaningfully be allocated to the production of individual products. Computing a rate of return, any rate of return, becomes a meaningless exercise. This is not a novel

conclusion. The economic deregulation of a host of industries over the past twenty years is due

in large part to the inability of rate-of-return regulation to generate results consistent with an

incentive-driven economic marketplace.

pedited procedures for temporary or permanent injunctive relief available through

the FTC in egregious and patently obvious cases of unfair practice.

B. H.R. 1858 Provides Relief Only After an Injured Database Producer Has Posted

Its ‘‘Going Out Of Business Sign’’

Title I excuses far more extensive takings—and far more extensive replication—

of a producer’s database than is reasonable, and than has been traditionally permitted under U.S. laws governing other intellectual property laws—whether patent,

trademark, misappropriation or copyright. It allows a thief to avoid liability by the

simple contrivance of cutting and pasting material to what they have misappropriated so that the ‘‘new database’’ is not ‘‘substantially the same’’ as the original

database. In essence, this high standard requires the FTC to establish that the new

database is entirely identical, or virtually identical, to the existing one in order to

prevail. For example, under H.R. 1858’s ‘‘substantially the same’’ standard, a pirate

could copy an alphabetical directory of restaurants created by database producer ‘‘A’’

and merge them with a separate alphabetical directory of restaurants created by

database provider ‘‘B.’’ The pirate escapes liability because, although the new database contains A and B’s products in their entirety, it is ‘‘substantially the same’’ as

neither. Thus, by permitting activity analogous to the use of a pair of scissors and

a stapler, the legislation leaves the producer without a remedy.

In addition, Title I of H.R. 1858 condemns only activity undertaken in ‘‘competition’’ with the injured database. To be competitive, the pirate must displace ‘‘substantial’’ sales or licenses, and ‘‘significantly threaten’’ the opportunity to ‘‘recover

a return’’ on investment. These two standards pose unduly high hurdles for database owners and far exceed the already heightened ‘‘material harm’’ test set forth

in H.R. 354. In fact, the ‘‘significantly threaten’’ standard is so high it renders the

general prohibition utterly meaningless. For instance, as long as a company remains

in business and the product remains for sale or license, the ‘‘opportunity to recover

a return’’ exists.6 Significant harm exists, presumably, only when the market for the

database has been totally destroyed. Moreover, the fact that the prohibition is limited to the displacement of substantial sales or licenses insulates from liability

wholesale copying of those databases which are neither sold nor licensed, but which

generate revenues through the sale of advertising space—a growing source of revenue for various database producers.

C. Title I Exempts an Intolerably Wide Range of Both Nonprofit and Profit-Seeking

Scientific, Educational and Research Takings.

CADP recognizes that nonprofit users should have somewhat more leeway to appropriate the contents of a protected database than do profit-seeking ones. Under

H.R. 354, for example, nonprofit scientific, educational and research takings are

generally exempt only if they do not materially harm the primary market for a database. Moreover, both nonprofit and profit-seeking users may be totally exempt under

H.R. 354’s reasonable use exception. The distinction between eleemosynary and

profit-making entities is based, in part, on the widely accepted premise that profitseeking entities must and should be held to a higher standard, because securing

lawful, authorized access to the products of others is part of the cost of doing business, whether those products are tangible or intangible (as in the case of databases).

In contrast, Title I of H.R. 1858 draws no distinction between nonprofit and profitseeking scientific, educational or research uses. Neither does it acknowledge that

38

7See Pub. L. No. 105-304, 112 Stat. 2860 § 5123(a-d)(1998).

such unauthorized takings may injure markets, or that profit-seeking and non-profit

‘‘scientific, educational [and] research’’ entities, including companies, institutions

and individuals, are very important markets for many database publishers. Instead,

Title I offers database producers no protection for those markets except in those exceedingly narrow instances where the offending activity is part of a ‘‘consistent pattern engaged in for the purpose of direct commercial competition . . .’’

Under Title I, both damaging single or occasional acts of piracy are tolerated, and

the impact of such activity being or becoming widespread is wholly ignored. A single

act of misappropriation that destroys a database’s market—such as an individual

uploading a database onto the World Wide Web under the guise of accomplishing

some ‘‘research’’ or ‘‘educational purpose’’—would go completely unpunished. Indeed,

even if particular acts of piracy are part of a ‘‘consistent pattern,’’ they are still permitted unless undertaken ‘‘for the purpose of direct competition.’’ This further limitation would apparently exclude unauthorized dissemination within business entities and institutions; takings motivated by a desire to avoid payment of fees; piracy

of databases in related markets; and whatever else may be conjured up as mere ‘‘indirect competition.’’

D. H.R. 1858 Allows Government Entities to Lock Up Information

The bill, in section 101(6), exempts only federal government databases from protection. State and local governments may claim protection for data under the bill.

As a matter of fundamental public policy, we believe that this is an unwarranted

imposition on the flow of government information.

E. H.R. 1858 Hurts Small Information Businesses by Allowing Corporate Users to

Pay for Only One Copy of a Database

Title I of the bill prohibits only the sale or distribution ‘‘to the public’’ of a database that duplicates another database and is sold or distributed in commerce in

competition with that database. The breadth of this exclusion would permit many

market harmful acts, including dissemination of databases over closed electronic

networks. In addition, unauthorized distribution within business entities, institutions, consortia, and other presumably nonpublic environments would likely grow.

For example, a large profit-seeking corporation that scans an entire database into

its computers and makes it available over a corporate intranet to every employee

would not violate the Act’s provisions.

F. Title I’s Service Provider Liability Exemption Is Overly Broad

Section 106(a) of H.R. 1858 exempts service providers from any liability for a violation, as long as they do not initially place the offending database on its system

or network, irrespective of whether they receive a direct financial benefit. This is

a far more extensive exclusion than the detailed, conditional limitations on certain

relief accorded to service providers under the Digital Millennium Copyright Act

(‘‘DMCA’’)—passed less than a year ago—and in our view, is unwarranted.7 We are

aware, Mr. Chairman, that the Judiciary Committee has indicated its intent to revise the Internet service provider provisions now contained in H.R. 354, so that they

more closely resemble those found in the DMCA.

G. Misuse Provisions Invite Government Micro-management of Legitimate Business

Practices

Section 106(b) of the legislation precludes liability if the ‘‘person benefiting from

the protection accorded a database’’ misuses the protection. As an initial matter, it

is far from clear how misuse is relevant at all, as the FTC would have sole enforcement authority. Presumably, the Commission acts to vindicate the public interest

(rather than private benefits) in database protection, and should not be deterred by

alleged misdeeds of the victimized parties. This section’s description of the ‘‘factors’’

in a judicial ‘‘misuse’’ inquiry are little more than barely disguised attacks on—and

bases for judicial regulation and indirect but potent FTC regulation of—pricing, contracting, technology deployment, and other entirely legitimate business practices.

The section will cause protracted proceedings over issues generally irrelevant to the

question of database piracy. Its provisions are so broad that any attempt by a publisher to protect the investment in its database through password access, licensing

terms, or trade secret policies could easily present a factual dispute as to whether

the provider has ‘‘misused’’ its protection.

39

8See Directive 96//EU of the Eur. Parl. and of the Council on Legal Protection of Databases,

art. 7, Feb. 5, 1996 [hereinafter EU Directive]. 9See EU Directive, supra note 5, recital 56. 10 It appears the only other option for non-EU database producers seeking to protect their

products in Europe is to create a substantial presence in Europe, which can be accomplished

only at the expense of U.S. jobs and tax revenues. 11The Commission recently began the formal procedure for bringing legal action against the

remaining six states. Those states not currently meeting their obligations can be expected to

do so in the near future. 12See Council Directive, supra note 5, art. 5.

III. H.R. 1858 DOES NOT PROVIDE PROTECTIONS EQUIVALENT TO THOSE ESTABLISHED IN

THE EU DATABASE DIRECTIVE

In March 1996, the European Union adopted a Directive on the protection of databases, which creates a new sui generis right similar to copyright.8 The Directive constitutes an obvious effort by the EU countries to increase their share of the growing

global database market, primarily at the expense of U.S. database providers. Generally, under the Directive, databases created outside the European Union are not

protected from piracy unless the countries in which these owners reside provide a

level of protection that the EU Commission deems ‘‘comparable.’’ 9 Without comparable U.S. legislation, U.S. databases will not be protected from piracy in Europe,

thereby placing the U.S. database industry at a significant competitive disadvantage

in the huge EU market.10 Each day that passes without fair, balanced and comparable U.S. legislation gives the EU database-producing industry another leg up

on its U.S. competitors.

Consistent with the EU’s requirements, many of the United States’ major trading

partners in the EU have already implemented comparable database protection laws.

Belgium, Sweden, Austria, Denmark, Finland, Germany, Spain, France, and Great

Britain have all passed database protection legislation.11 As time passes, however,

the vulnerability of United States databases will not be limited to the EU alone.

The U.S. may also suffer disadvantages in developing markets.

Many Latin American countries, for example, have bilateral reciprocity-based relationships with Spain, which will require the enactment of similar statutes. In addition, Eastern European countries, either in the interest of gaining admission to

the EU, or as a result of bilateral agreements, will probably also pass database protection laws within the next few years. Therefore, it is imperative that the U.S. government act without further delay to establish law in this country that is commensurate with U.S. traditions and practices, so that the EU Commission can view it

as providing protection that is comparable to that afforded under the EU Directive.

There can be no doubt that the protection provided under H.R. 1858 falls well

short of protection comparable to that provided in the EU directive. Even a cursory

comparison of Title I and the EU Directive reveals its shortcoming in the context

of EU comparability. The most significant areas of difference between H.R. 1858 and

the EU Directive are found in the general prohibition provision, the limitations and

exceptions to the prohibition, and the remedies and means for enforcement. A brief

comparison of these provisions will illustrate H.R. 1858’s deficiencies.

With regard to the general prohibition, the protections against database piracy in

H.R. 1858 are much narrower than those set forth in the EU Directive. The EU Directive provides EU-based database producers and database producers from countries with comparable laws with an exclusive right to authorize and prevent the extraction and re-utilization of a protected database.

H.R. 1858 provides no such rights. Whereas the EU Directive applies to the acts

of extraction and utilization, H.R. 1858 only covers the acts of sale and distribution.12 As already noted above, Title I’s limited prohibition is narrowed further by

requiring that a database be sold or distributed to the public, so that sales and distributions within an organization or to small groups of people would likely fall outside the bill’s provisions. The prohibitions against sale and distribution in H.R. 1858

are further limited in that they only apply: (1) where the two databases at issue

are identical or virtually identical; (2) the database ‘‘displaces substantial sales or

licenses of the database’’; and (3) the database ‘‘significantly threatens the opportunity to recover a return on the investment’’ of the database. There is little doubt

that the EU Commission would never judge these provisions of H.R. 1858 as comparable protection.

With regard to the exceptions and limitations, those found in H.R. 1858 vastly exceed the ones enumerated in the EU Directive. The EU Directive provides four exceptions, namely (1) a fair-use type exception; (2) a private purpose exception; (3)

a limited exception to the extraction right for the purpose of illustration for teaching

40

13See id. art. 6, cl. 1-2.

and scientific research; and (4) a public security and judicial procedure exception.13

Title I of H.R. 1858 contains many more exceptions and limitations. In addition to

certain generally accepted limitations also found in H.R. 354—such for news reporting and law enforcement activities—the bill also includes extremely broad exceptions for service providers and those who merely claim that their use is for scientific,

educational, or research purposes. These extremely broad exceptions, in conjunction

with the limitations discussed in the preceding paragraph, quite clearly weaken the

general prohibition to such an extent that it cannot be considered remotely comparable to the rights afforded under the EU Directive.

Finally, the remedies and means of enforcing the prohibitions in H.R. 1858 pale

in comparison to the European standard. The EU Directive gives database producers the right to remedial action against acts of piracy. As discussed in detail earlier,

H.R. 1858 reserves that right solely for the FTC. Accordingly, the remedies provided

for under H.R. 1858 cannot be considered to be comparable to those found in the

EU Directive.

CADP does not advocate adopting a U.S. database protection law that mirrors the

EU Directive but ignores traditionally accepted U.S. concepts of protecting intellectual property. At the same time, however, the U.S. database industry cannot endorse enactment of a law whose deficiencies in regard to adequate protection at

home also increase the discrepancies between U.S. and EU law.

CONCLUSION

As stated above, H.R. 1858 fails to provide the protections necessary to deter piracy of existing databases and to afford U.S. database producers adequate incentive

to create new valuable databases and make them generally available. In particular,

H.R. 1858 fails to provide any meaningful protection to database owners and fails

to establish a level of protection necessary to ensure that U.S. databases will be protected at home and abroad.

Consumers will not have access to databases that are not produced or offered in

commerce; the best way of ensuring an abundant supply of databases tailored to

varied needs at competitive prices is to assure that database producers enjoy the

incentives to produce and maintain afforded by a market economy. Each day that

passes increases the threat that another company will have the products its has invested so many resources to create stolen from it. We believe that both producers

and users will benefit much more from market stability and predictability, goals

which regrettably cannot be attained under the provisions of H.R. 1858.

Thank you again for the opportunity to present the views of CADP on this important issue. I will be happy to answer any questions.

Mr. TAUZIN. The Chair is now pleased to recognize Ms. Phyllis

Schlafly. Next will be Tim Casey and then will be James Neal, in

that order. Ms. Schlafly.

STATEMENT OF PHYLLIS SCHLAFLY, PRESIDENT, EAGLE

FORUM

Ms. SCHLAFLY. Mr. Chairman and members of the subcommittee,

Eagle Forum, a nationwide organization with some 80,000 members, compiles databases and uses database information compiled

by others. Among the important current issues we are concerned

about is the defense of the rights of patients to access and control

their own medical information.

We oppose granting special interests, expansive new Federal

rights to control databases. We also oppose expansion of the Federal criminal justice system to cover routine business disputes.

Data-like facts belong to all of us, not merely to the government

or to special interests.

We all benefit from the transformation of facts and data into interesting or valuable forums. Whether it is a comparison of Mark

McGwire’s statistics to Babe Ruth’s or an analysis of real estate or

automobile sales in a community, the free market, not the Federal

41

Government, should be guiding the transformation of facts into

useful forms.

We support your Commerce Committee bill, H.R. 1858, because

it protects the existing rights of individuals to extract essential

data such as their medical records. We support your bill because

it does not create draconian new Federal crimes with respect to

facts or databases.

Your Commerce Committee bill is far superior to H.R. 354, recently approved by the Intellectual Property Subcommittee. The

Commerce Committee bill protects the right of individuals to access

data such as their medical records, and it does not limit the right

of access to or the extraction of data.

State laws guaranteeing the right of individuals to access data,

such as their medical records, remain intact under your bill. When

a family switches doctors or gets a second medical opinion, it needs

to access all of its medical records immediately and transfer them

to the new doctor.

No entity should have a proprietary interest that can exclude

this legitimate access. When families switch health plans or doctors, they should not have to duplicate medical tests because their

initial health plan refuses to release their records.

We also need unrestricted access to information about the side

effects of prescription drugs and vaccines. We oppose the Intellectual Property Subcommittee bill which preempts these fundamental rights of individuals. In response to criticism, the Intellectual

Property Subcommittee recently added section 1405(h), but that

language only makes the matter worse.

The Intellectual Property Subcommittee bill is fatally defective.

The Commerce Committee bill is superior to the Intellectual Property Subcommittee bill with respect to Federal criminal law. It is

undesirable to expand Federal criminal jurisdiction over business

disputes. The free market should function through competition, not

through the Federal criminal court system.

Businesses should not be encouraged to demand that Federal

prosecutors bring actions against their competitors. Civil court is

where business disputes belong. The Intellectual Property Subcommittee bill creates new prison sentences of 5 and 10 years and

new Federal fines of $250,000 and $500,000 for routine business

activities that are now perfectly legal. Neither the public nor the

Federal court system benefits from the creation of vast new Federal

crimes.

We support the exclusion in your bill of statutory protection for

any database that has been misused. The doctrine of misuse is well

established in copyright law and your bill wisely incorporates this

doctrine.

The Intellectual Property Subcommittee bill on the other hand

conspicuously bestows legal entitlements on those who misuse

databases. Indeed, one of its original purposes was to overturn a

9th circuit decision that it found database misuse by the American

Medical Association.

In light of the unanimous Supreme Court decision in Feist, originality is a constitutionally protected, mandated prerequisite for

copyright protection. New Federal protections for databases should

42

be addressed by the Commerce Committee, rather than the Subcommittee on Intellectual Property.

Databases of public domain facts are not a form of intellectual

property, nor should they be. There is no intellectual property issue

at stake with respect to databases, and the attempt by the Intellectual Property Subcommittee to create a new right in databases is

contrary to the Constitution.

Moreover, the sine qua non of intellectual property law is to encourage the creation of works that might not otherwise be created.

But the Intellectual Property Subcommittee bill seeks to protect

databases already in existence for which no incentive is necessary.

That violates the very purpose of intellectual property law and

amounts to a giveaway to a few special interests.

Thank you, Mr. Chairman, for this opportunity to discuss the advantages of your bill.

[The prepared statement of Phyllis Schlafly follows:]

PREPARED STATEMENT OF PHYLLIS SCHLAFLY, PRESIDENT, EAGLE FORUM

Mr. Chairman and Members of the Subcommittee. I am Phyllis Schlafly, president

of Eagle Forum. Thank you for giving me this opportunity to testify.

Eagle Forum, a nationwide organization with some 80,000 members, both compiles databases and uses database information compiled by others. Among the important current issues we are concerned about is the defense of the rights of patients to access and control their own medical information. We oppose new federal

entitlements to special interests, such as expansive new federal rights to control

databases. We also oppose expansion of the federal criminal justice system to include routine business disputes. Eagle Forum has published numerous reports on

these topics.

Eagle Forum supports H.R. 1858 because, while it prohibits unfair copying of

databases, it does not prohibit the extraction of information from databases. It is

increasingly important for individuals and small businesses to be able to extract information from databases. Individuals, for example, need to access their own medical data in order to obtain second and third medical opinions. We also need unrestricted access to public-domain medical information to learn about side effects of

prescription drugs and vaccines. Analysts have estimated that almost half of all

Internet users have searched for medical information online. We oppose any database legislation that creates new barriers to legitimate access to medical data.

Small businesses likewise need access to data simply to survive in our information-dominated society. We do not want new legislation that encourages the monopolization of data or makes access to data suddenly costly or impossible. Data, like

facts, belong to all of us, not merely to the government or to special interests. We

all benefit from and use the transformation of facts and data into interesting or valuable forms. Whether it is a comparison of Mark McGwire’s home run statistics to

Babe Ruth’s, or an analysis of real estate or automobile sales in a community, the

free market rather than the federal government should be guiding the transformation of facts into useful forms. No federal database legislation should make it

more difficult for us to obtain legitimate access to data.

We support H.R. 1858 because it protects the existing rights of individuals to extract essential data such as their medical records. We support H.R. 1858 because

it does not create draconian new federal crimes with respect to facts or databases.

We support H.R. 1858 because it excludes from its protection those who misuse

data. We support H.R. 1858 because it treats database issues as within the jurisdiction of the Commerce Committee rather than the Subcommittee on Courts and Intellectual Property.

On each of these important points, H.R. 1858 is far superior to H.R. 354, which

was recently approved by the Subcommittee on Courts and Intellectual Property.

I. INDIVIDUALS’ RIGHT TO ACCESS DATA

Individuals must retain their right to access data such as their medical records.

Both Republicans and Democrats support this right. For example, one year ago Vice

President Gore declared in a commencement address at New York University that

‘‘you should have the right to choose whether your personal information is disclosed;

you should have the right to know how, when, and how much of that information

43

is being used; and you should have the right to see it yourself, to know if it’s accurate.’’

H.R. 1858 protects this right of individuals to access data such as their medical

records. It only limits the competitive sale or distribution to the public of a copy

of someone else’s database. H.R. 1858 does not limit the right of access to or extraction of data. State laws guaranteeing the right of individuals to access data such

as their medical records thus remain intact under H.R. 1858.

Let’s look at an example. When a family switches doctors or obtains a second

medical opinion, it needs to access all of its medical records immediately and transfer them to the new doctor. Many state laws protect the right of families to gain

access to their medical records, and thus guarantee that a patient always has access

to his medical records. State laws ensure that patient access to medical records is

prompt, which is particularly important when a patient is seeking a second medical

opinion.

When it comes to medical information, no entity should have a proprietary interest that can exclude legitimate access by others. When families switch health plans

or doctors, they should not have to duplicate medical tests because their initial

health plan refuses to release their records. Federal legislation should not preempt

state laws that guarantee to patients the right to access their own medical records.

Special interests should not obtain federal entitlements to databases that enable

them to exclude access by others.

H.R. 1858 properly avoids preemption of state laws that assure rights of access

to medical records and other information. It is far superior to H.R. 354, which preempts these fundamental rights of individuals. Section 1405(b) of H.R. 354 preempts

existing state laws guaranteeing access to data, and thereby allows health care providers to deny patients access to medical records. Under the doctrine of expressio

unius est exclusio alterius, H.R. 354 preempts state laws guaranteeing an individual’s right of access to his own records. While H.R. 354 itself does not prohibit the

extraction of an ‘‘individual item of information,’’ its preemption of the state laws

deprives the patient of his right to access his own medical information.

In response to criticism, Section 1405(h) was recently added to H.R. 354 to state

that ‘‘[n]othing in this chapter shall be construed to authorize any person

to . . . extract personally identifying information, including medical information.’’ But

this addition only exacerbates the central defect of H.R. 354 in prohibiting legitimate access to information. Families need access to medical information, and H.R.

354 improperly denies them such access.

New federal legislation concerning databases must limit itself to the issue of unfair copying, not deny existing rights to access and extract information. H.R. 1858

incorporates the best approach, while H.R. 354 is fatally defective.

II. AVOIDANCE OF DRACONIAN NEW FEDERAL CRIMES

H.R. 1858 is far better than H.R. 354 with respect to federal criminal law. It is

undesirable to expand federal criminal jurisdiction over business disputes. The free

market should function through competition, not through the federal criminal court

system. Businesses should not be encouraged to demand that federal prosecutors

bring actions against competitors. Civil court is where business disputes belong, and

it is a mistake to expand federal criminal law to commercial disagreements.

In contrast to H.R. 354, H.R. 1858 admirably refrains from establishing draconian

new federal crimes in order to protect narrow special interests. H.R. 354 creates

new prison sentences of 5 and 10 years for routine business activities that are now

perfectly legal. H.R. 354 also creates new federal fines of $250,000 and $500,000 for

such activities. Neither the public nor the federal court system benefits from the

creation of vast new federal crimes that are designed to police activities such as the

posting of public domain medical information or baseball statistics on the Internet.

Severe new criminal penalties are particularly inappropriate when the legislation

is ambiguous. New federal crimes that are framed in ambiguous language have the

effect of chilling lawful, beneficial activity. The central provision of H.R. 354 is filled

with ambiguous terms such as ‘‘substantial part,’’ ‘‘material harm to the primary

market or a related market,’’ and ‘‘intended to be offered in commerce.’’ It is impossible to predict how the courts would interpret these terms, and thus criminal penalties of up to 10 years in prison and $500,000 fines would have an unwarranted

chilling effect on many legitimate and valuable activities. H.R. 354 even includes

a provision to permit an alleged database owner to submit a ‘‘victim impact statement’’ about his alleged business injury from someone else’s use of facts such as

medical information or baseball statistics. H.R. 354 thereby attempts to transform

competition into a federal crime, and trivializes federal criminal law in the process.

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H.R. 1858 uses clearer language than H.R. 354, and omits the draconian new

criminal penalties. H.R. 1858 thereby avoids the chilling effects of H.R. 354, and

avoids expanding federal criminal law to include ordinary business disputes.

III. EXCLUSION OF PROTECTION FOR MISUSE OF DATA

We support the exclusion in H.R. 1858 of statutory protection for any database

that has been misused. The doctrine of misuse is well-established in copyright law

and H.R. 1858 wisely incorporates this doctrine into this database statute as well.

The rationale is simple: misuse of rights over a database disqualifies the perpetrator

from legal protection. Our legal system disfavors providing relief to wrongdoers

under the doctrine of unclean hands. H.R. 1858 incorporates this principle.

H.R. 354, however, conspicuously bestows legal entitlements on those who misuse

databases. Indeed, one of the original purposes of H.R. 354 was to overturn a Ninth

Circuit decision that had found misuse by the American Medical Association (AMA)

in control of a database. In Practice Management Info. Corp. v. AMA, 121 F.3d 516

(9th Cir. 1997), the Ninth Circuit denied the enforceability of an AMA copyright on

the medical billing CPT coding system because the AMA had ‘‘misused’’ its copyright. As a result, the Ninth Circuit denied enforceability by the AMA of exclusive

rights to the CPT database.

It was only two months later that the predecessor to H.R. 354 was introduced in

the House, and six months later the AMA provided the key testimony in support

of that bill. H.R. 354 bestows special federal entitlements even on those who are

found to have misused their rights. H.R. 354 is apparently designed to benefit special interests such as the AMA by overfunding well-reasoned appellate decisions.

IV. DATABASE IS A COMMERCE ISSUE, NOT AN INTELLECTUAL PROPERTY ISSUE

In the unanimous Supreme Court decision of Feist Publications v. Rural Telephone Service, 499 U.S. 340 (1991), the Court held that: ‘‘Facts, whether alone or

as part of a compilation, are not original, and therefore may not be copyrighted...[O]riginality is a constitutionally mandated prerequisite for copyright protection.’’ There is widespread agreement with this ruling, and it deserves credit in

promoting the information-based economy that has benefited everyone in recent

years.

In light of this unanimous decision, new federal protections for databases, as compilation of facts, should be addressed by this Subcommittee rather than the Subcommittee on Courts and Intellectual Property. Automatically generated databases

of public domain facts are not a form of intellectual property, nor should they be.

Rather, databases are compilations of data useful to individuals and businesses in

commerce. H.R. 1858 recognizes that unfair copying of a database should be treated as an

unfair or deceptive act or practice under section 5 of the Federal Trade Commission

Act. Section 107(c) of H.R. 1858 recognizes that there is no intellectual property

issue at stake with respect to databases. The attempt by H.R. 354 to create a new

sui generis intellectual property right in databases is contrary to the Constitution.

The extent to which the Constitution allows copyrights to cover factual compilations

has already been delimited by the Feist decision.

Moreover, the sine qua non of intellectual property law is to encourage the creation of works that might not otherwise be created. The Constitution expressly includes this requirement in Article I, Section 8, clause 8: ‘‘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.’’ The Supreme

Court has repeatedly affirmed that the plain meaning of this clause is ‘‘the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in ‘Science and

useful Arts.’ ’’ Mazer v. Stein, 347 U.S. 201, 219 (1954), which was quoted with approval in Harper & Row Publishers v. Nation Enterprises, 471 U.S. 539, 558 (1985).

But H.R. 354 seeks to protect databases already in existence, for which no incentive is necessary. Its retroactive application violates the very purpose of intellectual

property law, and thus amounts to a giveaway to a few special interests. H.R. 1858

properly applies only to a database ‘‘that was collected and organized after that

date.’’ Thus H.R. 1858 does not favor existing entrenched interests, and limits its

protections to databases to which the incentive applies.

V. NEED FOR A TIME LIMITATION

Finally, I suggest that H.R. 1858 be modified to include a time limitation on the

protections provided by this Act. Not even copyright or patent rights last forever;

nor should new database rights be in perpetuity. Databases are being compiled at

45

an unprecedented rate, and it is far from clear that new federal protections of databases are even economically desirable.

The markets for databases of facts and other public domain information appear

to demand timely updates to the databases, so I do not believe that new protections

for old databases will promote commerce.

Five years of federal protection should give a more than adequate opportunity for

a compiler of data to attain a return on its investment. Thereafter the public should

not be prohibited from copying any uncopyrighted data for lawful and beneficial purposes.

Mr. Chairman, I am grateful for this opportunity to discuss the advantages of

H.R. 1858. I appreciate the Members of this Subcommittee in drafting this superior

legislation and holding this important hearing. We look forward to working with

this Subcommittee on this legislation.

Mr. TAUZIN. I thank the gentlelady. The gentlelady was singing

our jurisdictional song.

The Chair is now pleased to recognize Mr. Tim Casey, chief technology counsel for law and public policy at MCI WorldCom.

STATEMENT OF TIMOTHY D. CASEY, CHIEF TECHNOLOGY

COUNSEL, LAW AND PUBLIC POLICY, MCI WORLDCOM

Mr. CASEY. Thank you, Mr. Chairman and Mr. Bliley and other

members of the subcommittee. Thank you for inviting MCI

WorldCom to testify on behalf of H.R. 1858. As many of you have

recognized, H.R. 1858 takes the right approach to database protection. It prevents the thefts of databases, but also maintains the

public’s access to information that promotes progress and innovation in this age of information.

My company builds and operates communications networks so we

understand the legitimate need for protection from the theft of certain database products; but we also know very well what can happen when protection goes too far. That is why we like H.R. 1858

and its measured approach.

It doesn’t start with overly broad protection and then attempt to

exempt or carve out every important type of database or use of a

database that anyone can think of. There are many databases and

many uses of databases that could be considered harmful to the

economy and the American public if protected in such a broad form.

More importantly, we don’t even know what they are yet, and we

should not have to try to figure this out in advance. In relation to

other legislation, we came up with an idea based on my mom’s own

interest in genealogy, and that resulted in an exemption for genealogical information. You can come up with a thousand other examples of information that should be exempted from overly broad protection, but the American public should not have to be doing that

in advance of this legislation.

Sound legislation should begin with a narrow scope of protection

and build on that base only to the minimal extent necessary. Like

H.R. 1858, it lays a solid foundation upon which a new law can

rest, not an unstable base. If the legislation is not well structured,

Congress will spend many years trying to correct what could have

been done right now.

H.R. 1858 contains exclusions and exemptions related to computer programs and the Internet because it has to. Telecommunications and the Internet depend heavily on databases that could

otherwise be protected and therefore closed off from free public use.

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A narrow approach by its very nature allows for derivations of

those databases and uses that allow for innovation to continue.

A broad approach, by contrast, sweeps in and thereby prevents

new and innovative uses of collections of information. Let me try

to explain that within the context of the Internet. Most users of the

Internet do not fully appreciate how much the underlying networks

depend on databases. These networks will not operate without free

and open access to thousands of databases that are necessary for

everything from call routing to operator services to accurate billing.

The Internet is just a combination of network computers and their

databases, and as such is particularly dependent upon the open

sharing of information.

Internet protocol addressing, data packet routing, conversion tables, protocol priority listings, file format information, and domain

name registries are just a few examples of the type of functions

performed within the Internet every minute of every day through

reliance on what are presently publicly available databases, but

which may not be if the wrong choice is made in terms of the legislative approach.

The Internet protocol upon which all Internet communications

are based makes liberal use of databases. At the application level

where many electronic commerce resources will reside and hopefully thrive, a wide variety of additional protocols and application

types are used that require open access to open databases.

These types of data that must be shared to ensure that Internet

users can communicate effectively are as varied as the applications

themselves. People must be free to link to sites, to frame to sites,

to collect information for their own use and to create new products

and services such as the Yahoo! example that Chairman Tauzin

used earlier.

Open access to the databases underlying the operation of the

Internet has allowed it to grow and flourish. Any threat to the open

access poses an unacceptable risk to the feature of this new medium and all the economic and societal benefits that is promises.

H.R. 1858 is the correct approach because it does not require

that every critically important use of the database be called out

and exempted up front. We cannot and should not be required to

bear the burden of anticipating the future. H.R. 1858 does not require us to do this to the same extent and assures that no self-interested party will be able to hold the Internet hostage by locking

up databases which are vital to its operation.

As a pioneering leader in the communications industries, MCI

WorldCom believes that H.R. 1858 meets the need of both the communication industries and the database industry without unduly

upsetting hundreds of years of legal principles. H.R. 1858 will prevent the outright theft of valuable databases while leaving in place

the access to information on which our economy and our society

will increasingly depend.

Thank you, Mr. Chairman and members of the subcommittee, for

inviting me to testify. I will be happy to take questions later.

[The prepared statement of Timothy D. Casey follows:]

47

PREPARED STATEMENT OF TIMOTHY D. CASEY, CHIEF TECHNOLOGY COUNSEL, MCI

WORLDCOM

Chairman of the Committee, Mr. Bliley, Subcommittee Chairman, Mr. Tauzin,

and other Members of this Subcommittee, thank you for inviting MCI WorldCom to

testify on behalf of H.R. 1858, the ‘‘Consumer and Investor Access to Information

Act of 1999.’’

As you, Chairman Bliley, and the cosponsors of this bill have clearly recognized,

the approach to database protection embodied in H.R. 1858 strikes the appropriate

balance between the need to prevent the theft of collections of information and the

equally important need to maintain public access to information to promote progress

and innovation in this Age of Information—and beyond.

Although I am in the business of building and operating communications networks, I clearly understand that those who are engaged in the building of databases

for a living must be provided some limited protection against the misappropriation

of their investments.

In contrast to H.R. 1858’s measured approach, alternative attempts at legislation

began with an overly-broad scope of protection and then exempted, or carved out,

one existing or potential use after another. To date, numerous examples continue

to arise regarding uses of data that may be considered harmful to the economy and

the American public if protected in this broad form.

It is a precept of sound legislation to begin with a narrow scope of protection and

to build on that core protection only to the minimal extent necessary. Doing so lays

a solid foundation upon which the new law can rest; doing otherwise, results in an

unstable base which ultimately will not support the unwieldy structure above.

Though H.R. 1858 contains a number of exemptions, they have more to do with

the need to clarify that certain types of databases must forever remain outside the

scope of protection to be afforded. The innumerable databases upon which modern

telecommunications and the Internet depend are one such example.

The principal risk associated with a broad scope of protection is the actual or potential outlawing of value-added uses, commonly referred to as ‘‘transformative’’

uses, which build on existing collections of information. A narrow approach by its

very nature allows such innovation to continue, maintaining the public benefits

flowing therefrom. A broad approach, by contrast, sweeps in—and thereby prevents—new and innovative uses of collections of information.

Most users of the Internet and telecommunications services—and even many of

the providers of such services—do not fully appreciate the underlying communication networks’ dependency on databases. These networks will not operate without

free and open access to thousands and thousands of databases necessary for everything from call routing to operator services to accurate billing. The Internet—which

is just a combination of network computers and their databases—is particularly dependent upon the open sharing of information. Internet Protocol addressing, data

packet routing, conversion (look up) tables, protocol priority listings, file format information, and domain name registries, are just a few examples of the types of critical functions performed within the Internet every minute of every day through reliance on what are presently publicly available databases.

To communicate using the Internet, a host computer (meaning any end point computer on the Net) must implement a layered set of communications protocols comprising the Internet Protocol suite. These include the Application Layer; the Transport Layer; the Internet Layer; and the Link Layer.

At the application level, where many electronic commerce resources will reside

and hopefully thrive, a wide variety of protocols and application types are used that

require access to open databases. The types of data that must be shared to ensure

that Internet users can communicate effectively are as varied as the applications

themselves.

Increasingly, protocols implemented in the Transport Layer will be relied upon to

guarantee delivery of particularly important Internet communications. The individuals and businesses depending on electronic commerce for the accurate, timely delivery of their communications will also depend on unencumbered access to the databases supporting all such services.

Further, all these layers are based on Internet Protocol (IP), which is itself a constantly evolving standard that depends on access to publicly available databases.

Open access to the databases underlying the operation of the Internet has allowed

it to grow and flourish. Any threat to that open access—however remote—poses an

unacceptable risk to the future of this new medium and all of the economic and societal benefits it promises for every American.

H.R. 1858 is the correct legislative approach because it is impossible to determine

every critically important use of a database that should be exempt from an overly

48

broad legislative approach. Indeed, we cannot—and should not—be required to bear

such a burden, and any legislative approach that imposes it will do more harm than

good. H.R. 1858 assures that no self-interested party will be able to hold the Internet or the telecommunications networks hostage by locking up any databases which

are vital to other parties’ operations.

As a pioneering leader in the competitive telecommunications and Internet industry, MCI WorldCom believes that H.R. 1858 meets the needs of both the communications industry and the database industry without unduly upsetting traditional

principles of intellectual property law. H.R. 1858 will prevent the outright theft of

valuable databases while leaving in place the access to information upon which our

economy—and our society—increasingly depends.

Thank you, Mr. Chairman, members of the subcommittee, for inviting me to testify today. I would be very happy to answer any questions you may have.

Mr. TAUZIN. Thank you, very much, sir.

The Chair is now pleased to welcome Mr. James Neal, dean of

libraries, Baltimore, Maryland, Johns Hopkins University Libraries. Next will be Mr. Henderson and then Mr. O’Brien and finally

Donald Baptiste in that order. Mr. James Neal.

STATEMENT OF JAMES G. NEAL, DEAN OF LIBRARIES, JOHNS

HOPKINS UNIVERSITY LIBRARIES, MILTON S. EISENHOWER

LIBRARY

Mr. NEAL. Thank you, Mr. Chairman. I am testifying on behalf

of the Nation’s major library association which represents 80,000

librarians and libraries in every community throughout North

America. Thank you for this opportunity to appear before the subcommittee on H.R. 1858.

We very much appreciate the leadership role that you, members

of the subcommittee, and the Full Committee on Commerce have

taken on issues relating to access to information in the digital environment. The preservation and continuation of balanced rights and

privileges in the electronic environment are essential to the free

flow of information and to the success of our library and education

systems. As we construct legislation for the volatile digital environment, we must remember that there are only a few inches between

a halo and a noose.

H.R. 1858 strikes a balance between the interests of selected

database producers, while ensuring that legitimate and appropriate

access to factual information continues. Data and information are

the foundation of research, scientific, and technology programs.

And these facts are essential to how members of our public use information in their daily lives.

To keep this balance, all sectors, public and private, must

rethink and reconfigure services and business models to meet the

challenges of a network environment. Last year this subcommittee

recognized that modified copyright and intellectual property regimes would be a key component in how these differing sectors

adapt to the digital environment.

This is critically important that all proposals be considered in

light of the need for this balance and fairness to all communities.

The library community understands that unauthorized digital copying can lead to piracy. We have invested significant amounts in

educational campaigns within our communities and institutions,

and we have purchased technology to ensure that adequate safeguards are in place.

49

Libraries in the U.S. last year spent well over $2 billion purchasing and licensing information. For example, the library acquisitions

budget this year at Hopkins is approximately $8 million, and we

are spending over $1 million to online resources, and this resource

is growing.

My testimony brings your attention to three key aspects of H.R.

1858. First, the need to preserve the fair use of information and to

keep factual information in the public domain.

Second, the need to promote the progress of science, education,

and research. And third, the need to provide safeguards against

monopolistic pricing. For over 200 years the information policy of

this country has protected creativity, not factual information. This

policy has served us extremely well and has allowed libraries and

educational institutions and the constituencies they serve to flourish.

Access to information data are the building blocks of knowledge

and are essential to the advancement of knowledge in countless

fields. Our democracy is based on the premise that access to information, government information in particular, not only leads to a

more informed citizenry but strengthens our Nation.

My second point. The success of our Nation’s education and research systems is dependent upon the ability of educators and researchers to access data and information for multiple purposes. Scientific and research progress depends upon the ability to use public

domain information, combine public and proprietary data to create

new databases, and reuse existing data. Researchers typically create new knowledge by building upon the works of others.

The provisions in H.R. 1858 appropriately encourage scientific,

educational, and research endeavors while at the same time providing protection to the producers of databases from commercial freeriding of their products and services. As this debate continues, it

is crucially important to understand how our communities use information and engage in research activities because these activities

are not exercises in commercial free-riding, but instead legitimate

and legal practice.

My third and final point. An increasing number of databases, including those developed with Federal funding, are only available

from a single producer. Accessing these resources can prove very

problematic for members of the research and education communities. With only one point of access to a sole source database, the

library has little recourse in accessing that resource.

The publisher or producer of the database is not obligated to permit transformative uses nor is there any leverage in negotiating

the license to moderate cost or permit downstream activities. Provisions in H.R. 1858 provide reasonable terms and conditions for the

user community, and at the same time give the producer economic

benefits.

The library community is keenly aware of the problems associated with the lack of competition, for example in the journal area

where we continue to experience skyrocketing costs. Some context

may be helpful. Between 1986 and 1996, the consumer price index

increased 44 percent. The price of health care increased 84 percent.

The cost of scholarly journals increased 148 percent, more than

three times the rate of inflation and nearly twice the rate of growth

50

in health care costs, and the price to subscriptions to online databases grew even more rapidly.

In an effort to resolve this expensive and unproductive predicament, the library community has initiated projects to inject competition and cost-based pricing into the marketplace. To be successful, though, these efforts should not be thwarted by protectionist

changes to copyright and intellectual property regimes. Instead,

there should be, as demonstrated in provisions of H.R. 1858, a

focus on stimulating innovation and competition.

We have witnessed a significant amount of consolidation in the

publishing arena within the last several years which has a profound impact on our institutions and our users.

As there is a steady contraction in the number of publishers

which leads to diminished competition, we should be extremely

careful that new proposals that we enact can in no way increase

control over information resources.

H.R. 1858 appropriately recognizes this concern by balancing the

interest of users of databases with the needs of publishers.

In closing, Mr. Chairman, we support fully the narrow and targeted approach that is taken in H.R. 1858 to ensure that there is

no negative or unintended consequences for the public and private

sectors which properly rely on access to data in government works.

We thank you and other members of the subcommittee for your

leadership, and we look forward to working with you on this legislation.

[The prepared statement of James G. Neal follows:]

PREPARED STATEMENT OF JAMES G. NEAL, DEAN, UNIVERSITY LIBRARIES, JOHNS

HOPKINS UNIVERSITY ON BEHALF OF THE AMERICAN ASSOCIATION OF LAW LIBRAR- IES, AMERICAN LIBRARY ASSOCIATION, ASSOCIATION OF RESEARCH LIBRARIES, MED- ICAL LIBRARY ASSOCIATION, AND SPECIAL LIBRARIES ASSOCIATION

Mr. Chairman, I am James G. Neal, Dean, University Libraries, Johns Hopkins

University and Past President of the Association of Research Libraries and a current member of the Executive Board of the American Library Association.

I am testifying today on behalf of the nation’s major library associations: the

American Association of Law Libraries, the American Library Association, the Association of Research Libraries, the Medical Library Association, and the Special Libraries Association. Collectively, we represent 80,000 librarians in research, academic, medical, public, law, state-based, and special libraries throughout North

America. Thank you for the opportunity to appear before the Subcommittee to share

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

1999.

Mr. Chairman, we very much appreciate the leadership role that you, members

of the Subcommittee, and the full Committee on Commerce have taken on issues

relating to access to information in the digital environment. The preservation and

continuation of balanced rights and privileges in the electronic environment are essential to the free flow of information and to the success of our library and education systems.

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

a balance between the interests of selected database producers while ensuring that

legitimate and appropriate access to factual information continues. Data and information are the foundation of all research, scientific and technology programs. And

these facts are essential to how members of the public use information in their daily

lives. The library and education communities rely on access to information in all aspects of teaching and research including the preservation of our cultural and scientific heritage. Such access is integral to the success of the U.S. educational and

research effort and the United State’s leadership in the global economy.

Mr. Chairman, to keep this balance, all sectors—public and private—must rethink

and reconfigure services, operations, and business models to meet the challenges of

the networked environment. Last year, this Subcommittee recognized that new or

modified copyright and intellectual property regimes would be a key component in

51

how these different sectors adapt to the digital environment. The new models for

education, libraries, the scholarly and research communities, and businesses should

foster productive and mutually beneficial relationships between public and private,

commercial, and non-profit sectors. Thus it is critically important that all proposals

be considered in light of the need for balance and fairness to all communities.

The library community understands that unauthorized digital copying can lead to

piracy. We have invested significant amounts in education campaigns concerning

appropriate use within our institutions and purchased technology to ensure that

adequate safeguards are in place. This is, of course, in addition to the acquisition

of hundreds of thousands of products and services. Libraries spend well over $2 billion every year on purchasing and/or licensing information. According to studies published in 1998 by the National Center for Education Statistics (U.S. Department of Education), the 8,981 U.S. public systems

spent $789 million on library materials, including electronic formats, in 1995. The

3,303 U.S. academic libraries spent $1.3 billion on information services in all formats. For example, the acquisitions budget for this year at Johns Hopkins University is approximately $8 million with approximately $950,000 devoted to online resources, and this number is growing. These figures do not include hardware, software, network support and equipment, or personnel. And importantly, these figures

do not include the financial, technological, and personnel resources devoted by libraries to preserve information resources so that they are accessible to the public

over time.

My testimony focuses on three key aspects of H.R. 1858 which support the continuation of the library community’s important activities.

• the need to preserve the fair use of information and keep factual information in

the public domain;

• promote the progress of science, education, and research; and

• provide safeguards against monopolistic pricing.

The need to preserve the fair use of information and to keep factual information in

the public domain

For over 200 years, the information policy of this country has protected creativity—not factual information. This policy has served us extremely well and allowed

libraries and educational institutions and the constituencies they serve to flourish.

This policy has also allowed creators and publishers to flourish. Access to data and

information are the building blocks of knowledge and essential to advancement of

knowledge in countless fields. Our democracy is based on the premise that access

to information, government information in particular, not only leads to a more informed citizenry but strengthens our Nation. Provisions in H.R. 1858 will continue

this tradition by permitting the unfettered use of facts—information which is in the

public domain—while affording limited new protections to database producers necessitated by digital technology. The focus of H.R. 1858 is on direct competition, not

mere use of facts, with the goal of preventing displacement of databases by unfair,

anti-competitive practices.

The relatively recent explosion of digital technologies and their quick adoption

into all facets of our lives has resulted in an unprecedented and growing number

of databases. When coupled with the rapid deployment of computer and related

technologies, individuals may obtain and use dozens of databases or sources of information, combine this data with other information, and create new information—information about personal investments, about community activities, about our environment, and more. This activity not only sparks creativity in the academic and research sectors but also presents enormous new opportunities to one of the fastest

growing sectors of our economy, small business. H.R. 1858 permits these types of

activities and supports the growth of all sectors of the economy, not in any way

handicapping one sector at another’s expense.

Promote the progress of science, education, and research

The success of our Nation’s education and research systems is dependent upon the

ability of educators and researchers to access data and information for multiple purposes. Scientific and research progress depends upon the ability to use public domain information, combine public and proprietary data to create new databases, and

reuse existing data. Researchers typically create new knowledge by building upon

the work of others. This practice, often described as, ‘‘standing upon the shoulders

of giants’’ is the basis for our Nation’s global leadership. Provisions in H.R. 1858

permit this practice—so fundamental to our educational system—to continue.

Use, reuse, recompilation of data and information also lead to new products and

services in the public and private sectors. Entrepreneurs use the information resources in libraries, oftentimes government information, to develop new services of

52

value in our information economy. Overly broad protections in this arena would inhibit research and innovation by putting new economic and use barriers in front of

researchers in a quickly moving global economy. Provisions in H.R. 1858 appropriately encourage scientific, educational, or research endeavors while at the same

time, providing protection to the producers of databases from commercial free-riding

of their products and services. As this debate continues, it is crucially important to

understand how our communities use information and engage in research activities

because these activities are not exercises in any capacity of commercial free-riding

but, instead, are legitimate and legal practices.

Provide safeguards against monopolistic pricing

An increasing number of databases, including those developed with federal funding, are only available from a single producer. These ‘‘sole source’’ databases may

contain historical data that cannot be recreated or the economics of recreating some

datasets may not be feasible, such as generation of duplicate datasets from a myriad

of satellite sensors or real-time financial information. Accessing these resources can

prove problematic for members of the research and education communities. With

only one point of access to a sole source database, the library has little recourse in

accessing that resource. The publisher or producer of the database is not obligated

to permit transformative uses, nor is there any leverage in negotiating the license

to moderate costs or permit downstream activities. Provisions in H.R. 1858 provide

reasonable terms and conditions for the user community and at the same time, give

the producer economic benefits.

The library community is keenly aware of the problems associated with lack of

competition in the journal arena where we are seeing skyrocketing costs. Some context may be helpful. Between 1986 and 1996, the consumer price index increased

44 percent. Over that same decade, the cost of monographs increased 62 percent.

The price of health care increased 84 percent. And the cost of scholarly journals increased 148 percent—more than three times the rate of inflation and nearly twice

the rate of growth in health care costs. And the price of subscriptions to online databases grew even more rapidly. The cost of information, especially scientific research,

is climbing at a rate far beyond the means of buyers to pay. For example, serials

spending in ARL libraries is 152% higher in 1998 than the decade before.

In an effort to resolve this expensive and unproductive predicament, the library

community has initiated projects to inject competition and cost-based pricing into

the marketplace. To be successful though, these efforts should not be thwarted by

protectionist changes to copyright and intellectual property regimes. Instead, there

should be, as demonstrated in provisions of H.R. 1858, a focus on stimulating innovation and competition. These provisions provide the owner of the database the assurance that there will reasonable compensation for use of the database while ensuring that there are appropriate terms and conditions on database access for users.

A key indicator of our new global economy is the growing number of mergers and

acquisitions. We have witnessed a significant amount of consolidation in the publishing arena within the last several years which will have a profound impact on

our institutions and how our users access selected information resources in the future. This raises some cause for concern. For example, one proposed merger considered by Reed Elsevier and Wolters Kluwer foundered due to opposition from antitrust authorities in Europe and the United States. Although no formal complaints

were filed by U.S. or European agencies, regulators did indicate their serious concerns with the proposal. Of interest to these deliberations are some of the discussions of the United States Department of Justice, Antitrust Division, which considered the implications of the proposed merger on U.S. interests and surfaced a significant amount of new data. One finding by Mark McCabe, formerly with the Antitrust Division, now Assistant Professor of Economic, Georgia Institute of Technology, is that, ‘‘journals sold by commercial publishers indicate that prices are indeed positively related to firm portfolio size, and that mergers result in significant

price increases.’’ As there is a steady contraction in the number of publishers which

leads to diminished competition, we should be extremely careful in enacting new

proposals which in any way could increase control over information resources. H.R.

1858 appropriately recognizes this concern by balancing the interests of users of

databases with the needs of the publisher.

Finally, the U.S. Government is the largest producer of information. Recently, a

number of factors have led to federal agencies outsourcing data activities to the private sector where, for example, private sector partners create and possibly maintain

a federally-funded database for an agency. The number of public-private sector partnerships is growing and the private sector is becoming more involved in disseminating government data for agencies. Without appropriate safeguards, this government

information could be subject to new protections and not available within the public

53

domain as now required by law. H.R. 1858 seeks to ensure that agencies do not permit this information to be captured by private sector entities, leading to a reduction

in access and the robustness of the public domain. It may be useful to explore additional means to ensure that publicly funded information is accessible without more

restrictions on use and reuse.

In closing Mr. Chairman, we fully support the narrow, targeted approach taken

in H.R. 1858 to ensure that there are no negative or unintended consequences for

the public and private sectors, including libraries, that properly rely on access to

data and government works. There should be a careful balancing of interests to ensure that users and providers of information are able to continue with current practices while producers of databases receive new limited protections. Such balancing

entails a focus on anti-competitive practices in the use of databases, not protection

of facts or information. We thank you and the other Members of this Subcommittee

for your leadership on these issues and look forward to working with you on this

legislation.

ORGANIZATION BIOGRAPHIES

The American Library Association is a nonprofit educational organization of

57,000 librarians, library trustees, and other friends of libraries dedicated to improving library services and promoting the public interest in a free and open information society.

The American Association of Law Libraries is a nonprofit educational organization

with over 5,000 members dedicated to serving the legal information needs of legislators and other public officials, law professors, and students, attorneys, and members

of the general public.

The Association of Research Libraries is an Association of 122 research libraries

in North America. ARL programs and services promote equitable access to and effective use of recorded knowledge in support of teaching, research, scholarship, and

community service.

The Medical Library Association is an organization of over 3,800 individuals and

1,200 institutions in the health sciences information field. MLA members serve society by developing new information delivery systems, fostering educational and research programs for health sciences information professionals, and encouraging an

enhanced public awareness of health care issues.

The Special Libraries Association is an international association representing the

interests of nearly 15,000 information professionals in 60 countries. Special librarians are information resource experts who collect, analyze, evaluate, package and

disseminate information to facilitate accurate decision-making in corporate, academic, and governmental settings. The Association offers a myriad of programs and

services designed to help its members serve their customers more effectively and

succeed in an increasingly challenging environment of information management and

technology. SLA is committed to the professional growth and success of its membership.

Mr. TAUZIN. Thank you, very much. Mr. Chairman, this is deja

vu all over again. I am more and more convinced the Internet is

just a high tech bookmobile rolling through America.

The next witness will be Mr. Lynn Henderson, president of

Doane Agricultural Services Corporation.

STATEMENT OF LYNN O. HENDERSON, PRESIDENT, DOANE AGRICULTURAL SERVICES CORPORATION, ON BEHALF OF THE

AGRICULTURAL PUBLISHERS ASSOCIATION

Mr. HENDERSON. Thank you, Chairman Tauzin and members of

the subcommittee. I certainly appreciate the opportunity to testify

today. I am president of Doane Agricultural Services Corporation,

which for the last 80 years has been a leading provider of economic

forecasting services, information, and computer software for farmers and ag related businesses.

Our radio program, Agri Talk, plays daily on 115 radio stations

with over a million listeners. I am also speaking on behalf of the

Agricultural Publishers Association, which is a coalition of mostly

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small businesses who provide vital and timely information to the

nearly 3 million farmers who make up the farm-related industries.

I am testifying today because H.R. 1858 does not protect us

against most piracy. Our agricultural forecasts products, it is a

database that is critical to farmers, particularly in today’s low-price

times like we are facing. Our economists collect volumes of raw

data on acreage, production prices, and livestock from USDA and

other government agencies. Then we add value by organizing, updating, and tailoring it specifically to assist farmers in how to profitably market their crops.

Without significant protection for the labor, time, and money involved here, we clearly will not have the resources to do that in the

future. And yet under H.R. 1858 if an important part of the database, let’s say the section on livestock only, is extracted by pirates,

I won’t be protected. I am only protected when the whole agricultural forecast database has been duplicated, and even then H.R.

1858 is not much protection.

This is a publication that we put out every year and it was pirated last year, and that is why I have taken particular interest in

this issue. I found it on somebody else’s Web site. Under H.R. 1858,

if the pirate had just altered the guide and added a few small

amounts of the data, they could have wiped out my return on my

investment for the thousands of hours that our staff spends, the relationships that we have worked so hard to have with firms to have

them supply us with their data, and the hundreds of thousands of

dollars that we spend collecting and compiling the information.

I think small businesses are particularly threatened under H.R.

1858. As the many recent mergers in our industry indicate, the

face of agri business is changing and the number of customers continue to shrink. Today we have licensing agreements to sell multiple copies of our products. Under H.R. 1858 as I understand it,

it only protects sale to the public. They can buy one copy and, for

example, our feed additive compendium, upload it on their Ethernet or e-mail it to their 5,000 employees, and with a click of a

mouse, the publisher is out of business and has lost their market.

If I provide our databases as loss leaders so as to attract customers, H.R. 1858 does not provide any protection whatsoever. Just

the other day a consortium of big businesses offered me a nominal

amount for important parts of my inventory. They told me that

they were going to give it away on the Web just to attract eyeballs

to their site, and if we could not come to an agreement on the

terms, they would just take my database because of the lack of protection that we currently have. Are we going back to the law of the

jungle where there is no protection, small from big, victim from

thief? I should hope not.

Further H.R. 1858 establishes protection in such a way I practically have to be bankrupt before I can seek it. Under this bill, I

have to incur substantial damages threatening my ability to recover return. By not granting the right to sue and leaving us only

to relying on FTC, should it ever get around to pursuing my case,

most all publishers will neither be able to survive the piracy permitted by H.R. 1858 or attract investors to maintain or build our

businesses.

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As you can tell as a small business person, I do not feel that H.R.

1858 covers our needs, not only on the domestic but on the international front. I welcome any questions from the panel and would

refer you to my written testimony.

[The prepared statement of Lynn O. Henderson follows:]

PREPARED STATEMENT OF LYNN O. HENDERSON, PRESIDENT, DOANE AGRICULTURAL

SERVICES COMPANY ON BEHALF OF THE AGRICULTURAL PUBLISHERS ASSOCIATION

Chairman Tauzin and Members of the Subcommittee: Thank you for the opportunity to testify on H.R. 1858.

I am the President of Doane Agricultural Services Company, which for the last

80 years has been one of the leading providers of information, economic forecasts

and computer software to the agricultural sectors. Our radio program Agri Talk is

carried each day on 115 stations in the farm belt reaching nearly one million listeners. I am also speaking on behalf of the Agriculture Publishers Association, a coalition of mostly small businesses who provide vital and timely information to the

nearly 3 million individuals who make up America’s farming and farm-related industries.

Piracy comes in many forms, and is especially easy in this age of electronic communication. I’m testifying today because H.R. 1858 does not protect me against most

piracy.

Our Agricultural Forecast product is a good example of a database critical to

farmers. Our economists collect volumes of raw data on acreage, production prices,

crops supply, and livestock from USDA and other government agencies. Then we

add value by, organizing, updating and tailoring it specifically to assist farmers in

how to profitably market their crops. Without protection for the significant labor,

time and money involved here, we clearly will not have the resources to do this. And

yet under H.R. 1858, if an important part of the database, most of the sector on

live stock, for example, were extracted by pirates, I wouldn’t be protected H.R. 1858

only protects me when the whole agricultural forecast product has been duplicated.

And even then, H.R. 1858 is not much protection. I have already found Doane’s

Agri Marketing Services Guide for sale on some one else’s web site. Under H.R.

1858, if the pirate had just altered the guide to add a small amount of data pirated

from someone else, the pirate could have wiped out my return on the thousands of

hours our staff spent, establishing relationships with firms so that they’d agree to

participate, and the hundreds of thousands of dollars we spent collecting and compiling the information.

Small businesses are particularly threatened under H.R. 1858. Most agricultural

publishers are small businesses. As the many recent mergers in this sector indicate,

the face of agribusiness however is starting to look like a consortium of many businesses. Today we have licensing agreements to sell them multiple copies of our

products. Under H.R. 1858, which only protects sale ‘‘to the public’’ they can buy

just one copy of the Farm Chemical Handbook, upload it on their Ethernet e-mail

it to the 5,000 best customers, and with the click of a mouse, deprive its publisher

very important markets.

And, if I provide our databases for free as a loss leaders so as to attract customers, H.R. 1858 doesn’t provide any protection at all. Just the other day, a big

industry consortium offered me a nominal amount for important parts of my inventory. They told me that they were going to give it away on the web—just to attract

eyeballs to their site and that if I didn’t want the money, they would just take the

databases. Are we going back to the law of the jungle where there is no protection,

big from small, victim from thief, etc.???

H.R. 1858 also threatens our markets in the scientific research communities. Good

farming, safe food, and finding markets for American agriculture depends on research. Good research and good science depend on our databases, such as the Insect

Control Guide or the Agricola up to the minute database of all the latest technological and scientific developments, to name a few. Thus, both the non-profit and

profit making educational research entities are important markets for us.

By exempting works used in the name of science, research, or education, H.R.

1858 not only severely harms our markets, but also jeopardizes the very research

it worships. If we must give away our databases here, what revenue will support

the making of the databases on which agriscience and research depend?

Finally, H.R. 1858 establishes protection in such a way I practically have to be

bankrupt before I can seek it. Under this bill, I have to incur ‘‘substantial damages’’

threatening my ability to ‘‘recover a return’’.

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By not granting a right to sue and leaving us only to rely on FTC, should it ever

get around to pursuing our ‘‘case’’, most all agricultural publishers will neither be

able to survive the piracy permitted in H.R. 1858 or attract investors necessary to

maintain or build their businesses.

Frankly, under H.R. 1858 I think all I’ll be doing is spending time and money

trying to erase from the net even the few acts of piracy this bill prohibits. The extreme exception in H.R. 1858 grants to OSPs, seems to mean that they don’t have

to do any thing to clean up their airwaves even when notified of prohibited acts

there. If they won’t help, small businesses like agricultural publishers will clearly

be undone.

Now, I am all for competition and the free market, but I want to meet my competitors in the marketplace, not see my product stolen and then used to undersell

me by someone who’s invested in nothing but a scanner. We would bring many of

our printed services online if we had protection. Label changes in herbicides, for example, must be disseminated quickly for the safety of our farmers, their families

and the consumer.

Today one third of the farm industry uses the Internet. Three years from now

most will be online. If H.R. 1858 is the law by then, most of today’s agricultural

publishers won’t be there. Pirates will be. They will make money of course, because

under pricing us is easy when one doesn’t have to spend any money developing the

database in the first place and doesn’t plan to spend any real money maintaining

it. But will they make good databases for farmers? I’d hate to depend on the accuracy of a database on feed additive quality control information if it was not based

on substantial investment in keeping it up-to-date and comprehensive.

However, no matter who’s on the net, if H.R. 1858 becomes law, you probably

won’t find help exploring possible markets beyond our national borders. A European

grain buyer planning his next move would benefit greatly from access to Doane’s

information services concerning American farm products. Although, today, we could

expand our services via the Internet, we cannot realistically pursue this avenue

under H.R. 1858. Last year’s European Union directive gave European database

producers protection, leaving US businesses—in the absence of adequate protection

here—out in the cold. Today and even under this bill, Europeans could just copy

our guides and undersell them to our potential customers abroad. We need legislation, which will help us protect and pursue new markets. People might not have

immediately realized it, but meaningful protection for databases will help create

new markets for our farmers as well.

If I may, Mr. Chairman, I would like to submit for the record a list of all 97 publications from the Agricultural Publishers Association, who I represent here today, as

well as a letter from last year signed by all the major agricultural interest groups

asking Congress to pass a strong bill to protect databases from piracy.

Thank you for inviting me to come here today to tell you of how database piracy

is threatening all agricultural publishers and their consumers, the American farmers.

Mr. TAUZIN. Thank you very much, Mr. Henderson.

And now the gentleman that I welcomed in your absence, Mr.

Gregory O’Brien, the chancellor of the University of New Orleans.

Again, Mr. O’Brien, it is good to have a home boy here.

STATEMENT OF GREGORY M. O’BRIEN, CHANCELLOR, UNIVERSITY OF NEW ORLEANS, ON BEHALF OF NATIONAL ASSOCIATION OF STATE UNIVERSITIES AND LAND GRANT COLLEGES, ASSOCIATION OF AMERICAN UNIVERSITIES, AND

AMERICAN COUNCIL ON EDUCATION

Mr. O’BRIEN. Thank you, Chairman Tauzin. On behalf of the

three associations that I represent, the Association of American

Universities, the American Council on Education, and the National

Association of State Universities and Land Grant Colleges, we are

pleased to testify on behalf of H.R. 1858.

Together these three associations represent over 1,500 colleges

and universities. These colleges and universities conduct the preponderance of our Nation’s academic research.

57

They produce most of our Nation’s Ph.D.’s, as well as masters

and professional students. They educate millions of undergraduate

students each year. These institutions understand the need to protect databases, and they support legislation to address unfair competition and database piracy.

Indeed, universities and colleges often are creators of collections

of information and therefore have a vested interest in protecting

the authenticity and the integrity of these collections.

Let me state at the outset that I am not here as a legal scholar,

a copyright attorney, nor an information expert, but as a university

administrator concerned with maintaining the breadth and quality

of our university research and educational programs. We appreciate the subcommittee’s consideration of H.R. 1858.

We believe the bill offers an excellent starting point for addressing the database protection issue. The bill provides protection

against database piracy while at the same time respecting our single core principle that we must maintain our traditional access to

and use of data and information as the cornerstone of scientific and

scholarly research, teaching, and learning.

The higher education associations believe it is imperative to preserve the constitutionally based premise of this Nation’s information policy, that no one may own facts or information, only prevent

the full, unfettered use of facts and information.

Mr. Rightmire referred to the Feist decision. That decision goes

on to state that the raw facts in a compilation may be copied at

will. This result is neither unfair nor unfortunate. It is the means

by which copyright advances progress of science and art. This policy has served the country well.

The United States stands at the forefront of learning, science,

and technological advancement, and the Nation has benefited richly from its leadership in international economic competitiveness,

life saving advances in medicine and health care, technological superiority in defense, and in a rich quality of life for all of our citizens.

We believe that the enlightened information policies of this Nation have played a significant role in sustaining the creativity and

productivity of research and education programs that have led to

these benefits.

Congress should be wary of any legislation that threatens the

public domain status of facts and information because the importance of access for research and education. Indeed, for the effective

functioning of our democratic society, congressional decisions about

the proper scope of protection for compilations of information

should emphasize caution and access to information.

Based on this important principle, there are two critical standards of any legislation to protect compilations of information should

meet. First, protection should be targeted to deal with specifically

identified wrongful conduct. Second, protection should be addressed

to clearly define subject matter and to be limited to compilations

as compilations and not to the facts or information contained therein.

Let me discuss H.R. 1858 in the context of these standards. First,

any new protection should be targeted to deal with specifically

wrongful conduct. H.R. 1858 does just that. It prohibits the disVerDate 11-SEP-98 10:54 Sep 30, 1999 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6602 57446.TXT HCOM2 PsN: HCOM2
58

semination to the public of a copy of a database in a manner that

causes substantial competitive harm. This is a reasonable response

to the concerns identified by those who seek added protection for

their databases.

Second, H.R. 1858 is intended to protect a clearly defined class

of databases and not the facts or the information contained in those

databases. However, we do believe there could be some adjustments in the definition of databases to clarify the distinction between other works that may have certain characteristics of databases but should not be considered as databases under that definition.

For example, the definition does not expressly exclude works of

nonfiction such as biographies and history articles that could be

considered as collecting discrete items of information for the purpose of providing access to that information. We recommend that

this definition be clarified so that such works would not be considered as compilations of information.

Let me emphasize that we do not seek a free ride on the work

of others. As has been stated earlier, our institutions pay for databases and will continue to do so. Our primary concern is whether

additional legal protection is necessary or justified. Overly broad

legislation threatens the traditional educational and scientific activities which are essential to the missions of our institutions and

the progress of our economy.

We believe the answer is legislation such as H.R. 1858 that offers

protection against unfair competition and database piracy without

jeopardizing the traditional principles of access to information.

We commend the committee for proceeding carefully to craft legislation targeted at solving the specific identified problem. To act

more broadly would result in legislation with unintended consequences which would have a chilling effect on research collaboration, educational enrichment, and economic productivity. Thank

you, Mr. Chairman.

[The prepared statement of Gregory M. O’Brien follows:]

PREPARED STATEMENT OF GREGORY O’BRIEN, CHANCELLOR, UNIVERSITY OF NEW OR- LEANS, ON BEHALF OF THE ASSOCIATION OF AMERICAN UNIVERSITIES, THE AMER- ICAN COUNCIL ON EDUCATION, AND THE NATIONAL ASSOCIATION OF STATE UNIVER- SITIES AND LAND-GRANT COLLEGES

I am Gregory O’Brien, Chancellor of the University of New Orleans. I appreciate

this opportunity to testify before the Subcommittee on H.R. 1858, ‘‘Consumer and

Investor Access to Information Act of 1999.’’ My testimony is presented on behalf

of the Association of American Universities, the American Council on Education,

and the National Association of State Universities and Land-Grant Colleges, which

together represent over 1,500 colleges and universities. The colleges and universities

that are members of these Associations conduct the preponderance of the nation’s

academic research, produce most of its Ph.D.s as well as Master’s and professional

students, and educate millions of undergraduates each year. These institutions understand the need to protect databases, and they support legislation targeted to address unfair competition and database-piracy. Indeed, universities and colleges often

are creators of collections of information and have a vested interest in protecting

the authenticity and integrity of those collections.

Let me state at the outset that I am not here as legal scholar, copyright attorney,

or information expert but as a university administrator concerned with maintaining

the breadth and quality of our university research and education programs. We appreciate the Subcommittee’s consideration of H.R. 1858. We believe the bill offers

an excellent starting point for addressing the database protection issue. The bill provides protection against database piracy, while at the same time respecting our single core principle—that we must maintain our traditional access to and use of data

59

and information as the cornerstone of scientific and scholarly research, teaching and

learning. The higher education associations believe it is imperative to preserve the

Constitutionally based premise of this nation’s information policy that no one may

own facts or information or may prevent the full, unfettered use of facts and information. As the Supreme Court said in Feist, ‘‘all facts—scientific, historical, biographical, and news of the day... are part of the public domain available to every

person.’’ Feist Pubs., Inc. v. Rural Telephone Service Co. 499 U.S. 340, 348 (199 1),

quoting Miller v. Universal City Studios, Inc., 650 F-2d 1365, 1368 (5th Cir. 1981).

‘‘[T]he raw facts [in a compilation] may be copied at will. This result is neither unfair nor unfortunate. It is the means by which copyright advances the progress of

science and art.’’ 499 U.S. 340, 350 (1991).

This policy has served the country well. The United States stands at the forefront

of learning, science and technological achievement, and the nation has benefited

richly from this leadership in international economic competitiveness, lifesaving advances in medicine and health care, technological superiority in defense, and an enriched quality of life for our citizens. We believe that the enlightened information

policies of this nation have played a significant role in sustaining the creativity and

productivity of the research and education programs that led to these benefits. Congress should not enact any legislation that could threaten this fundamental principle that facts and information remain in the public domain. Because of the importance of access to data for research and education—indeed, for the effective functioning of a democratic society, Congressional decisions about the proper scope of protection for compilations of information should err on the side of caution and access to

information.

Based on this principle of preserving access to and use of facts, we can identify

two critical standards that any legislation to protect compilations of information

should meet: First, protection should be targeted to deal with specifically identified

wrongful conduct. Second, protection should be addressed to a clearly defined class

of materials and should be limited to compilations as compilations, not the facts or

the information per se.

In the following discussion, I first provide an overview of the basic academic activities that would be threatened by database legislation that is overly broad in its

protective mantle. I then examine H.R. 1858 against the standards identified above.

I. The Academic Environment and Activities Potentially Impeded byDatabase Legislation.

The research and teaching missions of colleges and universities are fundamentally

tied to information and the translation of information into knowledge; through the

production, analysis, verification, interpretation, and dissemination of information,

scientists and scholars expand the frontiers of knowledge and transmit that everexpanding knowledge to colleagues and to students. The results of research are publicly disseminated through articles, books, workshops, conferences, and increasingly

through digital networks as well. Research results so disseminated are used by

other scientists and scholars—to build on, to critique, to re-examine and reinterpret.

Through the give and take over what may be initially conflicting data or interpretations of data, new phenomena are understood and verified, and knowledge is advanced.

The process of translating data into knowledge requires the open exchange of information among allied scholars and critics alike. Increasingly, research is conducted in teams, often from several institutions. Data are drawn from multiple

sources, recombined and merged with new data to produce data sets that may lead

to new and unanticipated findings. Data sets vary from the results of a single experiment, captured in a table in a single journal article, to the vast databases of information compiled from meteorological remote sensing instruments, geographic information systems, particle accelerators, and systematic aggregations of research results to produce databases of genomic, chemical, and medical information, and much

more.

Databases supporting research and scholarship are not limited to the sciences.

Databases supporting work in the humanities and social sciences are proving increasingly essential to advancing knowledge in these disciplines. Specialized dictionaries, annotated bibliographies of worldwide research resources, census information,

and compilations of text citations are just a few of the systematic compilations of

information critical to humanistic and social science research.

In the academic community, databases are dynamic instruments; they are not

only sources of information, but they themselves—or components of them—become

ingredients in new products, both through the combination of multiple contemporaneous data sets to produce qualitatively new products, and through the re-analysis

of prior data from new perspectives provided by new findings or new analytic tools.

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A scientist may apply a formula developed from his or her research to a different

set of data, yielding a different interpretation of those data; multidisciplinary researchers may combine components from physical, biological, chemical, and meteorological databases to understand the dynamics of ecological systems; social scientists

may combine elements of demographic, economic, legal, and political databases in

comparative analyses of national or regional populations worldwide.

Digital technologies are creating new analytic methods and tools at a staggering

pace, turning yesterday’s possibilities into breathtaking realities today. These breakthroughs have led to new discoveries in medicine, engineering, and many other

fields, leading to the creation of entirely new commercial ventures and products.

The future holds enormous possibilities for enhanced research collaboration, productivity, and economic development if researchers can rely on open communication and

ready access to data.

Such an environment can only serve to enrich the education of students as well.

Some of the best education is learning by doing and by discovering, and students

are increasingly using databases to draw their own conclusions, duplicating the research process to learn through discovery under the guidance of faculty.

For all of these research and educational activities, faculty and students must be

able to have open and easy access to compilations of data of all sizes, from single

research results to large databases, and they must be able to work with these compilations—extracting, combining, and aggregating sets of data-to advance the frontiers of knowledge and educate students about those advances.

These academic uses of information do not require that all information be free;

indeed, universities now pay substantial sums for commercial databases. But these

uses do require sufficiently flexible conditions of use, conditions that can be stultified by a proprietary protection scheme that makes use, reuse, and recombination

difficult and militates against the ability to exchange information with colleagues

and students.

II. The Standards Against Which Legislation To Protect Compilations Should Be

Judged

In general, the Associations share the view of the Administration, as expressed

last year by the Department of Commerce, that ‘‘any (law to protect compilations

and databases] should be predictable, simple, minimal, transparent and based on

rough consensus.’’ Letter from Andrew J. Pincus, General Counsel, Department of

Commerce, to Senator Patrick J. Leahy, August 4, 1998. In particular, we emphasize three important criteria.

First, the protection should be targeted to deal with specifically identified wrongful conduct, H.R. 1858 meets this criterion. The prohibition against dissemination

to the public of a copy of a database in a manner that causes substantial competitive harm is a reasonable response to the threats identified by those who seek added

protection for databases. The single clear theme we have heard throughout this debate, and the single clearest need we can identify, is the need to prevent pirates

who copy databases and disseminate them as their own in a manner that destroys

the market for the original. The case for additional protection has not been made.

As we have said, Congress should err on the side of our traditional and highly successful policy of access to information.

Second, protection should be addressed to clearly defined subject matter. If the

goal is to protect incentives for the creation of large databases that require extensive effort to develop and organize, the legislation should be crafted to apply to just

such works. The risk of spillover into other types of works should be minimized.

Further, it is essential that the legislation protect the compilations as compilations,

not the facts or the information contained in the compilations per se. While this is

a difficult line to draw, it is critical that it be drawn property.

H.R. 1858 comes close to meeting this goal, However, we do believe there could

be some adjustments to the definition of ‘‘databases’’ to clarify the distinction between other works that may have characteristics identified in that definition, but

that should not, themselves, be considered databases. For example, an individual

history book or scientific article might collect ‘‘discrete items of information’’ for the

‘‘purpose of providing access’’ to them. It would be unreasonable to contend, however, that such works should be considered ‘‘databases.’’

I should emphasize that we do not seek a free ride on the work of others. Legal

and technical rules already exist to provide substantial protection against such free

riding. Our institutions pay for databases and intend to continue to pay for databases. The relevant question is whether additional legal protection is necessary or

justified in light of the threat overly broad legislation poses to traditional educational and scientific activities. We believe the answer is legislation such as H.R.

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1858 that offers protection against unfair competition and database piracy without

jeopardizing access to information.

In seeking to preserve legitimate access to information, however, we do not argue

that scientific, educational and research institutions should have the right to destroy the incentive to create a database by broadly disseminating that database to

the public. We do not understand this to be permitted by the legislation, and would

be happy to work with the Subcommittee to clarify this issue.

We commend the Commerce Committee and its Telecommunications Subcommittee for proceeding carefully to craft legislation targeted to solving a specific problem.

To do otherwise could result in legislation with unintended consequences that could

produce a chilling effect on research collaboration, educational enrichment, and economic productivity in the years ahead.

We appreciate the Subcommittee’s leadership on this important issue. The higher

education associations stand ready to work with you to support your efforts to

achieve fair and balanced database legislation.

Mr. TAUZIN. Thank you, Mr. O’Brien.

Finally is Mr. Donald Baptiste, president and CEO of

USADemocracy.com.

STATEMENT OF DONALD BAPTISTE, PRESIDENT AND CEO,

USADEMOCRACY.COM

Mr. BAPTISTE. Good morning, Mr. Chairman and members of the

subcommittee. Thank you for the opportunity to testify before you

on the important issues of database piracy and public access to information. This morning I would like to tell you about

USADemocracy.com, how we use information and databases and

also my concerns regarding inappropriate protection of database

publishers that could inhibit the free flow of information.

USADemocracy.com is a free Internet service that proactively notifies subscribers of pending legislation, allows them to easily communicate their opinions to their representatives, and automatically

tracks the results of that legislation.

During the development of that system, we had to choose where

we were going to gather the data that we would use to populate

our congressional database. We could have gathered that data internally, as it is all publicly available for free through a number

of government and commercial sources.

However, we chose to purchase that information from a database

publisher because it was the most cost- and time-efficient manner

of gathering it. We bought the information not for the value of the

information as it was free and publicly available, but for the value

inherently and the ease of extracting that data into our own internal database.

The market determined the fair value of that database and the

publisher was rewarded in their efforts in compiling it. I do have

concerns regarding any legislation that would grant inappropriate

protection to database publishers specifically on the use of public

information. Inappropriate legislation could severely limit competition, artificially raise the cost of databases, and in some cases

grant monopoly to a small number of firms.

We were fortunate that along with the option of gathering that

data internally, there were a number of database publishers we

could go to buy that database, thereby keeping the cost associated

with that affordable through healthy competition.

How database piracy will be determined is also a concern of

mine. All of the databases we looked at were substantially similar

as would have been one internally as we are all using the same

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public information. It will be extremely difficult to determine where

an alleged database pirate acquired the information, as we are all

dealing with the same general information.

Allowing the courts to decide this is not a viable option for a

small startup. Just the threat of litigation will create an artificial

barrier to entry to the small startup firms which have been the

backbone of this Internet boom.

Any company raising capital to implement their ideas and concepts must disclose any current legal proceedings they are involved

with as well any potential legal problems down the road. If investors feel there will be a greater risk of legal proceedings due to inappropriate legislation, it will make the already difficult task of

raising capital nearly impossible.

Therefore, Mr. Chairman, I ask you and the subcommittee to act

cautiously to ensure that information continues to flow freely and

unfettered to the companies and individuals that are driving this

economy. Thank you for the privilege of testifying before you.

[The prepared statement of Donald Baptiste follows:]

PREPARED STATEMENT OF DON BAPTISTE, CEO, USADEMOCRACY.COM

Good Morning Mr. Chairman and distinguished members of the Subcommittee,

my name is Don Baptiste and I am the Chief Executive Officer of

USADemocracy.com. I appreciate the opportunity to testify before the Subcommittee

this morning on the important issues of database piracy and public access to information, I’ll try to keep my remarks brief and to the point.

USADemocracy is a comprehensive Internet resource for people interested in politics and the legislative process. Our goals are to educate the American public as to

the activities of their elected representatives on Capitol Hill and to provide a medium through which our subscribers can communicate with Congress electronically.

Our company, like many other Internet companies, deals mainly in information. We

provide information that is already in the public domain to our subscribers, at no

cost to them, in a more usable format. Any legislation that extends proprietary protections to database publishers who use information in the public domain would

make it extremely difficult to continue providing our service efficiently and at no

cost.

While developing the software that runs USADemocracy.com we had to determine

the best way to populate our database. There were many possible ways to obtain

the information we needed. We could have called each Congressional office and

asked a number of preset questions. We could have gone to each Congressional web

page and ‘‘mined’’ the data. We could have gone to a number of commercial web

sites that also use the same public information that we do and ‘‘mined’’ the data.

We could have ‘‘mined’’ the data from any number of print publications that carry

the same data that we do. Instead we simply purchased a database of Congressional

information because it was more cost and time efficient than trying to gather it ourselves and because it was provided in an easily useable format. We purchased the

database because there was value in its ease of use, not in the information itself.

In our case, the market determined the fair value of the database of information.

If current copyright law is excessively strengthened, small businesses like ours

could be subject to copyright infringement lawsuits for utilizing existing databases

to gather public information. Furthermore, restrictive legislation would take the decision out of the hands of the market and place it in the hands of government regulators and the courts.

Restrictions on the free use of public information would also drive up the price

of databases for companies like USADemocracy.com as there would be no threat of

us compiling our own database. The options discussed earlier would no longer be

available. A monopoly would be granted to the first firm to publish any public information. Even if we gathered the data legally, there are only so many ways to display data. Any format we choose would be ‘‘substantially the same’’ as everyone

else’s. Additionally, there would be no way of proving how a company obtained their

data if it was already in the public domain. For a start-up company, letting the

courts decide is not a viable alternative. The costs of potential litigation would prohibit companies from even attempting to enter a market.

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Public information is in fact just that, public. Proprietary protections for database

publishers would in essence bestow ownership of previously public information. Any

party who chooses to create a database of information would then have ownership

over that information. These protections could apply to all types of information from

voting records and biographies of elected officials to batting averages and vital statistics about your favorite baseball players. No one owns a Congressman’s voting

record or Babe Ruth’s lifetime batting average and no one should. This is public information that should be open and accessible to everyone.

Progress is based on the concept of taking existing creations and ideas and improving them. This concept is one of the foundations of our robust economy. Information is now more than ever the building block of innovation and if we stifle the

flow of information then we will stifle growth and innovation in our society at large.

Of utmost importance is giving people the ability to disseminate and utilize information so that they can make productive use of technological advancements like the

Internet, now and in the future.

Mr. Chairman, we are very fortunate to live at a time where such great opportunity exists. I urge the Congress to be cautious while enacting legislation on access

to information to ensure that this age of opportunity continues to flourish. Thank

you for the privilege of testifying before you.

Mr. TAUZIN. Thank you very much.

We want to thank all of our witnesses. The Chair will now recognizes himself for 5 minutes and members in order.

Let me first point out that you have laid out the conflict rather

well before us. As you know, the 1991 Supreme Court case basically said that the sweat of the brow that went into the collection

of a database is not copyrightable, and yet it may indeed deserve

some protection.

Phyllis, you laid out the case for as tightly constructed a protection system as possible so that it is not overbroad and does not impinge upon the public’s right to access their own information and

other information and data.

Others of you, Mr. Henderson, Mr. Horbaczewski, argued for

more broader protections as a Judiciary subcommittee has done, I

think, all of the way to almost copyrighting non-copyrightable material today, and therein lies the conflict.

Mr. Pincus, you indicated that you thought that the bill’s definition of protected databases may be too broad. Most of you, with

rare exception, felt that Judiciary was too broad. You felt our Commerce mark was too broad. Why?

Mr. PINCUS. Well, it is really the interaction of two provisions of

the bill, the definition of database and the definition of duplicate.

Although it is true duplicate requires that the database be substantially the same, the definition of database says that—the last sentence, a discrete section of a databases that contains multiple discrete items of information may be treated as a database.

So our concern which we lay out in detail in that testimony is

that database owners might argue that even though a tiny section

was taken, that tiny section is actually a separate database under

this definition and therefore is entitled to protection. So our concern is that that approach may actually lead to a broader scope of

protection with respect to this element of the test than other tests

which just say it is a chunk of the database.

Mr. TAUZIN. Are you suggesting that we narrow the definition in

some respect? Do you have suggested language for us?

Mr. PINCUS. I guess our suggestion is that of the approaches that

are out there, taking the database as one finds it and requiring

that a substantial chunk be taken allows for more common sense

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judicial examination of whether there is something that approached——

Mr. TAUZIN. I think that was a yes?

Mr. PINCUS. Yes, I guess so, Mr. Chairman.

Mr. TAUZIN. Obviously, Mr. Henderson and Mr. Horbaczewski

would disagree and say that the protections are too limited already.

We have also heard some discussion from them as to whether or

not there ought to be a private right of action.

Mr. Baptiste indicated his concern about that. Obviously it is a

jurisdictional concern, but considering adding a private right of action somewhere in this process does pose the problem Mr. Baptiste

pointed out. Yahoo! I assume at this point in its development, Amazon.com and others, probably have some pretty good legal teams on

board and probably they are not going to be terribly threatened

when they get a letter threatening a lawsuit.

But what about the new entrant who doesn’t have that legal

team who gets that letter that says don’t you dare do that, or we

will sue the pants off you, the threats to the free, fair use of facts,

of data in our society, does anyone want to hit that for me? Mr.

Politano?

Mr. POLITANO. I am at AT&T and we are not a little tiny company; we are a little larger. And we get those threats and we are

troubled by them because, No. 1, it puts a chilling effect on what

we think that we can do.

No. 2, it leads to high litigation expenses and uncertainty. No.

3, we have a very difficult problem in educating our scientists and

in educating our people what they can and cannot do.

Mr. TAUZIN. Mr. Politano, shouldn’t Mr. Henderson have a right

to go to court and say someone has stolen my creativity?

Mr. POLITANO. I think he should have a right.

Mr. TAUZIN. How can we do that and not create the kind of fear

that Mr. Baptiste has pointed to?

Mr. POLITANO. I think Mr. Henderson does have a right, and I

think that right already exists. He pointed out the marketing services guide. If someone actually took that and put it up on an Internet site, he would have a couple of claims against them under current law. We would have a copyright infringement claim. He might

have a trademark infringement claim and perhaps a claim under

section 43 of the Lanham Act.

I think there are plenty of weapons that a potential plaintiff can

use, and I agree with Mr. Baptiste; and I just want to say that

even a large company such as AT&T is chilled by overreaching legislation.

Mr. TAUZIN. And this is a first amendment area. Phyllis makes

that case exceptionally well for Eagle Forum. This is an information society and a free speech society. Why would the administration want to create a new private right of action here in this new,

very delicate area. Mr. Pincus.

Mr. PINCUS. That is really the only way that you are going to

create the kind of climate that you need for investment. I think the

way to deal with the problem of frivolous litigation is to have clear

standards and standards that allow that breathing room so you are

not slicing the onion so——

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Mr. TAUZIN. My time is up. We are not just talking about frivolous litigation. We are talking about the chilling effect of litigation

threats on small entrepreneurs or even big ones, but particularly

the small ones, who don’t have big legal staffs and who are going

to be literally thwarted in their efforts to develop new services for

America in this information age. Aren’t you concerned about that?

Mr. PINCUS. We are concerned about it, and that is why we think

that the standards of liability should be clear. The best protection

is to spell out clearly in the statute what the lines are and then

the entrepreneurs pay a little bit of money to the lawyers.

Mr. TAUZIN. Mr. Markey.

Mr. MARKEY. Thank you, Mr. Chairman, very much.

First of all, I would like to thank Mr. Oxley for his graciousness

in conceding defeat in the 1999 free throws. Forty-six out of 50 is

quite an achievement. It has to be noted that Mr. Oxley shot 47

out of 50 free throws last year. You can only do it once, and it has

to be monitored by one of the personnel in the gym. Mr. Oxley had

the highest score of the 20th century, and that will forever remain.

Actually of the millennium, the highest score, and I want to congratulate you, Mr. Oxley, and we will begin a new millennium next

year. You are the Mark McGwire of this century, and we very

much appreciate your greatness.

Mr. Rightmire, at Yahoo! your corporation has spent considerable

time and effort and money in compiling databases for use by consumers. These databases are obviously extremely valuable assets

at Yahoo!, and Yahoo! Markets itself as a navigational guide to

cyberspace.

Helping to organize facts floating around cyberspace is a considerable task, but is extremely useful to consumers. My question to

you, Mr. Rightmire, is this: Why doesn’t Yahoo! seek the same protections for its databases that Reed Elsevier is seeking? Why don’t

you want greater protection for all of the effort that you have put

into creating Yahoo!’s databases?

Mr. RIGHTMIRE. I would preface my answer by saying through

the exemption through part of the resource that we are providing

to consumers, to a certain degree we will be protected. One of our

primary assets is the database that you referred to, the navigational tool that allows people to find sites of interest on the Web.

And through the exemption for that data, we will have that asset

relatively protected.

Now, at the same time that is only part of our business, and the

other portion that this bill begins to address is that of transforming

information that we acquire from over 400 content providers.

Through relationships with those 400, we acquire access to the

lion’s share of information that consumers find valuable on the

Web. We take that data, we aggregate and integrate it and we

present it to consumers in a way that allows them access to a much

more easy-to-navigate way to information they have trouble finding

elsewhere.

Without the provisions that this bill lays out, we would have a

hard time playing the role that we play on that side of our business.

Mr. MARKEY. Thank you. Mr. Horbaczewski, will you comment

on what Mr. Rightmire just said.

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Mr. HORBACZEWSKI. I don’t know how Yahoo! runs their business. We have a hard enough time running our own, but I do know

that we have payrolls to meet and rent to pay and computer rental

payments to meet, and it would be difficult to explain to all of

those people that the check was not in the mail because the person

who took the information without paying for it was either in a

more glamorous line of business or had tenure or was too important to pay for it.

I can only assume that Yahoo! has not invested in the way that

we have invested because it is—visiting sites and pulling things off

is a different process.

I have also understood that browsers such as Yahoo! help people

identify sites that contain information, they don’t necessarily kick

in the door and empty the silver closet and take all of the underlying data back, so I think we may be talking apples and oranges.

Mr. MARKEY. Mr. Black, can you help us to distinguish between

these two?

Mr. BLACK. Through the Internet we are going through a tremendous exploration of business models and practices, and what

works and what kind of businesses will operate in the future we

don’t really know. And that is part of the reason we are using caution in general.

I think MCI and Tim Casey talked about the use of databases

and the backbone—it is not just the information floating along; it

is basically part of the operation. I think we simply look at the reality right now, and I think the case for harm has not been made.

Is there some kind of chilling effect on the creation of databases

and the answer is the opposite. databases are being created all over

the place for all purposes. Now there may be some business models

that in previously created databases that may need to adjust to

that reality, but databases from a broad public standpoint are not

being inhibited from being created for the public. I think that is a

key factor to keep in mind.

Mr. MARKEY. Mr. Henderson?

Mr. HENDERSON. I could not disagree more heartedly with that

comment about databases not being created. I can tell you in my

case until this is resolved and until I can be assured that nobody

can, just scanning it off into cyberspace my business can be protected, I put a halt on any further database development in my

company; and it is at the detriment of not only my company but

also the U.S. economy because we are sitting on a wealth of information that could help farmers sell crops and find better prices for

their crops overseas because of this wonderful new tool, the Internet; and I don’t want people to classify me as an anti-Internet person. I love it, but I want to make sure that the rules that are on

it take care of everybody who creates things, are protected in this

group.

I would like to make one other point and that is theft. I have

young kids and I try to teach them not to steal, a penny, a dime,

a dollar, $5. How much are we talking here? That is why I want

to get back to the substantial amount that is being taken. It is a

real difficult issue, and that is a major concern I have here.

Mr. MARKEY. Thank you, Mr. Henderson. Every time you speak

four people’s heads go like this, and every time Mr. Black speaks,

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heads go like this. It is going to be a fascinating hearing. Thank

you.

Mr. TAUZIN. The Chair recognizes the vice chairman of the committee, Mr. Oxley, provided we end this syrupy mutual admiration

society.

Mr. OXLEY. That will be easy.

Mr. Henderson, based on your testimony and your answers, do

you support the Judiciary Committee version of the bill?

Mr. HENDERSON. Yes, sir.

Mr. OXLEY. Mr. Politano, your testimony indicated that AT&T

creates these customized databases, targeted marketing lists and

the like containing the pieces or parts of other databases that meet

your specific business needs. Is that a common practice other than

AT&T?

Mr. POLITANO. Yes. My understanding is that it is throughout

the industry.

Mr. OXLEY. Do other companies use your database or parts of

your database as a piece of another database that is in their business plan?

Mr. POLITANO. Occasionally by contract, but that is relatively

rare because of privacy concerns we have.

Mr. OXLEY. Take us through how that would work in a practical

way, the contractual agreement.

Mr. POLITANO. Well, what happens, and my experience has been

that there are many databases out there and they are proprietary,

is that AT&T will contract with the owners of these proprietary

databases to either share the information that is on the database

or to allow the database to work in a system, in a protocol, or in

some aspect of an electronic commerce.

It is largely done by contract. There are some databases that are

in the public domain that AT&T uses, but by and large it deals

with entities that have proprietary information in databases, and

they lend it to us or they sell it to us and we want it because it

is reliable. We believe it is up to date, and we believe that it fits

into our business practices.

Mr. OXLEY. Do you sell or lend to other folks from your database?

Mr. POLITANO. Occasionally we do. It is not a major aspect of our

business, but sometimes we do, yes.

Mr. OXLEY. If you are already paying for that service, what is the

problem?

Mr. POLITANO. That is the point. We don’t really see that there

is a problem. We think there is adequate protection now regarding

the way that the databases are used, and we certainly encourage

the claims that are made under current law, either under contract

law or trade secret law or occasionally under unfair competition

trademark infringement law.

Mr. OXLEY. But Mr. Henderson obviously would not agree with

that assessment. Let’s pass the microphone back to him, and what

is your perspective on what Mr. Politano just talked about?

Mr. HENDERSON. First off, I would like to state that I believe

that the marketplace should be free; and I welcome competition. I

just want others to go through the process that we have to go

through to get things to a finished product.

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Relative to working out contracts with Internet providers, heavens, that is what we do. We just don’t want people to take it and

put it on their site or take little pieces of it and a little piece from

somebody else. In the old days you could work out a contractual arrangement and everything was taken care of, but right now that

is not the situation.

Mr. OXLEY. Ms. Schlafly, is it your view that the Judiciary Committee bill would limit people’s access to their own medical records?

Ms. SCHLAFLY. Yes, that is my view and I do not think that some

entity, corporation, should have a proprietary ownership of my visits to my doctor, what he prescribes and diagnoses and make it difficult or costly for me to get out of there. So I think that the medical records which are very valuable, commercially so valuable in

the present environment, have to be available; and I don’t think

that somebody should own them and be able to charge for them.

Mr. OXLEY. Thank you. Mr. Baptiste, can you take us through

your ability to collect data, how the bill in the Judiciary Committee

would affect data as well as how this particular bill would affect

it?

Mr. BAPTISTE. I don’t believe that the bill in front of Commerce

would really affect us gathering data because we could do it

through numerous sources that are available in D.C. or continue

just purchasing the data through a database.

The concern I would have if broader legislation was passed is

that we would not have the ability to do it ourselves, that we would

be forced to purchase that data, thereby artificially driving the

price up.

Mr. OXLEY. Are you referring to the Judiciary Committee version?

Mr. BAPTISTE. Not specifically. Just any broader legislation. The

Judiciary Committee has much stricter regulations of data.

Mr. OXLEY. Thank you, Mr. Chairman.

Mr. TAUZIN. The gentleman from Ohio, Mr. Sawyer, is recognized.

Mr. SAWYER. Thank you, Mr. Chairman. Mr. Pincus, I apologize

for not being here when you were offering your testimony, but am

I correct that you believe that the fair-use protections provide

greater protection for information users than would be suggested

by the bill? And can you give us an example, if that is the case?

Mr. PINCUS. Yes, I can give you two examples. We have a number laid out in the testimony. The fair-use provision in the bill is

limited to three specified purposes: scientific, educational or research uses, and copyright fair use has been held to encompass a

broader range of purposes.

And this provision, which is one of Section 103(d) in the bill, provides an exemption for liability for duplication, and it is not clear

that that would extend throughout the entire change of dissemination of information, and we are obviously concerned that we make

sure that there is not a cutoff of fair use in the distribution chain.

Mr. SAWYER. Let me ask you, you talked about access to civil redress and use for clear standards, and in your written testimony

you talked about the difficulty with the European database directive. Am I correct that—you said that the administration opposes

reciprocity, per se, and that you would simply go to national treatVerDate 11-SEP-98 10:54 Sep 30, 1999 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6602 57446.TXT HCOM2 PsN: HCOM2
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ment terms? Does that answer the concerns that Mr. Horbaczewski

raised in terms of his worry about the failure to have some harmonization with European standards?

Mr. PINCUS. Let me answer the question by explaining how. We

think that the process here should be that we should develop a

database law that we think is appropriate for us domestically, and

then we will obviously have to have a conversation with the Europeans about whether they are willing to declare that approach

similar enough to extend protection under their law to U.S. database producers. But we have our trade arsenal if it should come to

that and we would certainly use those tools.

Mr. SAWYER. What a polite way to say it. Should I gather from

that then that while you don’t support pure reciprocity, that the

whole notion of negotiated mutual recognition is possible, and looking particularly at clear standards for functional equivalents would

make some sense if it is carefully negotiated?

Mr. PINCUS. I think so, Congressman, although I think our view

is that the Europeans have taken a very different approach than

in either this committee’s bill or the Judiciary Committee’s bill.

And we think it is more important to have that domestic discussion

and come to closure on what we think domestically the right solution is and not worry so much how the Europeans will react to that

until we come to closure on that and then have a discussion with

them.

We think that it is likely that the range of things that we are

considering or that are likely to be enacted, we would have a pretty

strong case for convincing them that they should—it is close

enough to protect American database users under their approach.

Mr. SAWYER. When you talk about clear standards in the case of

frivolous or potentially chilling lawsuits, can you expand on that a

little bit for us?

Mr. PINCUS. One of the things that the chairman pointed out,

one concern that we have, which is how do you define a protected

database, and that is one issue we think is worth further examination.

Another question is the term question. We think that there

should be a term that necessitates some other things, when does

the term start and some protections against artificially extending

it. We think those things should be spelled out with some clarity.

The other element that has to be proven to establish a violation

under the bill is the competition test and that test has two prongs.

We are comfortable with the first prong, the substantial harm, essentially. But the second step, ‘‘significantly threatens the opportunity to recover return on investment,’’ we are worried may create

a lot of uncertainty about the person who gets the letters that the

chairman referred to, saying, ‘‘cease or desist or we are going to file

a lawsuit,’’ may have no idea whether that test is being met or not,

and we think that for that element substantial harm may be

enough to weed out cases that are too frivolous and there is de

minimus harm to get into court without having this other test that

is going to create a lot of uncertainty and worry.

Mr. SAWYER. Are there others who would like to respond to that

observation?

70

Mr. HORBACZEWSKI. There are not too many of us here who actually create databases. We have our payroll to meet every week. We

have our rent to pay every month, and the paths of diplomacy are

notoriously slow, so that it would comfort us to avoid gratuitous

conflicts with Europe which is, after all, a large market, rather

than hope in the fullness of time that these things would be

worked out at a higher level by people who do not necessarily always listen to us.

The other fact is that free trade is a good thing and a global

economy is what we are looking at and unnecessary disharmony

between the laws of measured developed economic areas are bad in

themselves, so we would hope that whatever comes out of this is

something that is more conducive to a single world market rather

than severe disruptions when you cross borders.

Mr. SAWYER. Thank you. Mr. Chairman, may I have a little more

flexibility.

Mr. TAUZIN. Without objection, I will extend the Congressman’s

time a minute.

Mr. SAWYER. Mr. Neal.

Mr. NEAL. I was an advisor to the U.S. delegation at the WIPO

treaty in December 1996. I think it is noteworthy that at that time

WIPO made a decision not to pursue a database. It was seen as

perhaps the environment wasn’t ready to deal with that.

Second, I am on a new international committee which is monitoring database legislation internationally, and it is noteworthy that

in many countries this has not progressed, even in the European

Union, and I think we need to understand why that has not happened. I think the context of developing a database legislation that

works for us is the right strategy.

Mr. SAWYER. Mr. Chairman, may I read into the record a question that Mr. Green left? I am not sure that I need an answer. He

could not stay.

Mr. TAUZIN. Before you do that, Mr. O’Brien, you were trying to

jump into this.

Mr. O’BRIEN. We seem to get lost. H.R. 1858 provides a very good

beginning step. It is cautious in its limitation, but it does provide

the protections that we need; and I think the statement about

starting here is right because in part our traditions about access

to information are fundamental in our Constitution. That is not

true everywhere in the world.

Mr. TAUZIN. The gentleman would like to read a question.

Mr. SAWYER. Congressman Green of Texas wanted to pose the

question: Does H.R. 1858 go far enough to address the concerns of

groups like the National Association of Realtors, who believe that

this legislation does not go far enough to protect their databases

from commercial exploitation?

Mr. TAUZIN. Yes, we have had a good discussion of that and we

will keep the record open after this hearing for the submission of

additional questions. For example, if you feel that you would like

to supplement your testimony with some other examples, other information, you are free to do so.

Mr. SAWYER. Mr. Chairman, I thank the Chair very much.

Mr. TAUZIN. The Chair now yields to the gentleman from Virginia, Mr. Boucher, for a round of questions.

71

Mr. BOUCHER. Thank you very much, Mr. Chairman. I want to

commend you for having this timely hearing and saying that I also

am very supportive of the approach that has been put forward by

the Chairman of the Full Committee, Mr. Bliley, in his legislation

that is cosponsored by the balance of the leadership of the Full

Committee and the subcommittee.

Having had the opportunity to examine this issue, both in the

House Judiciary Committee and also in this committee, I find more

attractive the more narrow and targeted approach that is offered

by Chairman Bliley than the broader and problematic approach

that is embodied in Mr. Coble’s legislation. In fact, I really have

some questions whether we need to legislate in this area at all, at

least for the time being.

Let me begin my questions by asking of any members of the

panel who would like to comment on this why it might not be a

better approach to examine in somewhat greater detail the potential that the State common law cause of action for misappropriation, as perhaps it might be better developed over time in case law,

could not be relied upon to provide the protection to database creators that it is the goal of these two separate items of legislation

to provide?

Who would like to talk a little bit about the status of the common law misappropriation cause of action as it might be applied to

this need?

Mr. TAUZIN. The gentleman from Louisiana, Mr. O’Brien, is excused from answering. We are not a common law State.

Mr. BOUCHER. Well, if he would like to comment on how the civil

law might address this, maybe we could incorporate that cause of

action into the Uniform Commercial Code.

I am very interested in the extent to which we might be able to

rely upon the remedies that are already a part of the law to address this need. Obviously to the extent we do that, we avoid the

risk of unintended consequences of legislating. Mr. Black, would

you care to comment on this for starters?

Mr. BLACK. Mr. Boucher, State law obviously varies greatly, and

I would not want to get into a great deal of discussion on any particular jurisdiction, but your point underlying it is that the Internet

is new; these claims for meeting redress are fairly new; and it may

be very appropriate to, in fact, allow our Federal system to work

its will, get some experimentation, to find out what is the range of

business models, what are the nature of the problems, whether or

not some of the companies affected have an ability to adjust,

whether various kinds of legal protection which have been referenced here today are, in fact, able to be modified or to grow into

adequate remedies.

I think our support of the bill here is clear. It is on the record,

but I think our position clearly is if there is a bill, this is the bill

we would support, but some forbearance and some examination of

other options, I think, is certainly justifiable.

Mr. BOUCHER. Mr. Horbaczewski?

Mr. HORBACZEWSKI. Yes, I would like to point out that the option

of State law misappropriation in the current legal climate is not

available. There was a case, the NBA versus Motorola case, where

the court, taking account of the copyright policy as enunciated by

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the Feist case, really truncated New York misappropriation law

and left a very narrow exception for State misappropriation law

which covers hot news only.

At the moment, there is a single Federal principle at work here

which is superior to everything else which is the court’s judgment

in Feist that only creativity should be protected by copyright. Unless there is a competing Federal principle, unless there is a Federal recognition that interstate commerce requires the protection of

investments in databases, there is—there is no room——

Mr. BOUCHER. Mr. Horbaczewski, I am not talking about a Federal cause of action in this case but whether or not State law and

the traditional cause of action for misappropriation might provide

a remedy. I gather that we have had one decision, and I think that

was by a Federal court that held that in a particular case the NBA

was a party to that lawsuit, that there was not a factual framework that would justify application of the misappropriation cause

of action.

But to my knowledge, that is the only litigation that we have had

that begins to address this subject, and I am wondering if another

consensus might be derived if enough cases are pursued at the

State level.

Mr. Casey, would you care to comment on that?

Mr. CASEY. Yes, I would. In fact, I think if you look at trade

dress law, the Supreme Court has spoken on the issue of State misappropriation law quite a few times, and in the Sears v. Stiffel case

and the Comco v. Daybright case and the Batono Boat case which

is a lot more recent, and it said very clearly that States have the

right to set misappropriation laws as long as they do not conflict

with patent or copyright laws.

And the problem with the New York case is that it conflicted

with copyright law. So as long as the State does not go too far so

as to usurp the protection granted by the Federal Government, it

is more than free to set the laws regarding misappropriation.

And if the States have not done so, it is the States’ issue, and

many States have done so and there are laws available in those

States that the database owners can take advantage of. They just

have chosen not to do so, and they are looking for Federal protection to make up for that, and I don’t know if that is necessarily the

right way to go.

Mr. TAUZIN. The Chair will extend the gentleman’s time. I want

to put on the table the gentleman’s discussion with the question of

predictability. In this fast-moving age, does in fact the gentleman’s

remedy of letting the courts in common law and civil jurisdictions

work it out fit? The Chair yields back to the gentleman.

Mr. BOUCHER. I thank the chairman very much for that observation. What I would like to do is move to another subject matter.

I am basically putting this notion on the table whether or not we

might be able to rely on an existing cause of action.

Mr. TAUZIN. Would the gentleman yield. I would very much appreciate it, we are going to be looking at suggestions for some kind

of cause of action here. I would deeply appreciate if those that have

an inclination to do so think about this and write us or include

some new testimony.

73

What is the answer to his question? Can the common law right

satisfy this answer? Civil law, for example, other jurisdictions, the

code, that most of us have adopted in commercial law, the common

commercial code, will it satisfy it somewhere? Is it predictable

enough for us to wade through all of the procedural fights over

whether the venue is established in this or that case and whether

or not it is properly structured? Or do we need in this bill somewhere to decide on whether or not there ought to be some sort of

civil cause of action? I yield back to my friend. We will keep the

record open 30 days.

Mr. BOUCHER. I thank the chairman very much for that.

A second question that I have—and I would pose this to anyone

who would care to respond—relates to whether or not as a part of

the Bliley legislation, should we decide to enact that, we need to

address the liability of online service providers in those instances

where third parties use their facilities either to post or to transmit

material that would be found to be in violation of the Bliley standard.

We did this in the last Congress with respect to copyrighted material, and those rules are very clear. But Chairman Bliley’s bill is

not a copyright bill. And so my first question I would pose is

whether or not in the minds of our panelists the principles announced in the last Congress with regard to that set of liabilities

would be applicable to conduct under Chairman Bliley’s bill? I

think the answer is no. You may have a different opinion.

If the answer is no and we would need to address that issue separately, would there be general support for simply incorporating

the principles that we adopted in the last Congress with regard to

copyright and appending that to the new standards that are set for

database protections in Chairman Bliley’s measure? Mr. Casey.

Mr. CASEY. Well, when we met in 1995, we first talked about the

need for protecting service providers from copyright legislation.

And as you know, intellectual property protection often operates in

a vacuum that is oblivious to the consequences of wherever that

protection might occur. And that is what happened when the administration originally introduced the bill. The white paper and the

bills associated with that related to WIPO copyright protection, and

it is the same thing here with respect to other legislation. It doesn’t

take into account all of the consequences.

The difference, though, between the copyright bill, the Digital

Millennium Copyright Act, and this particular case is that the

scope of the affected parties is much broader. Whereas you could

point to certain activities on the Internet such as storing material

on a server or storing material within your computer before you

looked at a Web site that created problems related to reproductions

under the copyright act or derivations under the copyright act, you

have a different set of rules that apply to these databases.

And you have many, many more things incorporated into how

the databases are used. It is not just the Internet service providers

that are making use of the databases, but it is the users themselves. It is the application programs that are running on top of the

Internet. It is the protocols that stand behind the Internet and that

operate completely independent of the service providers.

74

So there are many more aspects that are incorporated. So to attempt to take the whole exemption and notice and take down structure of the whole DMCA perhaps is going too far, but there are

some applications where exemption is a proper way to go about

dealing with this particular issue, to make sure that there is no

question at all that certain viable databases are completely carved

out and left alone from any form of protection so that we do not

hinder that form of our commerce.

Mr. BOUCHER. So I gather that the answer is if we enact the Bliley legislation, we should have a provision that addresses the liability of online service providers, conduit providers, and others in the

stream of distribution whose facilities might be used by third parties to post illicit material. Is that correct?

Mr. TAUZIN. I believe that is in our bill.

Mr. POLITANO. Section 106 (a) begins to address that, and I think

it is a good idea that is in there because essentially AT&T is a pipe

or conduit.

Mr. BOUCHER. Let me ask this question: To the extent that it is

reflected in the legislation, how effective is that provision? And

should we simply enact it as it stands or is it in need of modification to meet other needs?

Mr. CASEY. I think it could be expanded considerably, although

it is a very, very good start. But it needs to take into account more

than just the service provider activities in order to provide a full

and complete exemption that will be necessary in order to make

sure that the Internet continues to operate as it presently does.

And I would be happy to work with the committee to derive the

right language for that.

Mr. BOUCHER. The House Judiciary Committee in addressing

that issue added a provision that speaks only to the liability of conduit providers and does not address the general liability of other

people in the chain of distribution. It doesn’t address Internet access providers and Web site operators and bulletin board operators.

I am wondering if there is a general sense that if we legislate

in that area, that we ought to be somewhat more comprehensive

and address not just conduit providers but the other providers as

well.

Mr. CASEY. Yes, I would agree that we do need to be.

Mr. BOUCHER. Thank you, Mr. Chairman. I appreciate the extra

time.

Mr. TAUZIN. The Chair will yield additional time to any other

member. The Chair recognizes himself quickly.

Mr. Pincus, what is your view of that? Should that liability protection be expanded to include others in the pipe?

Mr. PINCUS. We have not actually taken a position on the OSP

question as it applies here. I think we want to study it carefully.

There are some kinds of databases, the databases that Mr. Black

referred to, that are used for the running of the Internet that we

obviously want to carve out completely regardless of who uses

them, and the bill does that.

And I think we want to see what kind of OSP-like people there

are that have to be protected, but we have not yet engaged in that

exercise.

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Mr. TAUZIN. Use that 30 days wisely and communicate to us. Mr.

Baptiste?

Mr. BAPTISTE. Yes. If comprehensive protection is not granted to

online service providers and basically the conduit of the information that is housed on Web sites, it would create another barrier

to entry for startups because when we went to go and host our site

or get online service, they would say, what are you doing, is there

any additional liability that I will be taking on because of your actions that I may not be aware of at all.

Mr. TAUZIN. Would you go as far as Mr. Casey and Mr. Boucher

have suggested, expanding it to bulletin boards, et cetera?

Mr. BAPTISTE. I think comprehensive protections need to be in

place to make sure that we have free access to the services we need

to run a business.

Mr. TAUZIN. Mr. Horbaczewski.

Mr. HORBACZEWSKI. Since I seem to be one of the only two representatives of the people who make them instead of take them——

Mr. TAUZIN. Please be aware that the chairman did invite others.

You are the only two brave souls that walked in here.

Mr. HORBACZEWSKI. The attitude expressed toward OSP liability

reminds me of the old song, I just put them up, who cares where

they come down, that is not my department.

But from the point of view of creator of databases, the notice and

take down protection is absolutely essential to us because that is

the only way to get effective remedies for a pirated database that

goes up on the Internet.

Frankly in exchange for that, we are happy to give up immunity

from liability to online service providers even if it might be more

than they technically actually need. And so I would encourage the

committee to encourage the OSP language as close to the Digital

Millennium Copyright Act as possible.

Mr. TAUZIN. Let me point out while Mr. Casey is preparing to respond, section 106 does have the broad language. It covers any provider of telecom services or information services, but it has a qualifier if such provider did not initially place the database that is the

subject of the violation on a system or network controlled by such

provider or operator. So it is limited in that regard. It would take

language to expand it if we wanted to do that.

Mr. Casey is recognized.

Mr. CASEY. As actually one of the initial developers of the idea

for notice and take down in legislation for the copyright bill, the

reason that it worked there and the reason why notice and take

down may not work here is because in the copyright context what

is copyrightable is very well set out.

We have a lot of traditional case law that establishes what is

subject to copyright protection. The problem that we have in the

database context, a database can be anything. It can be three

words; it can be a thousand words. It can be a collection of a small

amount of information or a large amount of information.

It is really up to the person who produces that set of information

to decide what that database is going to be. And the definitions

that we have of databases are very broad. They don’t have qualitative or quantitative restrictions on them.

76

So in order to have notice and take down, the problem you run

into is that under that system the person who receives the notice

doesn’t bother to investigate or look into why they received the notice; they simply take the information down.

So you can have in the absence of very strong rules regarding exactly when you can be sent a notice regarding what kind of database infringement, you could have an equally chilling effect where

every time you put something up, you get a notice and off it comes.

I don’t know if that is the right approach we want to have.

So if we are going to do that, we need to be careful in terms of

what types of databases exactly can be subject to the protections.

Mr. TAUZIN. Mr. Neal?

Mr. NEAL. Citizens of this country very often depend on their libraries for access to electronic databases. And a lot of that use is

governed by license agreements that we sign with the publishers.

And it is noteworthy in response to Congressman Boucher’s original question that contract law is State-based.

And so I think there is a relevance there to the question that you

originally raised in terms of how libraries behave and how we serve

our users.

Mr. TAUZIN. And a final thought, we have chosen not to engage

in this legislation with language dealing with false or fraudulent

databases, and I would like your thoughts on that. Should there be

or should we engage in that exercise in this legislation or not? Your

comments as you use this 30 days to advise us. Mr. O’Brien?

Mr. O’BRIEN. Perhaps a general comment again. I think the

strength of H.R. 1858 is that it is fairly cautious in an area where

there is an explosion of new approaches. One of the concerns that

we have is in the academy, and much of what we develop in scientific research, takes manipulating information from a previous

database and putting a new form of analysis on it, and I think the

approach in H.R. 1858 provides the caution and the protection, but

it does not go so far as to have the chilling effect on scientific inquiry.

Mr. TAUZIN. Thank you. Mr. Markey?

Mr. MARKEY. Just one quick question again just for Mr. Pincus.

If you could help me to focus in on the fair-use question and the

administration’s perspective. There are obviously going to be many

circumstances where people will reuse information in databases

that ought to come under some legal rubric analogous to the concept of fair use in copyright. Does the administration support adding this concept into our database legislation as an explicit provision governing permitted uses of databases?

Mr. PINCUS. Absolutely. We think that it is very important that

in whatever database legislation is finally enacted there be a fairuse provision that is at least as broad as the copyright fair-use provision, and it may be appropriate for it to be broader in certain

ways.

Mr. MARKEY. Does the Judiciary Committee version of this legislation contain a provision which you believe covers this subject adequately or would you like additional refinement of that?

Mr. PINCUS. When I testified before the subcommittee of the Judiciary Committee, we had some concerns about the Judiciary

Committee formulation. But as the bill was reported to the full

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committee, those concerns were addressed. The language was

changed, and so we think that language does mirror or take up,

make sure that the same protection is there as in the copyright

world.

Mr. MARKEY. Could you do better?

Mr. PINCUS. Well, you can always do better. That is why we are

here. The question is if you do that, what are you doing on the investment incentive side, and that is the question of how that balance has to be struck.

Mr. MARKEY. Thank you.

Mr. TAUZIN. Thank you, Mr. Markey. Obviously this is an exercise in finding the right balance. You have illuminated our thought

a great deal, and we thank you. I will give you a chance if you have

any final thoughts. Ms. Schlafly?

Ms. SCHLAFLY. I would just like to point out that it is important

that you go slow in this expanding area of the Internet, but the Judiciary Committee bill, 354, is really a dramatic change. It is an

attempt to get around the Feist decision and other decisions. It is

an attempt to create a copyright in databases without using the

word copyright, to create a property right, intellectual property and

databases when it is not intellectual property; and that is really

quite dramatic. I would hope that the Congress would follow your

leadership in going in a very cautious way in this whole expanding

area.

Mr. TAUZIN. The staff commented if you ever need a job on the

staff, you have defined our jurisdictional arguments very well. Mr.

Black.

Mr. BLACK. One brief comment on the private right of action

issue. In that regard, we actually toyed with is this something that

maybe we can support and some limited concern about FTC. I

think what we wind up looking at and what is going on in Congress with Y2K, the same problems well articulated in there in

terms of frivolous and uncertainty, creating a lot of concern

throughout, given the nature of this area. I think we wind up saying we really shouldn’t go there yet.

Mr. TAUZIN. Mr. Horbaczewski?

Mr. HORBACZEWSKI. Mr. Chairman, as a representative of commercial makers, I just beg the committee to move quickly on this

issue. There are investments that have to be made; there are lead

times and plans that we have suffered under considerable uncertainty for the last 3 years. I would hope that this would not drag

on until the next session.

Mr. TAUZIN. I would agree with you. I think predictability is very

important. Mr. Neal.

Mr. NEAL. I think the issue of fair use is very critical in the finalization of this bill. I think it is very important to look very critically at the fair-use provisions in H.R. 354. I still think there is

some important work there.

Mr. TAUZIN. You are preaching to the choir there. This committee has a huge interest in fair use.

Let me say finally again that we are faced on this committee

with the extraordinary implications of the Internet on our lives and

how we deal with questions of intellectual property rights and fair

use and the flow of information. This committee generally errs on

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1 Although this Statement makes general reference to ‘‘H.R. 1858,’’ it is directed solely to Title

I of the Bill. Title II of the Bill is directed to securities market information. 2See Commission Rule 4.11(b), 16 C.F.R. § 4.11(b). 3 5 Trade Reg. Rep. (CCH) ¶ 24,171 (F.T.C. July 28, 1997) (consent decree) (as condition to

merger of only two databases with certain oil production data, merged firm required to lease

data at reasonable rates to establish a competitor as a second source). 4 5 Trade Reg. Rep. (CCH) ¶ 24,006 (F.T.C. March 27, 1996) (consent decree) (as condition to

settling charges that the defendant’s acquisition of a rival provider of information services to

salvage yards was intended to monopolize various markets within the salvage yard information

management industry, defendant required to divest the computer systems and salvage yard

parts trading network it acquired in order to establish a competitor as a second source). 5 No. 991-0101, 64 Fed. Reg. 27,991 (F.T.C. May 24, 1999) (proposed consent decree, subject

to public comment) (as condition to merger of two disability insurance companies, merged firm

would be required to continue to submit insurance data to an independent entity responsible

for aggregating and disseminating industry-wide actuarial information, with the goal of ensuring that adequate data would be available to existing competitors and to new entrants).

the side of the free flow of information. It errs on the side of working out in the marketplace rather than government dictating the

terms. It generally errs on the side of protecting this free speech

society which we think has done so much for freeing the world of

tyrants, and we appreciate your thoughts on how to make this cut

and balance as carefully as we can.

Phyllis, you mentioned, we are deeply concerned about property

rights, and balancing that is critical. We will do our best with your

help. Use the 30 days wisely. Please come back to us. We thank

you. The hearing stands adjourned.

[Whereupon, at 12:20 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

PREPARED STATEMENT OF THE FEDERAL TRADE COMMISSION

The Federal Trade Commission is pleased to have this opportunity to offer this

Statement concerning H.R. 1858, the Consumer and Investor Access to Information

Act of 1999.1 The Commission is responding to Subcommittee Chairman Tauzin’s

June 11, 1999 letter, requesting agency views on Title I of H.R. 1858, as an official

request of a Congressional Subcommittee.2

H.R. 1858 has four primary objectives: (1) protecting substantial private investments in collecting and organizing original databases from certain forms of freeriding by sellers and distributors of duplicate databases; (2) permitting competition

by those who independently collect and organize rival databases; (3) preserving access to information contained in databases for legitimate journalistic, law enforcement, scientific, educational and research purposes; and (4) denying protection to

database owners who seek to misuse such protection for anticompetitive purposes.

Databases play an important role in promoting innovation and advancing knowledge in the information age. Further, the emergence of new digital technologies has

greatly increased the accessibility and usefulness of many databases. However,

these same technologies have also created opportunities for free-riding and misuse.

The resulting public policy challenge is to ensure that the law continues to provide

adequate incentives for database owners both to produce databases and to allow sufficient access to those databases and the information that they contain. This challenge is further complicated by the ongoing nature of innovation, which requires

both protecting the incentives of those who are first to compile a particular type of

database and preserving the opportunities of those who seek to transform existing

databases into new, useful compilations or other products.

The Commission has experience formulating policy and remedies involving similar

kinds of challenges. During the Commission’s 1995 Hearings on Global and Innovation-Based Competition, industry, academia, and legal practitioners provided extensive testimony concerning the intersection of competition, intellectual property, and

innovation policy. More recently, in cases such as In re Softsearch Holdings, Inc.,3

In re Automatic Data Processing, Inc.,4 and In re Provident Cos., Inc.,5 the Commission has considered the potentially anticompetitive effects of the increased market

power that can result from consolidation among database owners and vendors.

Drawing from such experiences, the Commission provided comments on an earlier

proposal for legislative protection of databases in letters to the Chairman and the

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6 Identical letters from Federal Trade Commission to House Committee on Commerce Chairman Tom Bliley and Ranking Member John D. Dingell, dated September 28, 1998. The letter

to Chairman Bliley is attached. 7 499 U.S. 340 (1991).

8The Supreme Court has described the tort of misappropriation as taking material that has

been acquired as the result of organization and the expenditure of labor, skill, and money, and

then appropriating that material and selling it as one’s own. International News Serv. v. Associated Press, 248 U.S. 215, 239 (1918). Although state law varies, a plaintiff asserting a misappropriation claim has generally been required to prove five elements: (i) the plaintiff generates or

gathers information at a cost; (ii) the information is time-sensitive; (iii) a defendant’s use of the

information constitutes free-riding on the plaintiff’s efforts; (iv) the defendant is in direct competition with a product or service offered by the plaintiffs; and (v) the availability of other parties to free-ride on the efforts of the plaintiff or others would so reduce the incentive to produce

the product or service that its existence or quality would be threatened. National Basketball

Ass’n v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir. 1997). 9 H.R. 1858, § 101(1). 10 Id., § 101(3). 11 Id., § 102. 12 Id., § 101(2). 13 Id., § 101(5). 14 Id., § 103. 15 17 U.S.C. § 107.

Ranking Member of the House Committee on Commerce last fall.6 In those letters,

the Commission stated that ‘‘[a]dditional legal protections for databases may well

be warranted, especially in light of the ease of piracy of some databases.’’ At the

same time, the Commission highlighted several ‘‘areas of concern that may warrant

further study,’’ particularly regarding possible unintended, deleterious effects on

competition and innovation that could arise from broad or ambiguous database protection legislation.

This Statement derives from the same considerations that informed the Commission’s letters last year. It first provides a brief overview of H.R. 1858. It then summarizes the general issues of intellectual property and competition policy and the

specific concerns raised by the Commission last year. The Statement then highlights

several respects in which H.R. 1858 appears responsive to those concerns. It also,

however, identifies several possible problems and ambiguities with the Bill that may

warrant further examination. Finally, the Statement addresses the proposal in H.R.

1858 to assign enforcement responsibility to the Commission and notes the significant new burden it would place on the Commission’s resources.

I. OVERVIEW OF H.R. 1858

H.R.1858 is designed to provide additional legal protections to databases that are

not entitled to protection under copyright law following the Supreme Court’s decision in Feist Publications v. Rural Telephone Services,7 which abolished ‘‘sweat of

the brow’’ copyright protection for non-creative, factual compilations. Although H.R.

1858 is based on a misappropriation model,8 the Bill addresses core issues similar

to those that arise in the context of intellectual property policy, as well as antitrust

policy. These issues involve how best to protect both the ability of initial innovators

to realize returns on their investments in developing a database and the ability of

follow-on innovators to access databases to serve as building blocks for ongoing innovation competition.

The Bill defines a database as follows:

‘‘a collection of discrete items of information that have been collected and organized in a single place, or in such a way as to be accessible through a single

source, through the investment of substantial monetary or other resources, for

the purpose of providing access to those discrete items of information by the

users of the database. However, a discrete section of a database that contains

multiple discrete items of information may also be treated as a database.’’ 9

‘‘Information’’ is defined as including any intangible material capable of being thus

collected and organized, except for ‘‘works of authorship.’’ 10

The Bill generally prohibits the selling or distributing to the public in commerce

of a ‘‘duplicate’’ database ‘‘in competition with’’ an original database.11 To be a ‘‘duplicate,’’ the second database must be ‘‘substantially the same’’ as the original, and

must have been made by extracting information from the original.12 To be ‘‘in competition with’’ the original, the second database must ‘‘displace[] substantial sales

or licenses of the original’’ and ‘‘significantly threaten[] the opportunity to recover

a return on the investment’’ therein.13

This prohibition is subject to an exception for certain specified ‘‘permitted acts,’’ 14

similar to the fair use defense in existing copyright law,15 and to exclusions that

reserve to the public domain government databases and databases required by law,

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16 H.R. 1858, § 104. The exclusion of protection for databases required for Internet communications is essential to maintain the open networking practices that have facilitated the dramatic

growth of electronic commerce in recent years. Computer programs may be protected by copyright, and otherwise protectable databases are not denied protection merely because they are

included in computer programs. Telecommunications subscriber list information remains subject

to FCC regulation under the Communications Act of 1934. 17 H.R. 1858, § 106(a). 18 Id., § 106(b). 19 Id., § 107. 20 Id., § 108. 21 Id., § 105(b). 22 Id., § 105(a), (c), (d). 23 Atari Games Corp. v. Nintendo of America, Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990);

United States Department of Justice & Federal Trade Commission, Antitrust Guidelines for the

Licensing of Intellectual Property § 1.0 (1995). 24See generally ANTITRUST LAW DEVELOPMENTS (FOURTH) at 282-85, 953-81 (1997). 25 86 F.3d 1447 (7th Cir. 1996) (holding that the defendant’s copying of the contents of a CDROM database of 3,000 telephone directories and resale of it in an online format violated the

licensing agreement accompanying the CD-ROM). 26 115 F.3d 1509 (11th Cir.) (en banc), cert. denied, 522 U.S. 963 (1997) (holding that the defendant’s copying of a cable system directory and reselling of it in a software format did not

constitute a copyright violation because of the uncreative nature of the directory).

databases related to Internet communications, computer programs, individual facts

and other individual intangibles, and telecommunications subscriber list information.16 H.R. 1858 also exempts from liability telecommunications and information

services and facilities providers who act only as conduits for the publication of duplicate databases.17 In a provision that appears to have its origins in patent misuse

and copyright misuse caselaw, H.R. 1858 denies database protection to those who

‘‘misuse’’ it.18

As to enforcement, the Bill vests what the Commission understands to be exclusive jurisdiction in the Commission to enforce, implement by rule-making, and seek

remedies for violations of its basic prohibition.19 The Bill also calls upon the Commission to report to Congress on its effects within three years.20 Subject to a limited

preemption of inconsistent State law,21 the Bill preserves Federal and State antitrust, intellectual property, communications, and contract law.22

II. THE BACKGROUND TO THIS STATEMENT: INTELLECTUAL PROPERTY AND ANTITRUST

POLICY AND THE COMMISSION’S COMMENTS ON PRIOR PROPOSED DATABASE PROTECTION LEGISLATION

As noted above, H.R. 1858 raises core issues of how to protect both investments

in databases and access to databases similar to those at the intersection between

intellectual property and antitrust policy. It is well recognized that despite the apparent tension between the antitrust and intellectual property laws, the two bodies

of law share the common purpose of promoting innovation and enhancing consumer

welfare.23 Intellectual property law provides incentives for first-generation innovation by protecting innovators from unfair free-riding. Antitrust law recognizes that

certain misuses of intellectual property rights may harm competition by, for example, permitting a monopolist to leverage its market power from the market covered

by the patent or copyright into other markets, or to foreclose a competitor’s or second-generation innovator’s access to an important input.24

H.R. 1858 presents issues about how to strike this delicate balance. As the Commission stated in its letters last year, a legislative remedy that effectively and accurately targets free-riders on databases appears desirable. Databases play an integral

role in many facets of our economy, and collecting and organizing factual data is

often an expensive and complex process. Free-riding by those who merely copy and

resell or give away existing databases may reduce incentives for database providers

to create new databases or to introduce existing databases in new media that can

more effectively deliver more information to consumers. As recent cases such as

ProCD v. Zeidenberg 25 and Warren Publishing v. Microdos Data Inc.26 show, the

proliferation of digital technologies has rapidly reduced the costs and difficulty associated with copying and distributing vast amounts of data, thereby facilitating freeriding. Although it may be too early to tell, current protections and remedies for

database misappropriation, such as those available under contract and copyright

law, may be inadequate.

In crafting legislation to protect the incentives of first-generation database producers, however, it is important to keep in mind the need to preserve opportunities

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27See generally Federal Trade Commission Staff, ANTICIPATING THE 21ST CENTURY: COMPETITION POLICY IN THE NEW HIGH-TECH, GLOBAL MARKETPLACE, vol. I, ch. 6 (May 1996). 28See, e.g., National Basketball,105 F.3d at 845 (‘‘the surviving ‘hot-news’ INS-like claim is

limited to cases where [inter alia] the information is time-sensitive’’). 29See, e.g., Harper & Row Pub., Inc. v. National Enter., 471 U.S. 539, 564 (1985); Salinger

v. Random House, 811 F.2d 90, 98 (2d Cir. 1987); see also Iowa State Univ. Research Found.

Inc. v. American Broadcasting Co., 621 F.2d 57, 61-62 (2d Cir. 1980) (use involving 8% of a videotape held to be substantial). 30See, e.g., New Era Pubs. Int’l v. Carol Pub. Group, 904 F.2d 152, 158 (2d Cir. 1990). 31Luther R. Campbell, aka Luke Skywalker v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994)

(finding a transformative work to be a fair use under copyright law); see also RESTATEMENT

(THIRD) OF UNFAIR COMPETITION, § 38, cmt. c, at 412-13 (noting general limitation of misappropriation law to the originator’s primary market). 32Sole source databases have been the subject of substantial litigation concerning allegations

of anticompetitive conduct by a monopolist. In its 1998 letters, the Commission cited two examples involving telephone directories: Great Western Directories v. Southwestern Bell Tel. Co., 63

F.3d 1378 (5th Cir. 1995), modified, 74 F.3d 613 (1996), and Direct Media Corp. v. Camden Tel.

and Telegraph Co., 989 F. Supp. 1211 (S.D. Ga. 1997).

tion for use as a stepping stone.27 Last year, the Commission expressed several concerns regarding the potential effects on competition of the database protection legislation then proposed, Title V of H.R. 2281 (the ‘‘Collections of Information

Antipiracy Act’’). The Commission highlighted the following dangers inherent in ambiguous language that could be read to preclude certain reasonable uses of existing

databases to produce new products or services of value to consumers:

• 15-Year Term. The 1998 bill limited the civil and criminal liability that it created

to a term of 15 years from the date of ‘‘the investment of resources that qualified the portion of the [database] for protection under this chapter that is extracted or used.’’ The Commission questioned whether 15 years was too long a

term, given that information technology product cycles are typically short and

misappropriation law has typically protected only investment in gathering ‘‘hot,’’

i.e., short-term valuable, information.28 The Commission also highlighted the

uncertainties involved, particularly for a potential defendant, in attempting to

apply any fixed term that runs from the point of ‘‘investment of resources’’ in

a database, given that such investment is often ongoing.

• Substantiality of Duplication. The 1998 bill generally prohibited the extraction of

‘‘all or a substantial part, measured either quantitatively or qualitatively, of a

collection of information . . . so as to cause harm to the actual or potential market

for that other person . . . ’’ The Commission highlighted the vagueness of a

‘‘quantitatively or qualitatively... substantial’’ test, and the chilling effect its

uncertainty could have on a potential defendant. The Commission suggested

that copyright precedent could not properly be applied by analogy, since such

precedent is premised on the facts/expression dichotomy that is unique to copyright, typically looking for copying of expression that minimally ‘‘exceeds that

necessary to disseminate the facts,’’ 29 or making stylistic judgments 30 that are

alien to non-expressive collections of data.

• Potential Competition. The 1998 bill proposed to protect claimants of database

protection against competition by duplicators not only in markets actually exploited by the claimant before entry by the duplicator, but also in ‘‘potential

market[s]’’ that the claimant specifically planned to or might typically be expected to exploit in the future. The Commission highlighted ambiguities in this

provision which could have a chilling effect on follow-on users, and noted that

it appeared to provide more protection for databases than is available for works

protected by existing copyright and misappropriation laws. Most importantly,

the Commission expressed concern that by effectively enabling a database

owner to exclude others from entering a secondary market without even entering such a market itself, the 1998 bill could conflict with a fundamental shared

policy of intellectual property and antitrust policy: encouraging ‘‘the creation of

transformative works.’’ 31

• Single-Source Databases and Anticompetitive Misuse of Database Protection. The

Commission highlighted the ‘‘increased potential for anticompetitive conduct

where there exists only a monopoly source for a particular type of information.’’

The Commission noted the risk that database protections that entrench such

monopolies may facilitate such anticompetitive practices as charging

supracompetitive prices, restricting output, leveraging market power into other

markets and denying essential inputs of information to competitors.32 The Commission cautioned that ‘‘antitrust law cannot alleviate all of the potential competitive problems associated with sole-source databases,’’ since antitrust law

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33For discussion of the essential facilities doctrine, see, e.g., MCI Communs. Corp. v. AT&T,

708 F.2d 1081, 1132 (7th Cir.), cert. denied, 464 U.S. 891 (1983). For extensive discussion of

whether, when, and how to mandate access to competitively significant inputs, see Federal

Trade Commission Staff, ANTICIPATING THE 21ST CENTURY: COMPETITION POLICY IN THE NEW

HIGH-TECH, GLOBAL MARKETPLACE, vol. I, ch. 9 (May 1996). 34 H.R. 1858, § 101(2). 35 Id., § 101(1). 36 Id., § 101(5)(A). 37 Id., § 106(b)(6). 38 Id., § 106(b)(2). 39 Id., § 106(b)(3). 40 Id., § 106(b)(4).

permits certain uses of lawfully acquired monopoly power and the essential facilities doctrine of antitrust law has been limited in its application thus far.33

The Commission’s letters last year concluded by suggesting three key areas in

which the 1998 bill might be improved:

(1) limiting the term of protection to less than 15 years and precluding perpetual

protection for databases that are maintained on an ongoing basis;

(2) defining more clearly the degree of copying required to trigger liability; and

(3) excluding ‘‘potential competition’’ protection and/or strengthening ‘‘fair use’’ type

defenses.

III. THE RESPONSIVENESS OF H.R. 1858 TO THE COMMISSION’S CONCERNS

H.R. 1858 differs significantly from the former H.R. 2281. Although the Commission notes several concerns with H.R. 1858 in the next Section, the Bill appears responsive to several of the Commission’s original concerns.

(a) Substantiality of Duplication. Instead of asking whether a qualitatively or

quantitatively substantial amount of data has been extracted from the original database, H.R. 1858 asks whether the two databases are ‘‘substantially the same.’’ 34 No

formulation appears possible that would exclude an element of judgment, but this

new formulation appears clearer than that of the 1998 bill, and reduces the risk

that data, as distinct from the database as a whole, will be protected.

The Bill further provides that ‘‘a discrete section of a database that contains multiple discrete items of information may also be treated as a database.’’ 35 This provision also raises issues of judgment: how many is ‘‘multiple’’? The closest the Bill

comes to answering that question is elsewhere in its definition of ‘‘database,’’ in

which it requires that a database reflect ‘‘the investment of substantial monetary

or other resources.’’ If this is interpreted as requiring a reasonable common sense

determination of substantiality, small sections of databases that lack real independent value will be excluded. Thus, the Bill appears to require that the alleged ‘‘database’’ be both (i) discrete and (ii) substantial in terms of what went into it. Furthermore, the ‘‘discrete section’’ provision does not mandate that such a section be

deemed a database; instead, it ‘‘may’’ be treated as such. If this is interpreted to

allow room for reasonable judgment as to whether the section is ultimately best

characterized as a database as opposed to a mere extract, it appears that overprotection of minor elements of a database can be avoided.

(b) Potential Competition. The Bill does not expressly protect database creators

with respect to markets that they might potentially enter, and requires that the duplicate database ‘‘displace[] substantial sales or licenses of the database.’’ 36 That

which does not yet exist is not normally said to be ‘‘displaced.’’ Accordingly, this provision appears to require that there actually be ‘‘sales or licenses’’ of the original

database in the market in which the two compete before the duplicate competes

therein. In this respect, H.R. 1858 appears fully responsive to the concerns voiced

by the Commission last year.

(c) Single-Source Databases and Anticompetitive Misuse of Database Protection.

H.R. 1858 addresses the monopoly and misuse issues raised by the Commission last

year in Section 106(b). Consistent with the general policy that factual databases

should not be protected more than copyrighted and patented works, this provision

looks to copyright and patent misuse precedent as a potential guide.37 It also specifically addresses issues of monopolistic pricing and output limitations on sole source

databases,38 leveraging of monopoly power into new markets,39 and denial of essential facilities.40 In these respects, it appears highly responsive to the Commission’s

concerns. However, Section 106(b) also raises several novel issues of interpretation,

discussed in the next Section, which may give rise to uncertainty and litigation.

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41 A similar ambiguity may remain: Section 109, the effective date provision, provides that the

Bill applies to the sale and distribution after its enactment of a database collected and organized

thereafter. Whether databases initially created before the effective date but updated thereafter

will be grandfathered is unclear. 42See supra, note 28. 43 As noted below, determining what constitutes a ‘‘return on investment’’ within Section

101(5)(B) will require interpretation and judgment. 44See H.R. 1858, § 106(b)(2). 45 Under existing copyright law, no such distinction is made between compilations of works

of authorship and other compilations. For each, Feist denies protection based on the ‘‘sweat of

the brow,’’ but there may be protection if the work involved in compilation meets the statutory

requirement of originality. See, e.g., Publications Int’l Ltd. v. Meredith Corp., 88 F.3d 473, 480

(7th Cir. 1996) (‘‘The creative energies that an author may independently devote to the arrangement or compilation of facts may warrant copyright protection for that particular compilation.

This also extends to the compilation of preexisting materials that is the work product of others.

There is no dilution of the originality requirement, for a compilation’s originality flows from the

efforts of ‘industrious collection’ by its author.’’) (citations omitted). See also 17 U.S.C. § 101

(‘‘The term ‘compilation’ includes collective works.’’). 46 H.R. 1858, § 101(5)(B).

IV. SUBSTANTIVE ISSUES ARISING UNDER H.R. 1858

In searching for an appropriate balance between protection and access to stimulate both first- and second-generation database production and use, the substantive

provisions of the Bill (Sections 101 to 106) make several choices and employ several

concepts that may warrant further study. The principal areas that appear likely to

give rise to concerns or ambiguities are noted below:

(a) Term of Protection. H.R. 1858 contains no term limit to database protection.

This absence eliminates the ambiguities noted by the Commission in the case of ongoing database maintenance,41 but heightens concerns regarding possible perpetual

protection. If protection under the Bill were indeed perpetual, databases would in

a sense be more protected than copyrighted or patented innovation, and the balance

between protection and competition would be tilted against competition.

On the other hand, certain other terms, discussed further below, might operate

to limit the term of protection as a practical matter. As the Commission noted in

its 1998 letters, the common law of misappropriation has generally limited protection to relatively short terms despite the lack of a statutory term limit.42 The ‘‘in

competition with’’ requirement of Section 101(5) of H.R. 1858 limits protection to

that necessary to prevent a ‘‘significant[] threat [to] the opportunity to recover a return on the investment in the collecting or organizing of the duplicated database.’’

Under this provision, it appears that once a database creator that has already recovered its ‘‘return on investment,’’ it is no longer entitled to the protection afforded

by H.R. 1858.43 Similarly, the misuse defense of Section 106(b), which, for sole

source databases, may effectively condition protection on reasonable licensing or sale

terms,44 might provide grounds for limiting protection of old databases. Nonetheless,

as drafted, the Bill provides no clear term limitation to protection on which a potential defendant could readily rely.

The perpetual protection danger and the issue of whether some form of safe harbor can be constructed to protect those seeking to duplicate old databases may merit

further study.

(b) Section 101(3): Exclusion of Collections of ‘‘Works of Authorship’’ from Protection. Section 101(3) defines ‘‘information’’ as excluding ‘‘works of authorship,’’ and

thereby excludes collections of works of authorship from the Bill’s database protection regime. This provision appears ambiguous as to whether the phrase ‘‘works of

authorship’’ is intended to incorporate by reference caselaw under the Copyright

Act, 17 U.S.C. § 102. It would be useful to clarify this ambiguity, and also to clarify

the purpose of this exclusion.45

(c) Section 101(5): The ‘‘In Competition With’’ Requirement. As noted above, the

requirement in H.R. 1858 that a duplicate be ‘‘in competition with’’ the original

database to give rise to potential liability appears responsive to the Commission’s

concerns about prior proposals that might have protected database owners with respect to markets that they have yet to enter. The requirement that ‘‘the opportunity

to recover a return on the investment in the collection or organizing of the duplicated database’’ be ‘‘significantly threaten[ed]’’ 46 also appears consistent with the

underlying policy goals: the purpose of protection is to provide an appropriate incentive for database creation, not opportunities for monopoly profits over and above

those necessary to stimulate production.

The more difficult issue, which may merit further study, is what level of return

should be protected. The insertion of the word ‘‘reasonable’’ before ‘‘return’’ may be

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47Similar criteria have been used in the regulated utility context. Experience in that context

indicates that determining what is a reasonable return on investment requires judgments concerning the appropriateness of the utility’s valuation of its assets, appropriate rates of depreciation and the appropriate rate of return to compensate for the level of business risk in the market concerned. Since Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591 (1944),

in which the Supreme Court described the rate-setting process as one of ‘‘pragmatic adjustments,’’ id., at 602, and ‘‘balancing of the investor and the consumer interests,’’ id., at 603,

courts have generally been highly deferential to regulators in this area, recognizing that ‘‘[t]he

economic judgments required in rate proceedings are often hopelessly complex and do not admit

of a single correct result.’’ Duquesne Light Co. v. Barasch, 488 U.S. 299, 314 (1989). 48See 17 U.S.C. § 105. 49Matthew Bender & Co., Inc. v. Hyperlaw, Inc., 158 F.3d 693, 704 (2d Cir. 1998) (citation

and quotation marks omitted), cert. denied, 522 U.S. 3732 (1999). 50 Compare id. (finding insufficient similarity and denying infringement) with West Pub. Co.

v. Mead Data Central, Inc., 799 F.2d 1219 (8th Cir. 1986), cert. denied, 479 U.S. 1070 (1987);

see also Oasis Pub. Co. v. West Pub. Co., 924 F. Supp. 918, 922-25 (D. Minn. 1996) (maintaining

that the Eighth Circuit case remains good law after Feist). 51The Copyright Act provision cannot provide a complete model for the Bill, since it builds

into the affirmative fair use defense considerations of substantiality of copying and displacement

of sales of the copyrighted work that have their analogs in Sections 101 and 102 of the Bill.

However, its open-ended approach, citing a non-exclusive list of permissible ‘‘purposes such as

criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research,’’ 17 U.S.C. § 107, enables courts to focus on the underlying policy of ‘‘balancing the need to provide individuals sufficient incentives to create public works with the

public’s interest in the dissemination of information,’’ Hustler Magazine Inc. v. Moral Majority

Inc., 796 F.2d 1148, 1151 (9th Cir. 1986), rather than focusing on specific categories.

ards and precedents regarding what level of return is reasonable and can be expected. Precedents and principles from the utility regulation context could be consulted in this regard.47

(d) Sections 101(6) and 104(a): Government Databases. Following the lead of the

Copyright Act,48 the Bill appropriately avoids creating private rights that would

take government-created or government-funded information and databases out of

the public domain. At the same time, the Bill recognizes that private investment

in compilations that include substantial government data may be worthy of protection. In Section 104(a)(3), the Bill also helpfully preserves the ability of government

entities to minimize uncertainty by establishing specific rules to govern specific

databases by law or by contract. It is not readily apparent why the exclusion of government information from database protection is generally limited (under the

present Bill as under the Copyright Act) to federal government information; as a

matter of general policy, it appears desirable to keep state, local and foreign government-created information in the public domain as well.

Under Section 104(a)(2), as under Section 105 of the Copyright Act, the most difficult issue likely to arise is the severance issue: when and how should private investment in a database containing predominantly government information be compensated? Under the Copyright Act, the copyright holder must establish ‘‘substantial similarity between those elements [excluding governmental data and organization], and only those elements, that provide copyrightability to the allegedly infringed compilation.’’ 49 The federal courts of appeals are currently split on the application of this test to a single factual issue: the incorporation into competing databases of West Publishing Company’s star pagination from its database of judicial

opinions.50 This and similar issues may be expected to arise under H.R. 1858.

(e) Section 103: Permitted Acts. Section 103 appears intended to be the Bill’s

equivalent to the fair use defense in copyright. Unlike Section 107 of the Copyright

Act, however, Section 103 limits its permitted acts to four specific enumerations.

This poses a danger that additional valuable transformative uses that might emerge

in the new information economy and cannot currently be specifically anticipated

might be stifled. A broader provision along the lines of Section 107 of the Copyright

Act that would provide a general defense for substantially transformative uses appears to merit serious consideration; 51 such a provision could use the current enumeration in Section 103 or a similar enumeration as a non-exclusive starting point.

In addition, several aspects of the specific subsections of Section 103 raise questions. Section 103(a) usefully clarifies that the independent creation of an identical

database is not prohibited.

The law enforcement exception in Section 103(c) appears plainly appropriate with

respect to government officers, agents or employees. The interpretation of the

phrase ‘‘lawfully authorized investigative, protective, or intelligence activities’’ is,

however, unclear. Is it intended to be narrowly limited to governmental action for

the purpose of preventing, detecting or prosecuting crime? Or does it encompass a

broader array of activities, such as disseminating information to the public on the

whereabouts of convicted or alleged violent sexual offenders, commercial sale of priVerDate 11-SEP-98 10:54 Sep 30, 1999 Jkt 000000 PO 00000 Frm 00087 Fmt 6633 Sfmt 6621 57446.TXT HCOM2 PsN: HCOM2
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52For example, Section 6254(f)(3) of the California Government Code requires that law enforcement agencies publish upon request ‘‘the current address of every individual arrested by

the agency and the current address of the victim of a crime, where the register declares under

penalties of perjury that the request is made for a scholarly, journalistic, political, or governmental purpose, or that the request is made for investigation purposes by a licensed private investigator . . . ’’ Does Section 103(c) exempt from liability private entities who receive databases

under this provision and then publish them, or is the exception limited to law enforcement officials? Also, is the law enforcement officials’ compliance with the California statute itself a ‘‘lawfully authorized investigative, protective, or intelligence activit[y]’’? 53 146 F.3d 1133 (9th Cir. 1998). 54 Cal. Gov. Code § 6254(f)(3), supra, note 52. 55See Los Angeles Police Dep’t v. United Reporting Pub. Corp.,119 S. Ct. 901 (1999) (granting

a writ of certiorari to review the Ninth Circuit’s decision). 56 H.R. 1858, § 102. 57See, e.g., 17 U.S.C. § 107’s inclusion of the duplication and distribution of ‘‘multiple copies

for classroom use’’ within its partial enumeration of fair uses. 58See, e.g., Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 792 (5th Cir. 1999). 59 H.R. 1858, § 106(b)(2). 60 Id., § 106(b)(3). 61 Id., § 106(b)(4).

vate intelligence information, or dissemination by private entities of information received from law enforcement officials? 52

Data gathering and dissemination in many of these contexts raises significant privacy and, in some cases, First Amendment concerns. For example, in United Reporting Pub. Corp. v. California Highway Patrol,53 the Ninth Circuit declared unconstitutional a California law 54 restricting the permitted uses of arrestee identity and

address information provided by law enforcement agencies to non-commercial uses

(plus media reporting). The case is now pending before the Supreme Court.55 The

effects of Section 103(c) on such First Amendment and privacy issues appear to

merit further study.

The limitation of Section 103(d)’s exemption for ‘‘scientific, educational or research

uses’’ to uses that are not ‘‘part of a consistent pattern engaged in for the purpose

of direct commercial competition’’ with the database creator also gives rise to a potentially troublesome ambiguity: it is not clear how the undefined term ‘‘direct commercial competition’’ compares with the ‘‘in competition with’’ element of the basic

prohibition, which, as discussed above, appears limited (as suggested in the Commission’s 1998 letters) to actual (as distinct from potential) competition. Unless

there is a specific policy goal to be served by using a different term, it would be

helpful to simplify matters by using the same term in both sections.

Similarly, whereas the basic prohibition applies to ‘‘sell[ing] or distribut[ion],’’ 56

Section 103(d) refers instead to ‘‘duplicat[ion]’’ as the exempted act. This exemption

could be read literally as valueless—it exempts an activity, mere duplication, that

is not prohibited—leaving scientific, educational and research users of databases

without an equivalent to the fair use protection that they enjoy with respect to copyrighted materials.57 Clarity would be better served, and the danger of chilling legitimate scientific, educational and research activities would be lessened, by specifying

the circumstances in which the prohibited acts—selling and distributing—are exempted.

(g) Section 106(b): Misuse Defense. As discussed above, the misuse defense created

by Section 106(b) appears responsive to concerns expressed by the Commission last

year regarding potential anticompetitive uses of database protection. The policy concerns underlying antitrust law suggest that misuse defenses should be no less available in response to database protection claims than they are in response to copyright and patent infringement claims. In addition, the equitable principle traditionally underlying misuse defenses, the ‘‘unclean hands’’ doctrine,58 suggests that the

defense could be used to deny protection to database creators who misuse their

databases in other ways, such as denying consumers access to personal information

about themselves contained on the database.

Section 106(b)(6) assists in the interpretation of the misuse provision as a whole

by directing attention to patent and copyright misuse precedents. In addition, three

of the factors identified by the Bill as relevant to a determination of misuse—the

reasonableness of sale or licensing terms for sole source databases,59 tying of database licensing or sale with other products or services,60 and prevention of access to

necessary information 61—correspond to three established concerns of antitrust policy identified in the Commission’s letters last year: monopolistic pricing and output

limitation, leveraging of monopoly power, and denial of access to essential facilities.

These provisions are far from self-executing: for example, the question of what licensing or sale terms are ‘‘reasonable’’ under Section 106(b)(2) raises issues similar

to those discussed above in relation to Section 101(5)(B)’s ‘‘return on investment’’

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62See, e.g., Morton Salt Co. v. G.S. Suppiger, 314 U.S. 488 (1942) (patent misuse: where a

patent is used, by means of tying, to secure monopoly power over products or services outside

the scope of the patent’s protection, a court will not enforce the patent in such a way as to assist

such efforts); B.B. Chem. Co. v. Ellis, 314 U.S. 495, 498 (1942) (patent misuse: same, and all

infringement suits will be denied until patent misuse is ‘‘fully abandoned’’); Alcatel, 166 F.3d

at 793 (copyright misuse: where a plaintiff ‘‘has used its copyrights to indirectly gain commercial

control over products [the plaintiff] does not have copyrighted, then copyright misuse may be

present’’); Practice Mgmt. Information Corp. v. American Medical Ass’n, 121 F.3d 516, 521 (9th

Cir. 1997) (copyright misuse: conditioning a copyright license on the licensee’s promise not to

use a competitor’s products constituted misuse), modified on other grounds, 133 F.3d 1140

(1998); Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330, 1337 (9th Cir. 1995) (copyright misuse: where a plaintiff merely forbids outright copying of its copyrighted software, and

does not attempt to prohibit legitimate reverse engineering of competing software, there is no

copyright misuse). 63 In last year’s Digital Millennium Copyright Act, Congress addressed the use of technological

measures to control access to copyrighted works. The new 17 U.S.C. § 1201 attempts to balance

protection against infringement with access for legitimate uses by (1) prohibiting ‘‘circumvention’’ (e.g., descrambling or decryption) of technological access control measures, and (2) instructing the Librarian of Congress to exclude from that prohibition, and to publish, works whose protection thereby would adversely affect noninfringing uses. 64See, e.g., B.B. Chem. Co., 314 U.S. at 498 (patent misuse: ‘‘It will be appropriate to consider

[the patentee’s] right to relief when it is able to show that it has fully abandoned its present

method of restraining competition in the sale of unpatented articles and that the consequences

of that practice have been fully dissipated.’’); Alcatel, 166 F.3d at 792, n. 81 (copyright misuse:

‘‘A finding of misuse does not... invalidate plaintiff’s copyright. Indeed,... ‘‘[plaintiff] is free to

bring a suit for infringement once it has purged itself of the misuse.’ ’’) (citation omitted).

criterion. But caselaw exists in most of these areas that might be useful in developing appropriate principles to guide application of these provisions.62

In other respects, however, the misuse provision appears novel and potentially

ambiguous. First, its subsections merely list factors to be considered in making the

ultimate determination of whether ‘‘misuse’’ has occurred. ‘‘Misuse’’ itself is not defined, and the intent of Section 106(b)(6)’s instruction to consider copyright and patent misuse doctrine to ‘‘the extent to which [it] may appropriately be extended to

the case or controversy’’ is unclear. It may be useful to clarify whether it is intended

as an open-ended delegation to consider whether databases should be more or less

protected than copyrights or patents and to adjust misuse precedents from those

contexts accordingly, or whether the intention is to mandate consistency with those

precedents unless specific factual issues render them inapplicable in the particular

case. If the former, a determination of ‘‘misuse’’ threatens to become highly subjective: the whole point of the basic prohibition is to create a degree of exclusivity that

the database creator can exploit for profit, but how much exploitation is too much?

If the latter, significant distinctions between the misappropriation-style database

rule and the intellectual property regimes of patent and copyright law may be neglected. For example, the filing of an infringement action can never be misuse under

patent law precedent, while the filing of database protection lawsuits that assert

claims that cannot be readily verified at the Patent and Trademark Office (since

databases do not have to be registered) could be a highly effective and anticompetitive way of erecting barriers to entry in the database industry.

The role of the six enumerated factors is also unclear. Read literally, Section

106(b) consigns them to be considered ‘‘among other factors’’ in determining the ultimate issue of misuse, but can any one of them suffice alone? For example, can perfectly lawful ‘‘technological measures’’ taken to prevent unlawful copying, which

then have the side-effect of frustrating permitted research or news media uses, constitute ‘‘misuse’’ pursuant to Section 106(b)(1), or does the term ‘‘misuse’’ itself entail

some notion of wrong-doing? 63 By its nature, an assertion of database protection

may well raise barriers to entry in a relevant database market; under what circumstances might the ‘‘manner of asserting’’ data protection rights amount to misuse pursuant to Section 106(b)(5)?

Also, when must the misuse occur? Is the determination to be made in the individual case, i.e., whether the database protection claimant has injured the alleged

violator by misuse, or over the whole course of the claimant’s conduct, such that,

for example, improper frustration of the ability of researchers to engage in permitted acts could result in forfeiture of protection as against all-comers, including

direct commercial competitors? The latter alternative, which may be suggested by

the text of Section 106(b)(1), could potentially provide an effective incentive to ensure access to databases for non-profit and other permitted users who might not

themselves be in a position to complain of misuse or risk litigation. Existing copyright and patent misuse doctrine generally denies all enforcement against infringement while misuse persists, but allows the intellectual property owner to revive its

rights by purging itself of the misuse.64

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65 H.R. 1858, § 107. 66 17 U.S.C. § 06(a). 67See, e.g., Meghrig v. KFC Western, Inc., 516 U.S. 479, 487-88 (1996) (‘‘where Congress has

provided ‘elaborate enforcement provisions’ for remedying the violation of a federal statute,... ‘‘it

cannot be assumed that Congress intended to authorize by implication additional judicial remedies for private citizens suing under’ the statute.’’) (citation omitted). 68 If, as the Commission understands, state common law misappropriation suits involving

databases will generally be preempted under Section 105(b), such cases would be effectively federalized and further add to the enforcement burden.

If called upon to enforce the legislation, the Commission would, of course, exercise its best

judgment as to enforcement priorities. Section 107(d) provides that the Commission ‘‘shall prevent’’ violations ‘‘in the same manner, by the same means, and with the same jurisdiction, powers and duties as though all applicable terms and provisions of the Federal Trade Commission

Act (15 U.S.C. 41 et seq.) were incorporated into and made a part of this title.’’ This appears

to incorporate by reference the Commission’s enforcement discretion under Section 5(b) of the

FTC Act, which instructs the Commission to issue a complaint respecting a violation ‘‘if it shall

appear to the Commission that a proceeding by it in respect [of the violation] would be to the

interest of the public.’’ It is well established that this standard gives the Commission wide latitude in the allocation of its scarce enforcement resources. See, e.g., Federal Trade Commission

v. Universal-Rundle Corp., 387 U.S. 244 (1967); Encyclopedia-Britannica, Inc. v. Federal Trade

Commission, 605 F.2d 964 (7th Cir. 1979), cert. denied, 445 U.S. 934 (1980); see also Montgomery Ward & Co. v. Federal Trade Commission, 379 F.2d 666 (7th Cir. 1967) (court of appeals

has no general authority to second-guess Commission’s determination of what is in the public

interest); Action on Safety and Health v. Federal Trade Commission, 498 F.2d 757 (D.C. Cir.

1974) (Commission’s decision to deny intervention to consumer protection organization was an

agency action committed to agency discretion and therefore exempt from judicial review). Although the factors enumerated in Section 106(b) are addressed to ‘‘a court’’ rather than the

Commission, the potential for misuse and competitive implications more generally would appear

to be appropriate considerations in this context.

V. THE COMMISSION’S PROPOSED ROLE UNDER H.R. 1858

The most noteworthy remaining feature of the Bill, and one that distinguishes it

from all other proposals that the Commission has reviewed and from existing intellectual property and misappropriation laws, is that it assigns enforcement authority

to the Commission.65 This proposed assignment raises several issues.

(a) Absence of criminal liability. Unlike the 1998 bill, H.R. 1858 does not create

any new criminal liability. Although willful copyright infringers can incur criminal

liability,66 misappropriation and other laws concerning the copying and dissemination of factual information have traditionally been purely civil. This tradition reflects First Amendment concerns and a salutary general policy favoring freedom of

information. Moreover, the interpretive issues noted in Section V above and the residual ambiguities that are inherent in the enterprise of crafting a new legal regime

to protect formerly unprotected works raise the concern that the threat of criminal

liability could chill innovation and competition as a result of uncertainties in the

law. It therefore appears appropriate to exclude criminal liability from the Bill.

(b) Is a private civil right of action excluded? Section 107 of H.R. 1858 confers jurisdiction on the FTC, but it does not expressly address whether a private right of

action may be maintained to enforce the basic prohibition of Section 102. The Commission tentatively interprets the Bill, in the light of Supreme Court precedent on

implied rights of action,67 as excluding any private civil right of action: the Bill appears to intend that database owners harmed by duplicates address their complaints

to the Commission instead of the courts. However, the Bill is also somewhat ambiguous: Section 106(b) directs ‘‘a court,’’ rather than the Commission, to consider a list

of factors in determining the merits of a misuse defense. Express clarification of legislative intent in this regard could avert future litigation.

(c) FTC Enforcement. The Bill would entrust the Commission with its enforcement. The Commission appreciates the confidence of Congress and the recognition

of the Commission’s experience with the underlying policy issues that this appears

to reflect. The Commission also appreciates that the threat of private actions could

be used by market incumbents to threaten potential entrants, potentially raising

difficult issues for courts called upon to interpret the misuse defense in Section

106(b).

However, the enforcement burden would appear to be considerable, particularly

if the Commission were the sole statutory enforcer.68 No federal administrative

agency has previously had jurisdiction over claims of misappropriation or infringement of intellectual property-type rights, and the scope of issues that might arise

in the emerging information economy under such a new legal regime is not easy to

forecast. As noted above, the Bill would raise several complex rule-making and adjudicative issues, including assessing substantiality of investment, degree of copying,

disaggregation of governmental and private content in databases, what constitutes

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misuse, and the effects of the duplicate database on the original database creator’s

market and returns to investment.

Finally, Section 108 would create a further, reporting responsibility for the Commission. Under the jurisdiction conferred by Section 6 of the Federal Trade Commission Act, the Commission has substantial experience with gathering information,

holding hearings and issuing reports on important matters of competition and consumer protection policy. The importance of the issues dealt with in the Bill, and the

policy questions regarding the optimal balancing of access and protection that it

raises, suggest that ongoing study could be valuable.

CONCLUSION

H.R. 1858 strives to strike a balance between protecting database producers from

unfair free-riding and preserving factual information in the public domain and allowing transformative uses of databases and fair competition. Like traditional antitrust and intellectual property policy, it aims to stimulate both first- and secondgeneration innovation in the interests of consumers.

The Bill demonstrates a responsiveness to competition concerns raised by the

Commission last year in its definitions of the basic prohibition, permitted uses and

exclusions, and the misuse defense. However, each of these definitions also gives

rise to ambiguities and potential concerns, and the differences between the permitted uses under the Bill and the fair use defense in copyright may also warrant

further examination.

The Bill’s omission of criminal liability appears appropriate, given its potential

chilling effects on speech, innovation and competition in this context. Its assignment

of authority to the Commission would impose a significant new burden on the Commission’s resources.

In sum, the Bill’s approach to database protection applies sound general principles

underlying antitrust and intellectual property policy to difficult issues raised by the

emerging information economy, but raises several issues that may warrant further

examination. The Commission stands ready to assist the Subcommittee or the full

House Committee on Commerce in that examination if called upon.

PREPARED STATEMENT OF ASSOCIATION OF DIRECTORY PUBLISHERS

The Association of Directory Publishers (ADP) thanks Chairman Tauzin for the

invitation to submit the following statement for the record in connection with the

June 15, 1999, hearing of the Telecommunications, Trade, and Consumer Protection

Subcommittee on H.R. 1858, the ‘‘Consumer and Investor Access to Information Act

of 1999.’’

The Association of Directory Publishers (ADP) is a century-old international trade

association of over 180 independent telephone directory publishers employing thousands of individuals throughout the country. ADP members provide consumers with

telephone directories that include white and yellow pages listings, plus community

information. These products are indispensable links in the communications network

that binds communities together.

Consumers have benefited greatly from the competition that ADP’s members have

brought to the directory industry. Many of the innovations independent publishers

have introduced are now standard in directories today. They were the first to introduce coupons and maps to directory products. Independent publishers created the

first community sections with helpful local information, such as frequently called

service and government numbers, school information, sports schedules, and seating

diagrams for auditoriums and stadiums. Recently, independent publishers were the

first publishers to add zip codes to the white page listings, again expanding the usefulness of directories. These enhancements were quickly copied by phone company

publishers, thus making all phone books more useful to consumers and businesses.

The Association of Directory Publishers supports the inclusion of two sections in

H.R. 1858 that will ensure the ‘‘status quo’’ for subscriber list information. These

provisions would ensure that directory publishers continue to have access to subscriber lists (name, address and phone number) under the ruling by the Supreme

Court in Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1991) and

Sec. 222(e) of the Communications Act.

Specifically, the applicable provisions in H.R. 1858 are the following:

Sec. 104 (e) Subscriber List Information.—

Protection for databases under section 102 does not extend to subscriber list

information within the meaning of section 222(f) of the Communications Act of

1934 (47 U.S.C. 222(f)). Nothing in this subsection shall affect the operation of

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section 222(e) of such Act, under which a telecommunications carrier provides,

upon request, subscriber list information for the purposes of publishing directories in any format under nondiscriminatory and reasonable rates, terms, and

conditions.

Sec. 105(d) Communications Act of 1934.—

Nothing in this title shall affect the operation of the Communications Act of

1934 (47 U.S.C. 151 et seq.) or the authority of the Federal Communications

Commission.

As directory publishers, ADP members need complete and up-to-date subscriber

list information to produce their products. Local phone companies must gather this

information as part of providing local phone service, and they therefore have sole

access to such information and monopoly control over it.

The local phone companies’ directory publishing arms currently control 93% of the

directory market, and the telephone companies have long used their control over

subscriber list information to restrict our competitive access to this essential data.

Their anti-competitive practices include unreasonable prices, refusal to sell updates,

and even outright refusal to sell listings at any price or on any terms.

In response to years of anticompetitive behavior by phone companies and through

the leadership of this Committee, Congress included language in the historic 1996

Telecommunications Act to ensure competition in the telephone directory business.

In the new Section 222(e), Congress enunciated in plain terms the right of independent publishers to access subscriber list information under reasonable rates, terms

and conditions. Sections 222(e) and 222(f)(3) of the Communications Act provide:

Subscriber List Information.—Notwithstanding subsections (b), (c), and (d), a telecommunications carrier that provides telephone exchange service shall provide

subscriber list information gathered in its capacity as a provider of such service

on a timely and unbundled basis, under nondiscriminatory and reasonable rates,

terms, and conditions, to any person upon request for the purpose of publishing

directories in any format. [47 U.S.C. 222(e)]

Subscriber List Information.—The term ‘‘subscriber list information’’ means any

information—

(A) identifying the listed names of subscribers of a carrier and such subscribers’ telephone numbers, addresses, or primary advertising classifications (as

such classifications are assigned at the time of the establishment of such service), or any combination of such listed names, numbers, addresses, or classifications; and

(B) that the carrier or an affiliate has published, caused to be published, or

accepted for publication in any directory format. [47 U.S.C. 222(f)(3)]

The legislative history on this provision clearly documents the abuses ADP members suffered over the past decade. Some examples include: local exchange carriers

charging excessive and discriminatory prices, requiring the purchase of listings on

a bundled statewide basis when independent publishers needed only listings for one

community, and, in some cases, outright refusals to sell listings or updates. Sec.

222(e) was enacted to prevent telephone companies from exercising their de facto

monopoly over essential factual information—which arises entirely as a byproduct

of their provision of regulated local telephone exchange service—to restrict or prevent competition in the unregulated and potentially competitive directory advertising business. See, e.g., House Rept. 104-204, Part 1, pp. 89-90; 142 Cong. Rec. E184

(daily ed. Feb. 6, 1996)(statement of Rep. Paxon); 142 Cong. Rec. H1160 (daily ed.

Feb. 1, 1996)(statement of Rep. Barton).

In enacting this provision in 1996, the Commerce Committee and Congress intended to build on independent publishers’ pre-existing ability to copy published listings, as authorized under the 1991 Feist case. The statute was meant to promote

reasonable licensing agreements, not revoke the ability of independent publishers to

copy listings in cases where licensing agreements are not concluded.

The Feist case is named for Tom Feist, who is an ADP member. Mr. Feist was

left with no choice but to copy listings in order to provide consumers a convenient,

one-book directory covering eleven different service areas, because one of the telcos

refused to license its listings to him. The Supreme Court ruled in Feist’s favor, concluding that ‘‘[f]acts, whether alone or as part of a compilation, are not original and

therefore may not be copyrighted.’’ (Feist Publications v. Rural Telephone Service

Co., 499 U.S. 340, 350 (1991)). Nor could the phone company secure a copyright in

its compilation of these facts, because the coordination and arrangement of telephone listings in alphabetical order is ‘‘not only unoriginal, it is practically inevitable.’’ (Id. at 363) Moreover, the Court noted that the phone company’s selection

of listings lacked the requisite originality because the state required the company

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to publish the names and numbers of its subscribers as a condition of its monopoly

franchise. (Id.)

Without Sections 104(e) and 105(d), which exclude subscriber list information

from H.R. 1858, it could be argued that an independent publisher’s use of such information violates Sec. 102’s prohibition against distribution of duplicates.

The need for independent publishers to continue to rely on the ability to access

listings—as affirmed by the Supreme Court in Feist—is best demonstrated by the

fact that the abuses this subcommittee sought to end in enacting Section 222(e) continue unabated today. When reasonable licensing arrangements cannot be worked

out with the phone companies, independent publishers are left with no alternative

but to exercise the ‘‘last resort’’ option of doing what Tom Feist did and copy listings

out of the phone company’s book.

ADP believes that many local phone companies are violating Section 222(e). Actual examples of such illegal conduct include:

• Phone companies continue to earn profits only a monopolist can get away with.

While one local phone company has testified that it earns a 1,300% profit when

selling its listings for 4¢/listing, other local phone companies garner even more

excessive profit margins because they sell listings for far more—40, 50, 60, 75

cents, even as much a 1.67 per listing.

• Local phone companies charge different prices for the exact same listing depending on how the publisher intends to use the directory. For instance, some local

phone companies triple their price if the listing will be used in more than one

printed directory and charge still more if the listing will be used in a CD-ROM

directory.

• Several local phone companies simply won’t provide updates to ADP members—

these are new connects, disconnects and changes of address. Other local phone

companies do provide updates, but impose unreasonable prices and restrictions.

Since the Telecommunications Act of 1996 was passed, a new and economically

threatening problem has arisen for independent directory publishers. Incumbent

local exchange carriers (ILECs) are now collecting subscriber list information from

competitive local exchange carriers (CLECs) as a condition of interconnection agreements. While many ILECs have regularly passed these listings on to their own publishing affiliates, unfortunately, many ILECs have steadfastly withheld these CLEC

listings from independent publishers, and even refused to pass them on when directly requested by a CLEC.

ADP members are fearful that even more egregious abuses would occur without

Feist. The prices telephone companies charge independent publishers to license listings now are constrained, as a practical matter, primarily by the right of independent publishers to copy white pages listings. If that right were removed and copying

deemed a misappropriation, then Congress’ goal of ensuring reasonable pricing

under Section 222(e) of the Communications Act will be seriously undermined.

The Copyright Office has recognized the special circumstances relating to phone

listings in its August 1997 Report on Legal Protection for Databases. In cases involving sole source data, of which telephone subscriber information is a ‘‘prototypical example,’’ the Copyright Office observes, ‘‘[u]nless the producer chooses to make such

data freely available, it is simply not possible for anyone else to obtain it independently.’’ (Copyright Office Report, 1997, p. 102)

Dr. Laura D’Andrea Tyson similarly has noted the special circumstances relating

to telephone listings in her study, Statutory Protection for Databases: Economic &

Public Policy Issues. She observes, ‘‘the factual situations of the Feist case [i.e., telephone listings] are in reality much closer to the kinds of concerns addressed in the

antitrust law under the rubric of so-called ‘‘essential facilities’’ than they are to the

kinds of concerns raised by a typical ‘database piracy’ case.’’ She concludes, ‘‘[w]hen

data is generated by a government-created monopolist, it is not appropriate to allow

the monopolist to control database products building on that data.’’ (Tyson and

Sherry, 1997, pp. 24-25)

ADP appreciates the inclusion of Sections 104(e) and 105(d) in the bill. These provisions will preserve the policy established by Congress in Sec. 222(e), as well as

allow publishers access to listings, in accordance with the Feist decision.

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AT&T

WASHINGTON, DC 20036

July 9, 1999

The Honorable W.J. TAUZIN

Chairman

Subcommittee on Telecommunications, Trade and Consumer Protection

316 Ford House Office Building

Washington, D.C. 20515

Re: H.R. 1858

DEAR CHAIRMAN TAUZIN: In response to your questions at the June 16 hearing

on H.R. 1858, the Consumer and Investor Access to Information Act of 1999, AT&T’s

witness, Mr. Frank Politano, would like to submit additional material for inclusion

in the hearing record. This material is attached.

If there is anything additional that AT&T can do to be helpful to you and the

members of the Subcommittee as work continues on H.R. 1858, please do not hesitate to contact me.

Sincerely,

JOT D. CARPENTER, JR.

Attachment

cc: The Hon. Thomas J. Bliley, Jr.

The Hon. Edward J. Markey

ADDITIONAL COMMENTS OF AT&T FOLLOWING THE JUNE 15 HEARING OF THE TELECOMMUNICATIONS, TRADE AND CONSUMER PROTECTION SUBCOMMITTEE OF THE

HOUSE COMMERCE COMMITTEE ON H.R. 1858:

1. SECTION 104(B) DATABASES RELATED TO INTERNET COMMUNICATIONS

As we stated in our written testimony, we believe that it is important to make

clear that all databases associated with the operation of the Internet are exempted

from the scope of the bill. The current exemption for ‘‘the function of addressing . . .’’

arguably includes the Internet domain name zone files, which must be replicated

across many parties to ensure the proper functioning of the Internet. But it should

also expressly include databases related to the assignment and registration of Internet domain names. A clarification of this nature would protect these databases from

commercial ownership and preserve the proper functioning of the Internet. It would

also ensure that companies have access to information vital to police their brands

and identify trademark infringements. It is also important that this clarification be

made in a way that allows for changes that may be made to Internet naming

schemes in the future. Internet domain naming schemes are an evolving area (being

worked at the Internet Engineering Task Force, for example).

Proposed addition to 104(b):

(3) in the course of assigning or registering Internet addresses or domain names

2. SHOULD CONGRESS RELY ON EXISTING STATE MISAPPROPRIATION LAWS TO ADDRESS

THE ISSUE OF DATABASE PROTECTION?

During the hearing, Chairman Tauzin invited witnesses to comment further on

the adequacy of current state laws in this area. AT&T has considered this issue

carefully and does not believe state misappropriation laws adequately or appropriately address the issue. Reliance on state misappropriation laws would lead to

inconsistent results, forum shopping and is antithetical to national treatment of intellectual property matters.

State common law unfair competition doctrine has sometimes provided a remedy

for ‘‘misappropriation’’ claims usually relating to the narrow issue of dissemination

of ‘‘hot news’’. The current federal copyright statute, however, preempts state law

claims that enforce rights ‘‘equivalent’’ to exclusive copyright protections when the

work at issue falls within the scope of copyright protection.

Federal copyright law has thus narrowed the cognizable claims under state law

and, as recently expressed in National Basketball Ass’n v. Motorola, Inc., 105 F. 3d

841 (2 Cir. 1997), has limited state misappropriation claims to ‘‘hot news’’ cases

where each of the following elements must be met: (1) a plaintiff generates information at a cost; (2) the information is time sensitive; (3) the defendant is in direct

competition with the plaintiff, (4) the defendant uses the information to free-ride on

the plaintiff’s efforts; and (5) the ability of other parties to free-ride on the plaintiff’s

efforts would so reduce the incentive to produce the generic or product featuring the

information that its existence or quality would be substantially threatened.

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While Motorola may provide adequate protection for ‘‘hot news’’, we understand

the desire to protect beyond the ‘‘hot’’ period. It is unclear whether the states would

be willing to push beyond the hot period. This would take time and create uncertainty. Reliance on state law to vest exclusive rights in works that Congress intended to be in the public domain would violate constitutional principles and encourage states to legislate further misappropriation laws that would certainly conflict or be inconsistent with each other. This would lead to a welter of different substantive laws, remedies and procedures and would encourage forum-shopping.

If a new property right is to be created, AT&T believes a federal substantive law

should be enacted to provide uniform application and remedies.

3. A PRIVATE CAUSE OF ACTION?

AT&T is not convinced that H.R. 1858 should provide a private cause of action

because of the very real possibilities of needless litigation and the consequent burdens and chilling effect this would have on all companies, large and small.

However, if Congress does decide to adopt a private cause of action, it should consider following the British rule of loser pays all—namely, the litigant that lost a

claim brought under the statute would pay not only its attorney fees and costs but

also those of the prevailing party. This would have two ameliorative consequences.

First, it would encourage parties to adhere to the law for fear of losing a lawsuit

and its attendant economic consequences. Second, it would discourage needless and

frivolous litigation because a potential plaintiff would refrain from bringing an action unless it felt reasonably certain of success and not facing the risk of paying

the defendant’s attorney fees and costs.

4. SECTION 106 SERVICE PROVIDER LIABILITY

Lastly, we suggest that H.R. 1858 include its own definition of services provider,

rather than relying on definitions in the Communications Act, to make it clear that

the limitation of liability in Section 106(a) covers Internet service providers, which

are not necessarily providers of telecommunications services or information services

as defined in existing law. We would therefore propose striking the parenthetical

reference to the Communications Act in Section 106(a), and adding a new definition

of ‘‘services provider’’ in Section 101, as follows:

(6) SERVICES PROVIDER.—The term ‘‘services provider’’ means any person or

entity that operates a facility or offers a capability for the electronic transmission, generation, acquisition, storage, transformation, processing, retrieval,

utilization or making available of information.