Intellectual Property Rights in an Age of

Electronics and Information

April 1986

NTIS order #PB87-100301
Recommended Citation:

U.S. Congress, Office of Technology Assessment, lntellectual Property Rights in an

Age of Electronics and Information, OTA-CIT-302 (Washington, DC: U.S. Government Printing office, April 1986).

Library of Congress Catalog Card Number 86-600522

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402
Foreword

This report examines the impact of recent and anticipated advances in communication and information technologies on the intellectual property system. It

focuses primarily on the Federal copyright system, and on the continuing effectiveness of copyright law as a policy tool in the light of technologies such as audioand videorecorders, computer programs, electronic databases, and telecommunications networks. To obtain a comprehensive view, the study examined the intellectual property system from a number of perspectives: the constitutional basis

of intellectual property policy; the system’s goals, laws, and economics; the creative environment; problems of enforcement; the international context; and the Federal role in administering intellectual property rights.

OTA found that technological developments are affecting all aspects of the

intellectual property system. Moreover, because we are only beginning to move

into the era of electronic information, the full impact of new technologies will not

become fully apparent for some time. Fundamental changes are occurring in information technologies that will antiquate many of the policy mechanisms now

in force, and bring new intellectual property problems requiring new solutions.

Thus, even if Congress acts now in response to current problems, it will need to

be prepared to act again within the next decade.

The report was requested by Senator Charles McC Mathias, Jr., Chairman

of the Senate Judiciary Committee, Subcommittee on Patents, Copyrights and

Trademarks; and by Congressman Peter W. Rodino, Jr., Chairman of the House

Judiciary Committee, Congressman Robert W. Kastenmeier, Chairman of the Subcommittee on Courts, Civil Liberties, and the Administration of Justice, Congressman Hamilton Fish, and Congressman Carlos Moorhead.

In preparing this report, OTA has drawn on working papers developed by

OTA staff and contractors, the comments of participants at seven OTA workshops held to discuss issues, the results of two public opinion surveys conducted

by Yankelovich, Skelly & White, and conversations between OTA staff and over

130 interested individuals. Drafts of the report were reviewed by the OTA advisory panel, officials from the Copyright Office, the Patent and Trademark Office,

the Library of Congress, the Department of Commerce, the Department of State,

the Office of the U.S. Trade Representative, and a broad range of individuals from

law firms, public interest groups, trade associations, private industry, and

academia.

OTA appreciates the participation of the advisory panelists, workshop participants, Federal agency officials, and interested citizens, without whose help

this report would not have been possible. The report itself, however, is the sole

responsibility of OTA, not of those who ably advised and assisted us in its preparation.

Director

,..

{II
Intellectual Property Rights in an Age

of Electronics and Information Advisory Panel

Paul Goldstein, Chairman

Professor of Law, Stanford Law

Jon Baumgarten

Partner

Paskus, Gordon & Hyman

Charles Benton

President of the Board

Benton Foundation

Stanley Besen

Economist

Rand Corp.

Honorable Stephen Breyer

Judge of the U.S. Court of Appeals

Stan Cornyn

Senior Vice President

Warner Records

Oswald Ganley

Professor and Executive Director

Program on Information Resources Policy

Harvard University

Gustave Hauser

Chairman and Chief Executive Officer

Hauser Communications, Inc.

Mitchell Kapor

President

Lotus Corp.

Robert Lekachman

Professor of Economics

Lehman College

William Lilley, III

Vice President for Corporate Affairs

CBS, Inc.

George Minot

Senior Vice President

CompuServ, Inc.

School, Stanford University

Dorothy Nelkin

Professor of Sociology

Cornell University

James Nelson

State Librarian and Commissioner

Kentucky Department for Libraries and

Archives

John Shattuck

Vice President for Government Community

and Public Affairs

Harvard University

Oliver Smoot

Executive Vice President

Computer and Business Equipment

Manufacturers Association

Patricia Sturdivant

Associate Superintendent

Houston Independent School District

Sherry Turkle

Associate Professor of Sociology

Massachusetts Institute of Technology

Jack Valenti

President

Motion Picture Association of America,

Inc.

Vivian Weil

Senior Research Associate

Illinois Institute of Technology

Martha Williams

Professor of Information Science

University of Illinois

The Advisory Panel provided advice and constructive criticism throughout this project. The panel does not, however, necessarily

approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents.

iv
— .

Intellectual Property Rights in an Age

of Electronics and Information Assessment Staff

John Andelin, Assistant Director, OTA

Science, Information, and Natural Resources Division

Fred W. Weingarten, Program Manager

Communication and Information Technologies Program

Project Staff

D. Linda Garcia, Project Director

Conceptual Framework and Societal Analysis

Lauren Ackerman

International and Institutional Analysis

Earl Dowdy

Technology and Economic Analysis

Paul Goldwhite

Summer Intern

Robert Kost

Legal Analysis

Arati Prabhakar

Congressional Fellow

Linda G. Roberts

Analysis of Creative Environment and Public Outreach Activities

Susan Walton

Contractor, Editorial Assistance

Administrative Staff

Liz Emanuel Audrey Newman Shirley Gayheart*

Renee Lloyd Patricia Keville
Contractors and Consultants

James Beniger

Department of Sociology

Princeton University

Cliff Berg

National Academy of Public

Administration

Stanley Besen

Rand Corp.

Anne Wells Branscomb

Attorney

Deborah Buckner

Yankelovich, Skelly & White, Inc.

Christopher Burns

Christopher Burns, Inc.

Herbert Dordick

Department of Communications

Temple University

Jose-Marie Griffiths

King Research, Inc.

Roland Hornet

Communications Law and Policy

Consultants

Donald King

King Research, Inc.

Kenneth L. Kraemer

Irvine Research Corp.

Leslie King

Irvine Research Corp.

Patricia Martin

Christopher Burns, Inc.

L. Ray Patterson

School of Law

Emory University

W. Curtiss Priest

Center for Policy Alternatives

Massachusetts Institute of Technology

Carroll Pursell

Professor of History

University of California, Santa Barbara

David Richardson

Yankelovich, Skelly & White, Inc.

David Schetter

Irvine Research Corp.

A. Allan Schmid

Department of Agricultural Economics

Michigan State University

Harold Seidman

National Academy of Public

Administration

Petra Shattuck

Department of Political Science

City University of New York

Richard Solomon

Massachusetts Institute of Technology

Jane Yurow

Jane Yurow Associates

vi
Legal Workshop Participants

Roy Freed

Partner

Brown, Rudnick, Freed & Gesmer,

Counselors at Law

Leon Friedman

Attorney

Morton Goldberg

Partner

Schwab, Goldberg, Price & Dannay

Paul Goldstein

Professor of Law

Stanford University.

Henry Jones, I I I

General Counsel

Ashton-Tate

Irwin Karp

General Counsel

Authors League

Michael Keplinger

Attorney Advisor

Office of Legislative and

International Affairs

U.S. Patent and Trademark Office

John Lautsch

Chairman

ABA Computer Law Division

Arthur Levine

Partner

Levine, Lupo & Lippman

Sue Martin

Chairperson of Copyright Committee

American Library Association

Director of Milton S. Eisenhower

Library

Johns Hopkins University

Christopher Meyer

Senior Attorney

Copyright office

Library of Congress

Melville Nimmer

Professor of Law

UCLA Law School

Ron Palenski

Staff Attorney

Association of Data Processing

Service Organizations

Marybeth Peters

Senior Attorney

Copyright office

Library of Congress

Mark Rotenberg

President

Public Interest Computer Association

Pamela Samuelson

Professor of Law

University of Pittsburgh

Cary Sherman

Attorney

Arnold & Porter

Eric Smith

Partner

Paskus, Gordon & Hyman

Raymond Weisbond

Counsel

Warner Communications, Inc.

Technologies for Information

Creation Workshop Participants

Ronald Erickson

Educational and Technical Advisor

Museum of Holography

Robert Ewald

Director of Education Industries

(Universities)

Cray Research, Inc.

Harold Hosack

Project Director of the CCD Imager

and Camera Project

Texas Instruments, Inc.

Michael Kowalski

Writer and Freelance Computer

Programmer

Post Industrial Productions, Inc.

Steve Mayer

Chairman

Take One Partners

Mark Schubin

Freelance Technological Consultant

Jim St. Lawrence

Producer in Residence and Director

of the Interactive Technologies

Laboratory

New York Institute of Technology

Information Storage and

Database Technologies

Workshop Participants

Larry Bernstein

Director

Diagnostic Operations Systems

Laboratory

AT&T Bell Labs

Robert Castrignano

Vice President for Information

Storage Systems Technology

CBS Technology Center

Charles Goldstein

Chief, Information Technology Branch

Lister Hill National Center for

Biomedical Research

National Library of Medicine

Fred Kilgour

Founder Trustee

Online Computer Library Center

Nick Roussopoulois

Professor of Computer Science

University of Maryland

Christopher Weaver

Vice President for Disk Research

Videomagic Laboratories

Robert Worsing

Vice President for Corporate Security

Control Data Corp.

Display, Printing, and

Reprographic Technologies

Workshop Participants

Ifay Chang

Manager of Exploratory:. Display

Technology

T.J. Watson Research Center

IBM Corp.

Richard Green

Senior Vice President

Broadcast operations and

Engineering

Public Broadcasting Service

Edward McIrvine

Manager, R&D Planning

Corporate Research Group

Xerox Corp.

Melvin Prueitt

Los Alamos National Laboratory

Information Technology and

Its Impact on the Creative

Process Workshop Participants

Theodore Bikel

Actor and President Emeritus

Actors Equity

Milton Glaser

Graphic Artist

Richard Green

Musician

Joyce Hakansson

President

Hakansson Associates

James Hammerstein

Stage Director

David McCune

Writer, Software Designer, and

President

The Proteus Group, Inc.

Ann-Byrd Platt

Author

Federik Pohl

Author

Anna Sofaer

Artist and Independent Film Producer

Bill Weems

Photographer

George David Weiss

Songwriter and President

The Songwriters Guild

vii
Mini-Economic Workshop

Participants

Stanley Besen

Economist

Rand Corp.

Christopher Burns

Consultant

Christopher Burns. Inc.

Robert Lekachman

Professor of Economics

Lehman College

Patricia Martin

Consultant

Christopher Burns. Inc.

W. Curtiss Priest

Center for Policy Alternatives

Massachusetts Institute of Technology

A. Allan Schmid

Professor of Economics

Michigan State University

Students’ Perceptions of the

Intellectual Property Rights

Issue Workshop Participants

Lisa Feldman

10th Grader

Magruder High School

Carl Fletcher

12th Grader

Ballou High School

Eugene Gholz

9th Grader

Georgetown Day High School

Nick Landau

11th Grader

Georgetown Day High School

Eric Martinusen

11th Grader

Georgetown Day High School

Michael Meredith

12th Grader

George Mason High School

Robert Salsbury

9th Grader

George Mason High School

Elinor Scully

11th Grader

George Mason High School

Clare Shannon

10th Grader

George Mason High S

Ron Smith

10th Grader

Richard Montgomery

Wyvonella Spratt

11th Grader

Ballou High School

Deborah Van Lenten

11th Grader

Wooten High School

hool

High School

Marty White

12th Grader

Ballou High School

External Reviewers

Chapter 1: Conceptual Framework

for Analyzing Intellectual

Property Issues Rights

Bernard Barber

Professor of Sociology

Columbia University

Jack Copeland

President

National Educational Media, Inc.

Elizabeth Eisenstein

Professor of Social History

University of Michigan

Jack Golodner

Director

Department for Professional Employees

AFL-CIO

Stanley Gortikov

President

Recording Industry Association

of America, Inc.

John Hersey

Author

L. Ray Patterson

Professor of Law

Emory University

David Peyton

Director of Government Relations

Information Industry Association

Mike Remington

Chief Counsel

House Subcommittee on Courts, Civil

Liberties, and the Administration

of Justice

Daniel Toohey

Attorney

Dow, Lohnes & Albertson

Chapter 2: Intellectual Property

Goals in a Changing

Information Environment

Bernard Barber

Professor of Sociology

Columbia University

Jack Copeland

President

National Educational Media, Inc.

Elizabeth Eisenstein

Professor of Social History

University of Michigan

Stanley Gortikov

President

Recording Industry Association of

America, Inc.

John Hersey

Author

David Liebowitz

Attorney

Wiley & Rein

L. Ray Patterson

Professor of Law

Emory University

David Peyton

Director of Government Relations

Information Industry Association

Petra Shattuck

Professor of Political Science and

Public Law

City University of New York

Cary Sherman

Attorney

Arnold & Porter

Daniel Toohey

Attorney

Dow, Lohnes & Albertson

Bruce H. Turnbull

Attorney

Weil, Gotshaf & Manges

Chapter 3: The Accommodation

of Intellectual Property Law to

Technological Change

Charles Boiler

Executive Director

American Copyright Council

Duncan Davidson

Attorney

Cambridge Venture Partners

Edward Frankel

Computer Law Specialist

Hugh Gibbons

Professor of Law

Franklin Pierce Law Center

John Hersey

Author

John Lautsch

President

Computer Law Division of the

American Bar Association

Melville Nimmer

Professor of Law

University of California-Los Angeles

L. Ray Patterson

Professor of Law

Emory University

Marybeth Peters

Senior Attorney and Policy Planning

Advisor

U.S. Copyright Office

David Peyton

Director of Government Relations

Information Industry Association

Manny Pokotilow

Attorney

Caesar, Riuse, Berstein & Cohen, Ltd.
Mike Remington

Chief Counsel

House Subcommittee on Courts, Civil

Liberties, and the Administration

of Justice

David Leibowitz

Attorney

Wiley & Rein

David Richtman

Cambridge Technology Systems

Jim St. Lawrence

Director of the Interactive

Technologies Laboratory

New York Institute of Technology

Edward McIrvine

Manager of R&D Planning

Robert Rines Xerox Corp.

Attorney

Rines & Rines

George David Weiss

Songwriter and President

The Songwriters Guild

L. Ray Patterson

Professor of Law

Pamela Samuelson Emory University

Professor of Law

University of Pittsburgh

David Peyton

Director of Government Relations

Information Industry Association

Chapter 6: Technology, Intellectual

Property, and the Operation

of Information Markets Bob Shaw

Attorney and President of the

Patent, Trademark, and Copyright

Research Foundation

Barbara Polansky

Copyright Administrator

American Chemical Society

Marjorie Blumenthal

Economist

General Electric Information

Services Co.

Robert Stern

Attorney

Mike Remington

Chief Counsel

House Subcommittee on Courts, Civil

Liberties, and the Administration

of Justice

Duncan Davidson

Partner

Cambridge Venture Partners

Daniel Toohey

Attorney

Dow, Lohnes & Albertson

Henry Geller

Director

Washington Center for Public

Policy Research

Allen Wagner

University Counsel

University of California, Berkeley

Chapter 5: Impact of Technology

on the Creative Environment

Bernard Barber

Professor of Sociology

Columbia University

Chapter 4: Impact of Technology

on Enforcement of Intellectual

Property Rights

Duncan MacRae

Professor of Political Science

University of North Carolina

Theodore Bikel

Actor and President Emeritus

Actors Equity

Bruce M. Owen

Economist

Economists Inc.

Fritz Attaway

Vice President and Counsel

Motion Picture Association of

America, Inc. Ann Byrd-Platt

Author Curtiss Priest

Research Associate

MIT Center for Policy Alternatives

Ivan Bender

Attorney Jack Copeland

President

National Educational Media, Inc. Mike Remington

Chief Counsel

House Subcommittee on Courts, Civil

Liberties, and the Administration

of Justice

Larry Bernstein

Director

Diagnostics operations Systems

Laboratory

AT&T Bell Laboratories

Susan Dooha

Executive Director

Graphics Artists Guild

Elizabeth Eisenstein

Professor of Social History

University of Michigan

Michael Rubin

Office of the Assistant Secretary for

Productivity, Technology, and

Innovation

U.S. Department of Commerce

Robert Castrignano

Vice President Information Storage

Systems Technology

CBS Inc. Richard Green

Senior Vice President

Broadcasting Operations and

Engineering

Public Broadcasting Service

Edward Conklin

Vice President

FORTH, Inc.

Fred Smith

President

Competitive Enterprise Institute

Stanley Gortikov

President

Recording Industry of America, Inc.

John Hersey

Author

A. Allan Schmid

Professor of Economics

Nancy Marshall Michigan State University

Associate Director of University

Libraries

University of Wisconsin-Berkeley

Frederick Kilgour

Founder Trustee

Or-dine Computer Library Center

Lester C. Thurow

Professor of Management and

Economics

Michael Kowalski Massachusetts Institute of Technology

Writer/Freelance Computer

Programmer

Postindustrial Productions, Inc.

Edward McIrvine

Manager for R&D Planning

Xerox Corp.

Anita Walgren

National Telecommunications and

Information Administration

U.S. Department of Commerce

Barbara Nessin

Professor of Law

Emory University

Jim St. Lawrence

Director of the Interactive

Technologies Laboratory

New York Institute of Technology

David Waterman

Professor of Communications

University of Southern California

Barbara Nessim

Graphic Artist Bernard Lechner

Staff Vice President for Advanced

Video Systems Research

RCA laboratories

Lawrence White

Professor of Economics

New York University

David Peyton

Director of Government Relations

Information Industry Association

ix
Chapter 7: New Technologies and

the Intellectual Property Bargain

Charles Boiler

Executive Director

American Copyright Council

Nancy Buc

Weil, Gotshall & Manges

Jack Copeland

President

National Educational Media, Inc.

Roy Freed

Attorney

Brown, Rudnick, Freed & Gesner

Leon Friedman

Professor of Law

Hofstra University

Henry Geller

Director

Washington Center for Public

Policy Research

John Hersey

Author

Nancy Marshall

Counsel

National Library Association

Maurice Mitchell

Director

Annenberg Schools

Program

L. Ray Patterson

Professor of Law

Emory University

David Peyton

Washington

Director of Government Relations

Information Industry Association

Michael Remington

Chief Counsel

House Committee on the Judiciary

Mark Rotenburg

Public Interest Computer Association

Cary Sherman

Attorney

Arnold & Porter

Daniel Toohey

Attorney

Dow, Lohnes & Albertson

Ray Weisbond

Attorney

Warner Communications, Inc.

Chapter 8: Impact of Technology on

the International Intellectual

Property System

Norman Alterman

Vice President and Deputy General

Counsel

Motion Picture Association of

America, Inc.

Fritz Attaway

Vice President and Counsel

Motion Picture Association of

America, Inc.

x

Charles Boiler

Executive Director

American Copyright Council

Robert Bruce

Attorney

Debevoise & Plimpton

Marsha Carow

Vice President

Harcourt Brace Jovanovich, Inc.

John Clements

Director of Governmental Affairs

American Federation of Information

Processing Societies

Stanley Gorkikov

Recording Industry Association of

America, Inc.

Jacques Gorlin

Consultant

Eileen Hill

International Trade Administration

U.S. Department of Commerce

David Leibowitz

Attorney

Wiley & Rein

Marybeth Peters

Senior Attorney and Policy Planning

Advisor

U.S. Copyright Office

David Peyton

Director of Government Relations

Information Industry Association

Barbara Pohansky

Copyright Administrator

American Chemical Society

Carol Risher

Director of Copyright and New

Technology

Association of American

Publishers, Inc.

Cary Sherman

Attorney

Arnold & Porter

Gary Slaiman

Attorney

Weil, Gotshal & Manges

Daniel Toohey

Attorney

Dow, Lohnes & Albertson

Harvey Winter

Director

Office of Business Practices

U.S. Department of State

Alice Zalick

Assistant General Counsel

Office of the United States

Trade Representative

Chapter 9: Federal Role in the

Administration of Intellectual

Property Rights

Robert Cassler

Chief Counsel

Copyright Royalty Tribunal

John Clements

Director of Governmental Affairs

American Federation of Information

Processing Societies

Roger Garcia

Government Division

Congressional Research Service

Library of Congress

Judy Goans

Office of Legislation and

International Affairs

U.S. Patent and Trademark Office

U.S. Department of Commerce

Ronald Moe

Government Division

Congressional Research Service

Library of Congress

Harold Relyea

Government Division

Congressional Research Service

Library of Congress

Mike Remington

Chief Counsel

House Subcommittee on Courts, Civil

Liberties, and the Administration

of Justice

Petra Shattuck

Professor of Political Science and

Public Law

City University of New York

Cary Sherman

Attorney

Arnold & Porter

Daniel Toohey

Attorney

Dow, Lohnes & Albertson

Anita Walgren

National Telecommunications and

Information Agency

U.S. Department of Commerce

Harvey Winter

Director

Office of Business Practices

U.S. Department of State

List of Other Contributors

Raymond Ahlberg

Industry Specialist

U.S. Department of Commerce

David Altschul

Vice President

Warner Records

Stella Alvo

Co-owner

The Video Bus

Nicholas Arcomano

Vice President and Counsel

SESAC, Inc.

Moses Asch

Founder and President

Folkways Records
Russ Bach

Vice President, WEA

Warner Records

Len Cutler

Director of the Instruments and

Photronics Lab

Hewlett Packard

Steve Fluty

Editor

Viewtext Magazine

Steve Fox

Associate Director of Patents

and Licenses

Hewlett Packard

Donald Barr

President

Barr Films

Joan Desens

Lexica Corp.

Jean Dexheimer

Director, Inter-University

Consortium for Educational

Computing

Carnegie Mellon University

Barbara Bayah

Classroom Teacher

Cupertino Union Public Schools

Sarah Frank

BBC-TV Co-Productions

Michael Franklin

Executive Secretary

Director’s Guild of America

Paul Bender

Dean

Arizona State Law School Thomas DiRenzo

Vice President, Direct Marketing

and Communications

Institute for Scientific Information

C.E. Gallivan

Director of Marketing

Hewlett Packard

Paul Bortz

Managing Director

Browne, Bortz & Coddington, Inc.

Hugh Donaghue

Vice President

Government Programs and

International Trade Relations

Control Data Corp.

Kit Galloway

President

Mobile Image

Gene Boucher

Executive Director

American Guild of Musical Artists

Eugene Garfield

President

Institute for Scientific Information

Robert Bramson

Attorney

Schnader, Harrison, Segal & Lewis George Dummer

Director

Office of Sponsored Programs

Massachusetts Institute of Technology

Clifton H. Garrett

Deputy District Attorney

County of Los Angeles

Major Frauds Division

Electronic Crime Section

Barry Bronson

Member of the Technical Staff

Hewlett Packard Moria Egan

Assistant to the President for

Government Relations

New York Public Library

Toni Carbo-Bearman

Executive Director

National Commission on Libraries

and Information Science

Andrew Gerber

Student Alan Eisenberg Massachusetts Institute of Technology

Executive Secretary,

Actors Equity Association

Charles Butts

Vice President

Houghton Mifflin Co.

Ric Giardina

General Counsel

William Eldridge MicroPro International

Director of Research

Federal Judical Center

Doug Carothers

Patent Attorney

Xerox Palo Alto Research Center

Steven Gilbert

Director, Computer Literacy Project

Robert Enenstein EDUCOM

President

Educational Microcomputer

Associates, Inc.

Felix Chamberlain

Artists and Repetoire

Warner Records

Terry Gilbreth

Director

Electronic and Media Publishing

Holt, Rinehart & Winston Robert Churchill

President

Churchill Films

Paul Fagan

Chief Economist

ASCAP Michael Glen

Attorney

Intel Corp. Sandy Cohen

Attorney

Weil, Gotshal & Manges

Laurie Failes

Teacher

Lexington, MA, Public Schools Mel Goldberg

Former Vice President

Roger Cole ABC

Assistant Director for

Administration

Eastman-Kodak Co.

Leonard Feist

Harry Fox Agency

National Music Publishers

Association, Inc.

Mary Goldscmidt

Vice President

Lotus Corp. Howard Colson

Assistant Vice President

Public Relations

Broadcast Music, Inc.

Lee Felsenstein

President

Golemics, Inc.

Jack Golodner

Director

Department for Professional Employees

Eamon Fennessy AFL-CIO

President

Copyright Clearance Center, Inc.

Edward Conklin

Vice President

FORTH, Inc.

Ed Goode

Chairman

Computer Science Department

Lexington, MA, High School

LeRoy Finkel

Computer Coordinator

San Mateo County Office of

Education

Edward Cramer

President

Broadcast Music, Inc. Bobby Goodson

President

International Council on Computers

in Education

Bill Crowell

Vice President for Research

MicroPro International

Frank Fischer

Urban Institute

Andrew Flugelman

President

Freeware

Karla Graue

National Cable Association Cally Curtis

President

Curtis Films

xi
Peter A. Gross

President

Lexica Corp.

Lyn Gubser

Executive Director

Association for Educational

Communications & Technology

Marianne Hall

Commissioner

Copyright Royalty Tribunal

Mel Harris

President

Paramount Corp.

W.B. “Trip” Hawkins

President

Electronic Arts

Richard H. Hersh

Vice President for Research

University of Oregon

Alexander Hoffman

Vice President

Doubleday & Co., Inc.

Vivian Homer

Electronic Media Consultant

Former Vice President for Program

Development

Warner Communications

Lucy Hammer

Ambassador Dougan’s Office

U.S. Department of State

Dov Jacobs

Free-lance Software Developer

Nick Johnson

University of Iowa Law School

(formerly FCC Commissioner)

Alan Kent

Assistant Dean

School of Library and Information

Science

University of Pittsburgh

Daniel Klassen

President

Information Technology Design

Associates

Walter Koetke

Director of Technology

Scholastic Publishing Co.

Bernard Korman

Chief Counsel

ASCAP

Dan Lacy

Vice President

McGraw Hill, Inc.

Jim Lardner

Reporter

The New Yorker

Edith Leonian

Philip Leonian

Advertising Photographers of America

Society of Photographer and Artist’s

Representatives, Inc.

David Levine

Executive Director

Dramatists Guild

Del Lipert

Vice President

Digital Equipment Corp.

Beth Lewd

Computers in Education Specialist

Lexington, MA, Public Schools

William H. McAllister

Director, Patents and Licenses

Hewlett Packard

Scott Mace

Reporter

InfoWorld

John Mallinson

Director

Center for Magnetic Recording

University of California, La Jolla

Rick Manning

Executive

Data Courier

Andrew Manshell

Counsel

Birch Tree Group

Ernest R. (Bodie) Marx

Vice President

Mindscape, Inc.

Gene Mater

Vice President

CBS

International Group

Donald McCoy

Vice President and General Manager

CBS Technology Center

Al McPherson

Engineer

Warner Records

Gloria Messinger

Managing Director

ASCAP

Steve Metalitz

Staff Director and Chief Counsel

Senate Subcommittee on Patents,

Copyrights, and Trademarks

Mark Meyers

Vice President for Research and

Director Webster Research Center

Xerox Corp.

Timothy Miles

Industry Specialist

Department of Commerce

Maurice Mitchell

Director

The Washington Program in

Communications Policy Studies

Annenburg Schools

Gerald Mossinghoff

President

Pharmaceutical Manufacturers

Association

Robert Nahory

Manager Optical Properties of

semiconductors Research

Bell Communications Research

William Nix

Vice President and Deputy

General Attorney

Motion Picture Association of

America, Inc.

Dan Oelhsen

Editor-in-Chief

Electronic Publishing

Simon & Schuster

Greg Olsen

Founder and CEO

EPITAXX, Inc.

Ralph Oman

Chief Counsel

Senate Subcommittee on Patents,

Copyrights, and Trademarks

Ken Orsati

Executive Director

Screen Actor’s Guild

Don Parker

Vice President for Research

QMS, Inc.

Janice Patterson

Director, Computer Operations

Wisconsin Center for Education

Research

University of Wisconsin

Kenton Pattie

Vice President

NAVA/ICIA

Russell Pipe

Transnational Data Reporting Service

Abe Polonsky

Screenwriter

Dave Poltrack

Vice President for Research

Broadcast Group

CBS, Inc.

Linda Prowse

Engineering Management Training

Manager

Hewlett Packard

Sherrie Rabinowitz

Mobile Image

James Ratcliffe

Director of Public Affairs

R.R. Donnelley and Sons, Inc.

Retta Richardson

Executive Director

Southern Educational

Communications Association

Susan Rifkin

U.S. Patent & Trademark Office

Office of Technology Assessment

and Forecasting
Humberto Rivera

President

GeoVision, Inc.

Seymour Rubenstein

President Emeritis

MicroPro International

Marie Salah

Teacher

Watertown, MA, Public Schools

Carol Schele

Smithsonian Institution

Karen Sheingold

Director

Center for Children and Computers

Bank Street College of Education

William Skok

Office of Business Practices

U.S. Department of State

Alan Smith

Vice President, Administration

Broadcast Music, Inc.

Bob Spielvogel

Lexica Corp.

Richard Stern

Attorney

Stern & Roberts

Erwin C. Surrency

Law Library

University of Georgia

Rene Tegtmeyer

Assistant Commissioner

U.S. Patent and Trademark Office

Gail Thackery

Assistant District Attorney

Philadelphia, PA

Victor Vyssotsky

Executive Director for Research

Information Sciences

AT&T Bell Laboratories

Eric Walter

Vice President of Operations

Electronic Arts

Robert Wesslund

Vice President for Technology Exchange

Control Data Corp.

Savan Wilson

Director of Education

Mississippi Authority

Educational TV

Ethel Winant

Producer

for

Metromedia Producers, Inc.

Sanford I. Wolff

National Executive Secretary

American Federation of Television

and Radio Artists

Charles Wood

Consultant

Information Integrity Investments

Delbert Yocam

Executive Vice President

Apple Computer, Inc.

John van Raalte

Senior Scientist

Advanced Display Technologies

RCA Laboratories

Isa Zimmerman

Assistant Superintendent

Lexington, MA, Public Schools

OTA Reviewers

Ben Amick, Analyst

Clyde Behney, Program Manager

Audrey Buyrn, Program Manager

Richard Dalbello, Analyst

Jim Dray, Research Analyst

Gretchen Kolsrud, Program Manager

Nancy Naismith, Program Manager

Robert Niblock, Program Manager

Lisa Raines, Analyst

. . X111
Contents

Chapter Page

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

I. Conceptual Framework for Analyzing Intellectual Property

Rights Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2. Intellectual Property Goals in a Changing Information Environment . . . . . 31

3. The Accommodation of Intellectual Property Law to Technological

Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

4. Impact of Technology on Enforcement of Intellectual Property Rights. . . . 97

5. Impact of Technology on the Creative Environment . . . . . . . . . . . . . . . . 127

6. Technology, Intellectual Property, and the Operation of

Information Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

7. New Technologies and the Intellectual Property Bargain . . . . . . . . . 187

8. Impact of New Technologies on the International Intellectual

Property System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..., ..., . 213

9. Federal Role in the Administration of Intellectual Property Rights. . . . . . . 257

10. Strategic Choices for Congress . . . . . . . . . . . . . . . . . . . 285

Appendix A: List of Contractor Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,299

xiv
Summary
—— ..- . —

Contents

Capabilities and Problems Posed by the New Technologies . . . . . . . . . . . . . . . .

What Are The Stakes?. . . . . . . . . . . . . . . . . . . . . .

Economic . . . . . . . .

Social and Personal

Political. . . . . . . . . .

Policy Uncertainties .

Agenda for Congress

. . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . .

‘What Policy Goals To Pursue . . . . . . . . . . . . . .

Whether and When To Act . . . . . . . . . . . . . . . .

What Legal Framework To Use . . . . . . . . . . . .

How Broadly To Define the Problem . . . . . . . .

Within What Institutional Framework Should

Be Resolved . . . . . . . . . . . . . . . . . . . . . . . . . . .

The OTA Study . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . .

.

Figures

Figure No.

S-1. Simplified Chart of Developments, Uses, and

Information Technology . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . .

Impacts of

. . . . . . . . . . . . . . . . . . . . . . . .

S-2. Information Industry and Its Related Industries. . . . . . . . . . . . . . . . . . . . .

S-3. Trends From 1960 to 1980 Volume and Costs of Communication

by Media: USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

. . . . . . . .

6

9

9

9

11

12

13

13

13

14

14

14

15

Page

. . . . . . . . 4

. . . . . . . . 10

. . . . . . . . 11

.
Summary

Domestic intellectual property law—principally the law covering patents, copyrights, and

trademarks–is rooted in the United States

Constitution. Under the law, the government

is authorized to grant intellectual property

rights not as rewards but as inducements to

authors and inventors to create and disseminate intellectual works. The statutory nature

and purpose of the constitutional authorization is stated explicitly in the 1909 Copyright

Act:

The enactment of copyright legislation by

Congress under the terms of the Constitution

is not based on any natural right that the

author has in his writings, for the Supreme

Court has held that such rights as he has are

purely statutory rights, but on the ground

that the welfare of the public will be served

and progress of science and useful arts will

be promoted . . . Not primarily for the benefit of the author, but primarily for the benefit of the public such rights are given. Not

that any particular class of citizens, however

worthy, may benefit, but because the policy

is believed to be for the benefit of the great

body of people, in that it will stimulate writing and invention to give some bonus to authors and inventors.

The mechanisms by which the intellectual

property system worked in the past were

straightforward. The government granted

rights to an author or inventor. From this point

on, the government’s role was relatively minor. Rewards were determined in the marketplace. In order to benefit from copyright, an

author had to publish his works, thus making

them available to the public. In order to obtain a patent, the inventor had to reduce his

ideas to useful applications. The holders of

copyrights and patents holders were responsible for detecting infringements and preventing unauthorized use of a work. Enforcing one’s

right was not unduly burdensome. This was

particularly true in the case of copyright. Given

the expense and the organizational requirements needed to reproduce works there were

only a limited number of printers, and thus it

was relatively easy to keep track of their

activities.

Today, however, technology is complicating

this process and undermining many of the

mechanisms that governed the system in the

past. This trend is likely to continue; as shown

on figure S-1, today’s technologies are the beginning, not the end, of the information revolution. Computers, two-way interactive cable,

fiber optics, optical disks, communications satellites, and other devices are becoming steadily more sophisticated and powerful, and their

uses are expanding almost daily. The greatest impact, however, will come not from single technologies, but rather from their use in

combination.

Although Congress has always had to reckon

with technological change, the new information and communications technologies available today are challenging the intellectual property system in ways that may only be resolvable with substantial changes in the system

or with new mechanisms to allocate both rights

and rewards. Once a relatively slow and ponderous process, technological change is now

outpacing the legal structure that governs the

system, and is creating pressures on Congress

to adjust the law to accommodate these

changes. The pressures are coming from a number of different parties, and they are motivated

by a wide range of concerns:

● Authors, publishers, film makers, and producers; representatives of the recording industry; and other copyright holders whose

works can be delivered electronically: This

group is concerned that technologies such

as tape recorders and videocassette recorders are so widely used that they undermine their ability to enforce their copyrights. They are calling on Congress to

adopt stronger enforcement measures. Alternatively, some group members would

like Congress to provide new ways to protect their incomes, such as imposing taxes

or royalties on blank tapes.

3
1

I

I

.! . , . , . I I

* ,. , { I

,. ! ,$ .

I

I

1 I 1 I 1 ~—

T.. ., *

, ,t -

.-. .“-, ,

-r, -, A . . . .

SOURCE: John McHale, “The Changing Information Environment A Selective Topography, “ Information Technology: Some Critical Implications for Dee/s/on Makers, The Conference Board, New York, 1972-82,

p 193, as cited in Magda Cordell McHale (Center for Investigative Studies, SUNY at Buffalo), Facts and Trends” The Changing Information Environment: An Information Chartbook (Rome: Intergovernmental Bureau for Informatics, 1985), p 32
●

●

●

●

●

●

Designers and producers of computer software and other functional works that do not

fit comfortably into existing categories of

intellectual property law: This group is concerned that, given the uncertainties in the

law, their works will be inadequately protected. They are calling for more explicit

and extensive protection under existing

or under new laws.

Database producers, information analysts,

and others who package existing information for specific uses: This group opposes

restrictions on the use and reuse of copyrighted materials. They also want incentives to be reallocated so that they receive

a greater financial return for the value that

they add to information by analyzing, reorganizing, and packaging it.

Manufacturers of equipment capable of

copying, reproducing, or recording (paper

copiers, satellite antennas, videocassette

recorders, and audio tapes): Members of

this group oppose the imposition of taxes

or royalties on tapes and any other actions

that might increase the cost of their products to the consumer, or that make them

less convenient to use. They claim that

they aid copyright holders by creating new

markets for products and so should not

be penalized by having taxes imposed.

Educators and scientists: Members of this

group generally oppose extensions of the

law, arguing that such extensions would

make the resources and materials they

need to do their work prohibitively expensive. Some members of this group seek to

exempt educational uses from the law.

Others are calling for licensing agreements

that would allow them to use copyrighted

materials at reduced rates.

The general public: Many people are becoming increasingly accustomed to having new technology available at low cost

to use as they please in their homes and

offices. They want assurance that they can

continue to copy films, records, and other

information for their private use.

Developing countries: Many developing

countries want to use American intellecSummary ● 5

tual property products to further their social, economic, and political development.

These nations believe that the United

States and other industrialized nations

should relax intellectual property protection so that they can afford to make use

of these new products and services.

These competing interests give rise to policy questions that resist quick, simple answers.

Part of the problem is that new technologies

are bringing new parties into the intellectual

property debate, many of whom hold values

and attitudes that differ from those of more

traditional players—the authors, printers, and

publishers, for example. The extreme case of

this is the so-called computer “hacker” who

believes that software and other forms of information should be shared freely. Holding less

extreme but more common views are those

members of the public who believe that they

should be able to continue to use the new technologies to copy materials, at home, for their

own personal use. In addition, there are those

secondary information providers-information

brokers and database producers, for example–

who, in contrast to the original creators of information, want fewer restrictions on the use

and reuse of information.

Complicating intellectual property issues

even further is the fact that technology is also

changing the roles that people involved in the

copyright system play. In fact, taking advantage of the new technologies, many people now

play multiple roles, and their attitudes about

intellectual property protection may vary accordingly.

The relationship among traditional players

are also changing, breaking down old alliances,

and generating some new ones. Working on

an electronic network, for example, the author

of a book can now edit, print, publish, and distribute his works; tasks that were traditionally within the purview of the publisher. Under

these circumstances, the author may be less

inclined to assign his rights to the publisher.

Similarly, because it provides new outlets for

distribution such as pay-per-view cable tele-
6 ● Intellectual Property Rights in an Age of Electronics and Information

vision and videocassettes, technology is also cassettes, for example, an independent film

changing the relationships among film makers, maker can circumvent the major film compafilm producers, and film distributors. Trans- nies and, in the same fashion, a major film committing his works directly to the user on video- pany can avoid dealing with theater chains.

CAPABILITIES AND PROBLEMS POSED BY

THE NEW TECHNOLOGIES

To understand the legal and political pressures that new technologies place on the intellectual property system, one needs to understand their unique capabilities. A few examples

convey the scope and pace of technological

progress and the problems that it poses:

A problem of identifying authorship: A

group of authors using personal computers connected by a telephone network can

collaborate in writing an article, a piece

of software, or a database. This work can

exist in various forms, in different places,

and can be modified by anyone having access to the network. This networking technology provides new opportunities to combine talents, resources, and knowledge.

Also, using satellite technology, authors,

scholars, or other creators from all over

the world can work together simultaneously on the same project.

However, this same networking capability might create problems for the intellectual property system. Copyright, for example, is granted to “original” works of

‘‘authorship. In a world where there are

many authors of one work, worldwide collaboration, and ever-changing materials,

a law based on the concepts of originality

and authorship may become too unwieldly

to administer.

A problem of identifying infringements and

enforcing rights: The increased communications capacity (in terms of speed, bandwidth, and distance) made possible by fiber optic technology will allow computer

users to rapidly transmit incredible amounts

of information at a rate of 100 average

length pages in a second. Such a capability could permit the creation of centralized libraries with universal access.

On the other hand, these high-speed

communications media, combined with

large capacity optical disk storage technologies, will also pose enforcement problems for the intellectual property system.

They allow individuals to trade vast quantities of copyrighted materials without the

knowledge or permission of copyright

holders. With these technologies, the situation is no longer simply one of an individual trading or giving away a book to

someone else; rather, it is one in which individuals can inexpensively and privately

share the contents of an entire library.

● A problem of private use: At the end of

World War II, copyrighted information

flowed into American homes through three

channels-print publications, radios, and

phonograph records. And although people could enjoy these works freely, they

could not copy them conveniently and at

low cost. Today, the situation has changed

radically. Americans can now receive a

much greater amount and variety of copyrighted materials via a whole host of new

media-satellite, cable and broadcast television, computers, videocassette recorders, and telephone lines, to name a few.

Moreover, using computer networking technology, they can now easily and inexpensively reproduce and transmit copyrighted

works.

This remarkable state of affairs raises

several problems for the copyright system. First, if a private citizen copies information–a film or record, for example–

should this be considered an infringement
Summary ● 7

. — —

of copyright? At present, the law gives

little guidance in this area; nor, until recently, did it need to. Such private use was

so limited it posed no threat to industry

profits. Second, if it were decided that

home copying infringed copyright, how

could a ban against it be enforced? Since

many people could be engaged in this kind

of behavior in the privacy of their own

homes, their activities would be impossible to track.

• A problem of functional works: At one time

a writer wrote solely to communicate

meaning to his readers. He did so in novels, biographies, news stories, scientific

treatises, and even in recipes. Today, however, a writer can write for a machine

rather than a human audience. He does

so when he writes computer software-instructions that tell the machine what to

do. A computer program can also create

new programs, and even control industrial

processes. In the future, information itself will play a similar functional role. A

piece of information entered into a database, for example, may automatically retool one of several manufacturing facilities.

Writings of this kind are becoming central to the economy because they can efficiently substitute for labor and mechanical processes. It is, however, precisely the

capability of substituting for machine

processes that causes problems for the traditional intellectual property system.

Intellectual property law provides two

basic forms of protection–patent and

copyright. These schemes reflect a basic

distinction between invention and authorship. Inventions are essentially useful devices or processes, whereas works of authorship convey information and ideas.

And although both schemes encourage the

production and dissemination of ideas,

they do so in two different ways. Patent

requires disclosure, and copyright assumes that in order to profit from a work,

an author must publish it. Moreover, the

types of protection granted reflect the

differences between writings and inventions. Copyright prevents commercial copying; patent prevents commercial use.

With the development of computer software and other functional works, the clear

distinction between inventions and writings is beginning to break down. These developments raise questions about whether

new information-based products can be accommodated within the old legal framework, and whether efforts to do so will undermine the original intent of the law.

● A problem of derivative use: A major newspaper maintains its index on computer.

A user of this index takes the information

in it and analyzes it for another client, giving him up-to-date, timely information

that is precisely tailored to his needs.

Using electronic technology, a research

chemist can search all bibliographic data

on a particular chemical in a matter of

hours, instead of the weeks it once would

have taken. An investor who must make

a snap decision about whether to buy or

sell can call up a constantly updated database, and use the information to pursue

his profits.

The new information technologies,

which allow for this kind of customized

information on demand, are creating a

wide range of new opportunities to expand

the variety, scope, and sophistication of

information-based products and services.

In fact, a whole new industry has developed to provide these services; and it is

now one of the fastest growing sectors in

the economy.

As the opportunities to create derivative works increase and as this sector

comes to play a larger role in the economy,

questions arise about what kinds of information can legally be used to create secondary information products. Under existing intellectual property law, copyright

holders have the right to benefit from all

subsequent works based on their original

works. If interpreted broadly, it is possi-
8 ● Intellectual Property Rights in an Age of Electronics and Information —

ble, however, that this approach will inhibit the production and use of secondary

materials.

A problem of intangible works: In their

homes, people can now receive electronically a broad range of information-based

products and services—e.g., shopping,

stock market and banking information,

educational software, videogames, films,

and musical works, to name a few. In the

long run, however, individual access to

information may be more costly and thus

more limited as intellectual work become

transmitted in intangible forms.

Publication and dissemination of intellectual works were fostered under the traditional copyright scheme because authors

had to publish copies of their work in order to profit. Although the author retained

the right to print and publish a work, he

no longer controlled the copies after the

first sale. Since public dissemination went

hand in hand with profit-making, this system promoted the interests of both the

public and the author.

As more and more works are transmitted electronically, however, public access to information, originally built into

the copyright system, may in fact become

more limited. Not only may the individual price of information be higher; now

people may have to pay for it every time

they wish to use it.

When printing was the dominant technology, this was not the case. Once a person bought a copy of a book or magazine,

he owned it. It became his personal property. He could consult it repeatedly, without additional cost. He could share it, rent

it, or resell it, without the proprietor’s permission. Copyright holders, therefore, did

not control the market for their works.

Their monopoly was limited. Booksellers

competed for sales, not only with the proprietor, but also with one another. Information, therefore, was available from

many sources at a competitive price.

With the electronic distribution of

works, however, proprietors have more

control. Because their works need not be

sold in hard copies, and because it is questionable whether individuals can legally

copy them, they do not have to compete

with resellers, wholesalers, or others who

might drive down the price of their products. As the only source of distribution,

people must come to the copyright holder

on his own terms. Now controlling access

to their works, copyright holders can restrict it in order to enhance their profits.

If they were to do this, copyright law

would no longer perform the function it

was designed for under the Constitution.

Moreover, once copyright serves to limit

access, it raises issues for communications

policy as well as for copyright.

A problem of meeting educational goals:

The intellectual property system was originally designed to enhance learning and

the useful arts. This goal is more difficult

to meet today because of the increasing

market value of intellectual properties.

The technologies provide numerous opportunities for educational use. However,

because software development is often expensive, it is in the interest of the developer to concentrate on products for customers who can pay the most—businesses,

not schools. The schools then have the

choice of doing without software, diverting money from other equally needed educational materials, or developing their

own software, since they cannot legally

copy copyrighted works. The copyright

problem in this situation is simple: Copyright, designed as a policy tool to enhance

learning, fails to meet its goal.

A problem of integrity: Assisted by the

computer, a film maker can create scenes

that were never actually filmed, or take

existing images and place them in entirely

new contexts. These capabilities open new

avenues for creativity. But at the same

time, they may be used to misrepresent

a work or undermine its integrity. An unscrupulous artist, for example, might use

technology to distort a well-known piece

of art for his own purposes or profit without the knowledge of the original artist.

In this electronic environment, creators
Summary ● 9

may become as concerned about the integrity of their works as they are about

their profits. To be effective, intellectual

property law may need to take into account the problem of artistic integrity, as

well as that of financial rewards.

An international problem: All of the capabilities and problems that characterize domestic use of the new technologies are

equally prominent—sometimes more so—

when they are used internationally. Satellite technology permits global communication, but it also beams in programming that nations may not want. Satellites

collect valuable agricultural and environmental information about the developing

world. But once it has been analyzed by

a commercial company and copyrighted,

it may be priced too high for developing

countries to afford. A nation near the

United States is able to pick up and unscramble satellite programming that viewers want—and do so without paying the

fee charged by the company. Domestic

companies have no way to monitor use or

enforce their copyright claims. These problems are exacerbated by considerable disagreement among nations about intellectual property issues.

WHAT ARE THE STAKES?

The new technologies are extremely powerful tools. For the United States, therefore, the

stakes of identifying the best laws and policies

for their use are very high. These stakes fall

into three general categories: 1) economic, 2)

social and personal, and 3) political.

Economic

Information technologies and informationbased products and services are becoming central to the economy as a whole. The new technologies and the information they embody can

be used to improve efficiency, increase productivity, and thus engender economic growth. Information is reusable, and unlike capital resources, such as steel or iron, it can be produced

and distributed using few physical resources.

Not only is information an efficient substitute

for labor, it can also be used to improve the

overall efficiency of the production process.

Businesses, for example, are now applying

computer technology to almost all of their

activities: from recruiting to laying off workers, from ordering raw materials to manufacturing products, from analyzing markets to

performing strategic planning, and from inventing new technologies to designing applications for their use. To serve these needs, a

whole new industry has been spawned. (See figure S-2. ) One of the fastest growing sectors of

the economy, this industry is spearheading the

Nation’s economic growth and enhancing its

competitive position in the international marketplace.

The economic stakes raised by the new technologies are particularly high for the copyright

industries—publishing and other industries

that rely on the legal protections provided by

copyright law. It is estimated that in 1982, the

combined sales of these industries constituted

approximately 5 percent of the gross national

product. Estimates suggest that more than 2.2

percent of the labor force is affected by trade

in intellectual property. The amount of financial damage that these industries suffer due

to infringements of intellectual property rights

is extremely hard to estimate. Very few independent, quantitative data are available, and

existing analyses often contradict each other.

Social and Personal

Information is a dominant force in our lives.

In the United States, an enormous amount of

information is communicated in the form of

words through electronic media. In the 1970s,

for example, it was estimated that the American population was exposed to about 8.7 trillion words each day through electronic media

such as radio; television; and print media such
Figure S-2.— Information Industry and Its Related Industries

Sectors

Information processor> I n format I c I producer> I n for rTl at Iorl d I >tr bu tors

. . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I n pu Is The response may be to Creale new In forma[lon or

pa( kage e i I SI I nq Informal IOP rTldch I neb dnC le~tlnol og es convey I nq I nformdl Ion fr(>m

u Sed I c 5 iI pport n forma I I on ( f](, III t id tor lr) I he r?c I p I er) 1

. . . . . . . .“. . . . . . . .“. . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ad rll I n Is! r al I VP a rlC Imd tnager( a Sc I en t f I L d nc f PC h t7 IC,j

Pr OCeSb ~, jnt r II drl(j s u perv I sc r ,

I n format I, ) 17 Q JI hcrp rs

Cummunication workers

I
—..—

Summary ● 1 1 — .

as newspapers, books, and magazines. This figure is rising; each year, the number of words

communicated increases at an average rate of

1.2 percent per year. And, as is illustrated in

figure S-3, the fastest growing media for transmitting and receiving information are electronic.

Information, in all forms, is essential to all

facets of our lives. It is the principal resource

we use to meet our personal needs: coping with

day-to-day problems; dealing with life’s traumas and crises; supporting religion, family life,

and cultural heritage; and accommodating our

recreation, entertainment, and leisure time

needs. Never in history have we had the opportunity to be so fully and currently informed

about world, national, and local affairs.

Given the central importance of information,

the public has high stakes in decisions about

intellectual property rights. Moreover, the public has high expectations about how technology can serve its information needs. A survey

conducted for OTA confirmed that many people believe they have the right to use these

technologies as they please, although they

draw the line at using them for commercial

gain. The generation now in the schools has

grown increasingly accustomed to the benefits of technology. Many youth view their telFigure S-3.— Trends From 1960 to 1980 Volume and

Costs of Communication by Media: USA

(plotted on log by log scales)

;

, , , , 1 1 )) c I,,,lc ,, ,C Ic 1,({ $’ $ 1(I SIlnl

SOURCE: Ithiel de Sola Pool, Hiroshi Inose, Nozomu Takasaki, and Roger Hurwitz, Communication Flows (Tokyo University of Tokyo Press or New

York Elsevier 1984) Reprinted with permission

ephones and tape recorders, videocassette

recorders, and other electronic devices as an

integral part of their lives.

Political

In democratic societies, citizens must be well

informed about issues, candidates for office,

and local affairs. Similarly, a democratic polity requires a well-informed citizenry. Increasingly, information and communications technologies serve these information needs.

The government regularly needs huge

amounts of information to make complex legal and policy decisions. Many government

agencies would find it hard to conduct their

daily business without resorting to customized

information on demand. The Internal Revenue

Service and the Social Security Administration, for example, require large automated information systems to handle the accounts of

hundreds of millions of clients. And the operation of national defense depends on the use

of complex communication systems both for

day-to-day management of the military establishment and for the command and control of

sophisticated weaponry. The government’s

budget for information technology has risen

from $9.2 billion in fiscal year 1982 to an estimated $15.2 billion in fiscal year 1986.

Citizens’ groups and political parties are also

relying more heavily on the new technologies

to achieve their aims. Technology, for example, is being used to target voters and potential supporters, communicate with voters,

manage information, and even to design campaign strategies. Computers are also being

used as lobbying tools. To illustrate the longterm effects of population growth, one lobbying group, for example, uses a portable computer and interactive software to inform Members of Congress about its point of view.

In each of these realms—economic, social,

and political—the stakes in the intellectual

property debate are rising as fast as the technologies are becoming more technically sophisticated and widely used.
12 ● Intellectual Property Rights in an Age of Electronics and Information

POLICY UNCERTAINTIES

In designing new laws or policies on intellectual property, the government will have to

contend with a number of uncertainties. These

include:

● The peculiar characteristics of information

as a commodity: Information has special

characteristics that distinguish it from

other economic commodities and confound

our understanding of how information

markets work. Information is, for example, simultaneously an economic commodity and a societal resource. Since it is inherently leaky; it is hard to own or control.

And although costly to produce, information is inexpensive to copy. Given these

unique properties, economists are only beginning to understand the role of information in the market place. They have yet

to determine, for example, how to measure value or identify when value is added

to an information-based product or service—both needed to resolve issues of derivative use. Moreover, the few available

data are fragmentary, nonquantitative,

and often subjective.

• The increased complexity of the intellectual

property system: The new technologies are

increasing the complexity of the intellectual property system, and so creating new

uncertainties for policy makers. The number and variety of information providers,

kinds of information-based products and

services, ways of using information, and

types of information users are proliferating, giving rise to new relationships

among the parties involved. These changes

are occurring in very unpredictable ways.

Thus, in the future, Congress will need to

have more information about the intellectual property system.

● The changing nature of the technology: The

electronic age has just begun. Today, new

technologies are multiplying the kinds of

media that can be used to package, store,

deliver, and use intellectual works. Over

the long run, however, the increased convergence of information and communication technologies may reverse this trend.

Packaged, stored, and delivered electronically, text, sound, and images will all be
Summary * 13

interchangeable. Our understanding of how tual property system, is replete with unand when such changes will take place, certainty.

and of how they might affect the intellecAGENDA FOR CONGRESS

Faced with a growing number of requests

for action, in addition to a ubiquitous and rapidly changing technology, Congress confronts

the problem of trying to take into account the

magnitude and the scope of technological

change, while also balancing interests and responding to present concerns. In considering

how Congress might proceed, OTA identified

five major strategic choices:

1. what policy goals to pursue,

2. whether and when to act,

3. what legal framework to use,

4. how broadly to define the problem, and

5. within what institutional framework issues should be resolved.

What Policy Goals To Pursue

OTA found that the intellectual property

system may no longer serve social, economic,

and political goals with the same ease in an

information age, given the enhanced value of

information in all realms of life. It is likely,

therefore, that Congress, when designing new

intellectual property laws and policies, will

have to choose more explicitly among policy

goals. Alternatively, Congress could use policy mechanisms other than the granting of intellectual property rights to foster some goals

not supported by the present system. In the

pursuit of economic goals, for example, other

economic incentives—such as subsidies or tax

exemptions—might be granted. Unlike the extension of intellectual property rights, such

mechanisms would have few negative consequences for learning and the creative environment.

Whether and When To Act

Decisions about when to act are clearly related to decisions about whether to act, and

to decisions about whether to deal with problems separately or in a comprehensive fashion. In considering these choices, OTA found

that technological developments are, indeed,

affecting all aspects of the intellectual property system. Moreover, because we are only

beginning to move into an electronic era, the

full impact of the new technologies will not become completely apparent for some time. Fundamental changes in technology are occurring

that will antiquate many of today’s solutions

and bring new kinds of problems requiring new

kinds of solutions. Thus, even if Congress decides to act now in some areas, it will need to

be prepared to reconsider these actions within

the next decade.

Some problems are particularly pressing because stakeholders are seeking immediate legislative action, societal stakes are particularly

high, or technological change is occurring so

rapidly that Congress must act sooner rather

than later if it wants to deliberately channel

its impact. OTA identified four such problems:

enforcement, private use, functional works,

and the international intellectual property

system.

Other problems, although equally important,

are less ripe for immediate action. Engendered

by technologies still in their infancy, these

problems are only now just emerging, and our

understanding of them is severely limited. Examples of such problems include assigning value and distributing rewards in cases of derivative use, protecting the integrity of works in

an electronic environment, and attributing and

assigning authorship when works are generated by interactive or electronic processes.

Although it may be too early to determine

long-term solutions to these problems, OTA

concluded that some steps will need to be taken
14 ● Intellectual Property Rights in an Age of Electronics and Information

now if they are to be adequately dealt with in

the long run. One approach might be to begin

now to systematically collect data about, and

enhance our understanding of, information

needs, information users and producers, and

information-based products and services. This

approach might require institutional changes,

since, at present, no agency within the Government is set up to carry out such a task.

What Legal Framework To Use

The intellectual property system was carefully designed to balance the public and the

private interest. OTA found, however, that because the new information and communication

technologies do not fit neatly within the existing framework of the law, the balance may

be harder to achieve in the future.

OTA identified functional works as a particularly serious problem in this regard. The

analysis found that the distinction between

writings and inventions is indeed breaking

down with respect to functional works such

as computer software and semiconductor chip

masks. Because there are many works of this

type, they may require their own framework

for protection. If it were based on the distinctive characteristics of these works, the law

might be more accurately targeted to achieve

specific policy outcomes, thus serving as a

more robust policy tool. With a new category

of law, both producers and users would face

less uncertainty each time a new type of work

were introduced. OTA’s analysis suggests, too,

that a fruitful basis for a revision along these

lines might be found in the distinctions between works of art, works of fact, and works

of function.

How Broadly To Define the Problem

OTA found that intellectual property policy

can no longer be separated from other policy

concerns. Because information is, in fact, central to most activities, decisions about intellectual property law may be decisions about

the distribution of wealth and social status.

Furthermore, given the unlimited scope of the

new technologies and the growing trade in information-based products and services, U.S.

intellectual property policy is now inextricably tied to international affairs. Communications policy, too, is becoming more linked to

intellectual property policy, as more and more

intellectual works are being transmitted by media such as cable television, telephone lines,

and communication satellites. Today, intellectual property issues also give rise to privacy

concerns as copyright holders seek technical

means to monitor use. In making decisions

about intellectual property policy, therefore,

Congress must consider a whole new range of

issues, and decisionmakers in all these areas

will need to strive for greater coordination.

Within What Institutional Framework

Should Intellectual Property Issues

Be Resolved

OTA found that intellectual property issues

cannot be resolved without dealing with the

question of institutional capabilities and

change. In the absence of institutional change,

the courts will increasingly be called on to resolve highly complex and technical issues and

to make policy in this area. The judiciary, however, may not be suited for this role.

The pace of technological change will continue to put pressure on existing institutional

arrangements. To the extent that Congress,

in responding to these changes, adopts legislation requiring a more active Government

role, new institutional arrangements will probably be required. If this were to be the case,

Congress might want to expand the responsibilities of existing agencies, or it might establish a new central agency to address intellectual property issues. Such an agency’s mission

might include monitoring technological change

and assessing how the law might deal with it,

providing the necessary expertise to deal with

complex technological issues, and collecting

and analyzing data about information markets

and use. Such an agency might also assume

additional regulatory functions, such as distributing rewards or adjudicating disputes. Finally, it might coordinate intellectual property

policy with policy in related areas.
Summary “ 15

THE OTA STUDY

The request for this assessment, Intellectual

Property Rights in an Age of Electronics and

Information, was made by Senator Charles

McC. Mathias, Jr., Senate Committee on the

Judiciary, and by Congressmen Peter W. Rodino,

Jr., Robert W. Kastenmeier, Hamilton Fish,

and Carlos Moorhead, House Committee on

the Judiciary.

In thinking about how the new communication and information technologies might

affect intellectual property rights, OTA has

adopted a broad approach, looking at the kinds

of stresses that technology might be placing

on the intellectual property system as a whole,

and on each of its parts. Such an approach was

required because the new technologies do not

necessarily have a direct effect on intellectual

property rights. Rather, more often than not,

their influence on the law is felt indirectly, as

a result of such things as technologically induced changes in norms, values, and expectations, as well as in the ways in which intellectual works are created, produced, marketed,

and distributed.

Such an approach is also useful because, given

the political intensity and high economic

stakes of the intellectual property debate

today, it is extremely important to view the

entire situation as all one piece. Those involved

in the policy debate often define issues solely

in terms of their own interests and world views.
Chapter 1

Conceptual Framework for

Analyzing Intellectual Property

Rights Issues
Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Nature of Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Intellectual Property System and Its Relationship to Social and Technological

Change: A Framework for Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Intellectual Property System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Intellectual Property System as a Dynamic System:

The Impact of Technology . .

The Approached and Outline of the

Emphasis on Copyright . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19

20

21

21

23

25

25

l-1. Characteristics of Information Technologies and the Uses of

Intellectual

l-2. Framework

Figure No..

Property....

of Analysis..

1-1. The Intellectual

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Figure

Page

System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Chapter 1

Conceptual Framework for Analyzing

Intellectual Property Rights Issues

INTRODUCTION

An intellectual property system is made up

of laws and practices and the relationships they

generate among individuals and institutions.

A system of this kind reflects the larger society of which it is a part. For, although intellectual property rights have been recognized

in natural law, historically, governments have

granted such rights to achieve a variety of policy goals. This is equally true today. Which

policy goals a particular intellectual property

system is designed to serve depends, in large

measure, on history, circumstances, and the

overriding needs of society.

Technological change has been one factor

that has had an especially significant influence

on both social systems and the intellectual

property systems that arise from them. Today,

it is posing a formidable challenge to the intellectual property system. Developments in

information and communication technology

are threatening to outpace previous technological advances in both speed and scope. They

are stressing the intellectual property system

to the point of raising fundamental questions

about the system itself. This chapter presents

a theoretical overview of the intellectual property system, and identifies how technology

may influence it. It is deliberately abstract,

intending to lend perspective to questions

whose political and economic significance may

make objectivity difficult to achieve.

The U.S. system of intellectual property

rights and practices evolved in a way that

balances social, political, and economic interests. The system has been modified, both formally and informally, in response to events and

circumstances. Its basic framework was set in

Section 8, Article 1 of the Constitution, which

authorized Congress to grant exclusive ownership rights of writings and inventions for a

limited period of time. The purpose was twofold: 1) to foster the progress of science and

the useful arts, and 2) to encourage the creation and dissemination of information and

knowledge to the public.

Although this framework was originally designed to deal with the problems and opportunities afforded by the invention of printing—

the information technology that dominated the

18th century–it has proven flexible enough

to accommodate a variety of new technologies.

Today, however, advances in technologies such

as microelectronics, fiber optics, and satellites

are testing the limits of this flexibility. Developments in areas such as biotechnology] are

also influencing the system, but they are beyond the scope of this study.

Bringing swift changes in computers, communications, and other information technologies, these technological advances are likely

to have a major social impact, carrying us further into a new “information age. ” The new

technologies transmit information dramatically faster, and they can collect, store, manipulate, and transmit larger amounts of it. With

these new technologies, more people can gain

access to information, which they can more

readily use to trace past actions and predict

or influence future events. In the next few

decades, as these technologies continue to be

developed, they will be used for an ever-expanding number of activities and tasks. This

‘Although biotechnology has many similarities to information technologies in terms of its having a direct impact on the

intellectual property system, this report does not discuss these

impacts in detail. (; ii’en the magnitude of the impact that the

development of biotechnology might ha~re on society’, any discussion in this report, which focuses on information technologies cannot do justice to this topic. For a discussion of some

of these issues, see [J. S. Congress, Office of Technology Assessment, Commercial lliotwhnoio~”.. .4n International.4 na!.~’sjs,

OTA-BA-218 (J$’ashington. 1)(’: LJ.S. (;o~ernment Printing office, ,Januar? 1984).

19
20 ● Intellectual Property Rights in an Age of Electronics and Information

advance of technological frontiers will change, areas of

in equally significant ways, the structure of likely to

the social, economic, and political orders. nounced

intellectual property law, they are

have the most immediate and proimpact on copyright, the area of inJust as the technologies of the 18th century

shaped the intellectual property system as we

know it today, so too are the new information

and communication technologies likely to alter

significantly how society views intellectual

property, the mechanisms employed to protect

it, and the value that society places on intellectual properties, both as market goods and

as public resources. Although information and

communication technologies will touch all

tellectual property law that has been most concerned with the flow and use of information

in society. Moreover, to the extent that traditional legal categories cannot accommodate

these technologies, new kinds of intellectual

property law may be required.

This report examines how technological developments might affect the intellectual property system. Each chapter focuses on one part

of the system.

THE NATURE OF TECHNOLOGY

Technology can be defined in many ways,

both broad and narrow. Some older definitions

limit technology to mean specific tools or machines. Other theorists define technology more

broadly as know-how: ‘‘a system of knowledge

intended to have a practical bearing."2 Beyond

this, one can also include in a definition of technology the human processes and relationships

required to bring a scientific idea to lifes

People chose their definition of technology

to suit the question they are asking and the

problem they must solve. Scientists and engineers, for example, may have less need to consider human factors, and so their definitions

concentrate more on machines and physical

structures—roads, airports, and nuclear reactors.4 But a purely mechanical definition of

technology would be inadequate for a study

analyzing how technology affects the intellectual property system. Technology touches this

system directly and indirectly, affecting its

‘,Jay Weinstein, .%ciolog>’ Technolom’: Foundations of Post-

,4 cadem”c Sciemv ( N“ew Brunswick, London: Transaction Books,

19821, p. X 1. For this view, see also J.K. Fiebleman, “Pure

Science, Applied Science, Technology Engineering: An Attempt

at Definitions, ” TtJchnolog~’ and Culture, fall, 1961, pp. 305-

3 17; and C’, Susskind, [Understanding Technology (13altimore,

MD: Johns Ilopkins Uni\’ersity Press, 1973).

‘For a discussion of technology understood as “a form of social organization, see Todd R. La Porte, Technology’ as Social

Organization, Institute of Governmental Studies, N’orking Paper #84-1, (Jni\’ersit}r of California, Berkeley.

‘Ibid.

laws and rules and influencing the social and

economic conditions in which relationships

take place. To illustrate the potential effect of

technology in both these spheres, we must

broaden the focus of the analysis and include

in it the areas where physical objects and people meet. As Todd La Porte has said, one must

look at “who is technology,” as well as “what

is technology.”5

This report defines technology broadly, incorporating relationships and transactions between creators, publishers, distributors, and

users of intellectual property as well as the

hardware they use. To maintain this view,

while also allowing for independent analysis

of machines, tools, and techniques, we will consider technology a "package’ that, to borrow

from Langdon Winner’s categories, comprises:6

apparatus: the physical devices of technical performance such as tools, instruments, machines, etc;

techniques: the technical activities, such

as skills, methods, procedures, and routines that people engage in to accomplish

tasks; and

‘I bid., p. 8.

‘

) For a study that conceitres of technology as a package, see

James N. Danziger, William H. Dutton, Rob Kling, and Kenneth 1.. Kramer, Computers and Politics: Iligh Technology’ in

American I,ocal (~o}-ernments (New York: Columbia University Press, 1982).
Ch. 1—Conceptual Framework for Analyzing intellectual Property Rights Issues ● 2 1

social arrangements: the relationships

that are established and the transactions

that take place allowing people to carry out

technical processes and to give physical

form to their ideas. 7

Using this definition, this and subsequent

chapters are based on a broad model of the relationship between technological and social

change. 8 In this model, technology is consid-

‘I,angd{)n \l’innt>r, 1 utonomou.s l’echnolog}.: Technic.s-(lutof-(’ ontrol a.~ a 7’henw c)f l)~)liti[’al ‘f’hou~rht ((’an] hridge, NI,!

and 1,ondon, J{nglan& the NI IT l)ress), pp. 11-12,

“Th[’ study {)t t(’chnolog~ and s(xiet? has a long histor~’ g(Jing back two cwnt,uries to the works of Adam Smith, Henri Saintered to be one of many factors influencing society, while society is viewed as affecting technological development through its structures,

laws, and practices.

Simon, and Karl Marx. In fact, it was the growing interest in

technological de~’elopments that ga~’e birth to the field of sociolo~’. Interest has intensifiwl in recent ~’ears, as both scholars

and policy makers have sought to anticipate and ameliorate the

unintended consequences of the deplo~-ment of technolo~’. Once

again, these interests ha~’e gi~’en rise to a new field of stud>’,

that of technology assessment. For two accounts of the history

of ideas about technolo~’, see Weinstein, op. cit., and W’inner,

op. cit.

THE INTELLECTUAL PROPERTY SYSTEM AND ITS

RELATIONSHIP TO SOCIAL AND TECHNOLOGICAL CHANGE:

A FRAMEWORK FOR ANALYSIS

The Intellectual Property System

Theoretical models and actual systems often

differ significantly. In the real world, the form

and structures of intellectual property systems

are worked out in the political arena. Seldom

is a system a well-conceived and well-designed

construct; it is more likely to take shape haphazardly, reflecting the political compromises

and historical events that went into its making. The American intellectual property system is a product of such compromises, and

strong forces are still shaping it today. Those

involved in the debate often define issues narrowly, in terms limited to their own interests

and world views. But, given the magnitude of

the technological changes occurring, and their

potential impact on the intellectual property

system, it is extremely important to view the

entire situation as a whole, in terms of the

interrelationships of its parts.

In looking at how technology might affect

the intellectual property system, it is useful

to conceive of the system as a set of incentives

and rewards designed to affect the behavior

of individuals or organized groups engaged in

creative or inventive activities. This system

is divided into five interrelated parts:

1. policy goals that it seeks to accomplish,

2.

3.

4.

5.

The

property rights that provide incentives

and rewards,

operating rules,

mechanisms by which policy goals are

achieved, and

the realm of people and activities that the

system is designed to influence.

intellectual property system can be visualized as shown in figure 1-1. As this diagram

illustrates, the outputs of the system provide

feedback about how effectively the system is

working.

Policy goals are the ends towards which the

intellectual property system is directed; they

mirror the goals of the society. Thus, as illustrated in chapter 2, time and social change may

alter intellectual property goals. As the goals

change, other parts of the system are likely

to change in response.

Property rights are granted as incentives and

rewards. A property right might include, for

example, one or any number of the following

rights:9

‘These terms were borrowed from Lawrence Becker, “The

Moral Basis of Property Rights,. "Property J. Roland I]envork

and tJohn 11’. (’hapman (eds. ) (lNew’ York: New York Uni\rersit3T

Press, 1980), pp. 189-190.
22 ● Intellectual Property Rights in an Age of Electronics and Information

Figure 1-1.— The Intellectual Property System

Intellectual property aystem goals

I

[ I

System feedback mechanism

SOURCE Office of Technology Assessment

1.

2.

3.

4.

5.

6.

7.

8.

9.

the right to possessor physically control

something,

the right to use or enjoy its benefits,

the right to manage or decide how it is to

be used,

the right to receive income from it,

the right to consume or destroy it,

the right to modify it,

the right to transfer it,

the right to distribute it, and

the right to exclude others from using it.

Rights may be granted only under certain

conditions, or they maybe limited in their application. For example, to claim a patent in the

United States, an inventor must demonstrate

that his invention is useful, nonobvious, and

novel. To receive a copyright, an author’s work

must be original.10 Neither right offers permanent protection. Patent rights generally last

for 17 years, and copyrights are granted to individuals for life plus 50 years and to corporations for 75 years.

Together, these rights, incentives, and the

conditions under which they are granted constitute the operating rules of the intellectual

_

10The word “work’ is a general term referring to any intellectual creation. It is used in the legal sense to distinguish particular copies from what is protected by copyright.

property system. The rules make demands on

everyone involved in the system. The granting of a right to one party, for example, may

in effect create a corresponding obligation or

liability on the part of another. Structuring the

way the parties relate to and depend on one

another, these rights and incentives serve as

the rules governing the behavior of individuals

involved in the creation, production, distribution and use of works, products, and services

designated as intellectual properties.

Different intellectual property systems may

define intellectual properties differently, and

each may attach different rights, responsibilities, and benefits to them. The structure of

rights will be determined, in part, by the policy goals of the system, and by the mechanisms

chosen to achieve them. Thus, a system designed primarily to encourage learning and invention, as is American patent law, may require inventors to disclose information. In

contrast, a system designed principally to regulate economic relationships, such as trade

secret law may, in fact, prohibit disclosure.

Similarly, a copyright system with the chief

goal of fostering the dissemination of information might grant rights only in published

works; whereas one aiming to reward author-
Ch. 1 —Conceptual Framework for Analyzing Intellectual Property Rights Issues ● 23

ship might protect works before they are made

publicly available.

Similarly, the mechanisms used to achieve

policy goals—the way in which the system

operates-can vary among and within systems,

depending on the kind of work to be protected,

the nature of the activities to be influenced,

the kinds of rights to be granted, and the policy goals to be achieved. For example, a system that grants rights on the condition of an

act such as publication, or on the condition of

qualities such as usefulness or novelty, might

require a very different administrative apparatus than a system with no such conditions.

We see, for example, that because patents are

granted under more stringent conditions than

copyrights, the Patent and Trademark Office

historically has had more resources and administrative responsibilities than the Copyright

Office has had.

The people, institutions, and activities that the

intellectual property laws aim to influence are

also crucial elements in the system. What activities these people do, as well as the socioeconomic constraints under which they operate, determine whether a particular incentive

or reward might achieve its intended policy

goal. To be most effective, rewards and incentives must match the motivations, needs, and

perceptions of the people they are designed to

influence, and they must accurately reflect the

kinds of activities that they pursue. If an incentive miscalculates the economics of creating, producing, and distributing an intellectual

property, it will not motivate people to keep

creating. In addition, because people creating

different forms of intellectual property operate in different environments and have varying concerns, they may respond best to different kinds of inducements.

The outputs of the intellectual property system—such as the amount, quality, and diversity

of works—reveal, in part, how well it is working. But a number of difficulties arise in any

effort to evaluate a system’s performance.

First, there are problems in selecting criteria

that best measure effectiveness-that is, which

results to note and which to ignore. Second,

—.

one cannot easily determine whether these criteria are being met. Finally, evaluating and

assessing the accuracy and independence of

the information needed to analyze the system

is fraught with difficulty. At present, most of

the information about such things as the extent of infringement, the potential economic

damages of infringement, or the uses made of

information-based products and services is

available only from the stakeholders themselves.

The Intellectual Property System

as a Dynamic System: The Impact

of Technology

The dynamic nature of the intellectual property system further complicates its analysis.

It exists within society, and shifts in response

to social, political, and economic circumstances. Thus, when society values change,

so may the motives and attitudes of creators,

inventors, and users of intellectual properties.

Similarly, changes in economic conditions can

alter relationships and positions between and

among individuals and groups in the system,

redistributing their shares of financial obligations and rewards.

Of the many factors that might affect the

intellectual property system, technological

change is likely to have the greatest impact.

We can see this clearly in examining the effects of new technologies on the intellectual

property system.

Electronic information technologies are fundamentally different from print technology in

a number of ways. For example, broadcasting

technologies (radio, television) make a work

simultaneously available in the homes of so

many users that arrangements for payments

for the transfer of works to them is often prohibitively expensive. Other technological advances, such as photocopiers and audio and

video tape machines, have so reduced the cost

and decentralized the process of copying works

that rights holders are no longer assured that

they have control over the production and integrity of their intellectual property. As infor-
24 ● Intellectual Property Rights in an Age of Electronics and Information

Table 1-1 .–Characteristics of Information Technologies and the Uses of Intellectual Property

.—

Technical characteristics Technical characteristics

of works Uses of works of works Uses of works

Mechanical print

Produced in tangible “units”

(but requires expensive

machines and special skills

to copy in large quantities)

Fixed in tangible copies

(one ‘canonical” form of

“the work” exists)

Analog electronic print

“Originals” sold in tangible

copies

Reproducible at moderate

cost (e. g., xerograhic copies,

audio and video tapes)

Decentralized

Technology-bounded

Analog electronic broadcast

Simultaneously available

(one “intangible copy”)

Publishers, printers, and

booksellers cooperate to publish

work and sell units to individuals

or Iibraries, authors received percopy royalty on first sale of a

copy; copyright holder retains

rights to print and publish “the

work "

Individuals read, scholars quote or

cite; owner of a copy may copy

parts of it by hand, or sell, rent, or

destroy his copy

E g , audio recordings and

videocassettes are initially

manufactured and sold somewhat

Iike traditional, mechanically

printed books

Small works, or parts of large

works, are often copied privately

by users with machines, rather

than by hand, copies of copies are

poorer in quality than copies of

originals

Many Individuals have equipment

and skills to make copies

Different media and equipment

usually needed to use and copy

different types of works

Advertisers may pay for work to

attract potential customers to

their product, alternatively, users

may pay (e g , public broadcasting,

subscription television)

——

mation technologies become computerized, the

copy, transfer, and manipulation of works are

becoming even more decentralized, speedy, and

inexpensive.

At a basic level, the very definitions on which

intellectual property rights are based take on

new meanings, or become strained and even

irrelevant, when applied to the context created

by new technologies. They raise questions, for

example, about what constitutes a‘ ‘derivative

work’ when works are made available through

intangible electronic waves or digital bits;

about what constitutes a “work”; and about

who owns the right to it when it is interactive,

and when creators have combined their efforts

to produce it.

Digital electronic

Simultaneously available

Reproducible at very low

cost

Versatile

Decentralized and pervasive

Interconnected

Dynamic

Processible

Autonomous

Many Individuals may access a

central store of works, a “data

base”

Prices for magnetic and optical

storage media will continue to

fall; media are very high in

capacity, and very fast in making

reproductions: perfect copies can

be made from copies

Many types of works (e, g , text,

music, video-taped or filmed

pictures) may be stored and

communicated digitally

Highly capable machines are

becoming ubiquitous in homes

and offices

Machines may be privately Iinked

by switched telephone circuits:

works can be transfered with

Impunity; and joint authorship IS

not restricted by the physical

separation of the authors

Work may be Interactive or

constantly evolving; one

“canonical” copy may not exist

Machines may be programmed to

transform and manipulate works,

perhaps masking evidence of

original authorship

Works may be functional, rather

than only meaningful, as are

traditional copyrightable works

—

The characteristics that differentiate the new

technologies from the old, and that create potential problems for the system, are summarized above in table 1-1.

Changing technology may influence each

part of the system directly, or it may affect

it indirectly by modifying the larger social environment in which the intellectual property system operates. New technologies, for example,

may affect the boundaries of the system and

the nature of the rights that it provides. In

doing so, they may change the “rules of the

game” by which it operates. As discussed in

chapter 3, each new technology has brought

questions about whether and where it should

fit into the existing system. Most recently, for
Ch. 1—Conceptual Framework for Analyzing Intellectual Property Rights Issues ● 25

example, Congress, borrowing from both copyright and patent law, adopted a new suigeneris

law, I that established a separate niche for computer chip technology in the intellectual property system.

Technological developments may also change

the mechanisms used to achieve intellectual

property goals. Chapter 4 points out that demonstrating ‘‘authorship’ or ‘‘originality as a

condition for receiving property rights, while

relatively straightforward in a print culture,

is much more complicated in an age of electronic technology. Similarly, as illustrated in

chapter 7, a system that assumes copyright

holders can enforce their own rights against

infringement may operate unsuccessfully if decentralized reproduction and electronic transmission prevents identifying where and when

infringements take place.

Because technology brings about new kinds

of interactions between people, as well as new

technological apparatus and new processes and

techniques, it is also likely to affect the people, institutions, and activities that are part

of the realm of the intellectual property system. As noted in many of the following chapters, new technologies not only affect what people do and how and why they do it, they also

may restructure the socioeconomic opportunities available to them and the constraints

under which they operate. And, in creating a

multitude of new opportunities for application,

use, and profit-making, issues may arise among

the parties in the system the resolution of

which, over the long run, may prompt changes

in the goals, the boundaries, and the structure

of the system itself.

THE APPROACH AND OUTLINE OF THE REPORT

Using the above model, this assessment analyzes the impact of the new information and

communications technologies on the U.S. intellectual property system. Table 1-2 outlines

the problems to be analyzed.

In this table, six major criteria are suggested

to evaluate how well the system is functioning. Corresponding to these criteria are a number of research questions that might be asked

to determine how well the criteria are being

met, and some possible indicators of the system’s effectiveness. The broad scope of the table illustrates the magnitude and complexity

of the problem. It also suggests some useful

questions around which to build an analysis,

many of which serve as starting points in the

following chapters.

The Emphasis on Copyright

In general terms, intellectual property law

includes any law that grants rights in the products of the intellect. As such, it is a generic

term that covers patent, copyright, trademark

law, and the Semiconductor Chip Act, as well

as trade secrets and tort misappropriation law.

There are two major reasons for this emphasis. First, since copyright is concerned primarily with the use and flow of information and

information-based products and services, it is

the area of intellectual property law that will

be most affected by advances m communication and information technologies. Second, it

is to copyright rather than to other provisions

that the creators, developers, producers, and

distributors of new information technologies

are looking in their efforts to gain legislative

protection for their works.

This emphasis notwithstanding, we have

tried to look broadly at the impact of technology on the entire intellectual property system.

This broad perspective allows us to address

not only the problem and opportunities that

the new technologies present for the copyright

system itself, but also to consider alternative

ways, including some entirely new ones, of addressing them.
26 ● Intellectual Property Rights in an Age of Electronics and Information

— —

Table 1-2.— Framework of Analysis

Evaluative criteria Questions for research

7. Effectiveness in meeting

overall systems goals

A. Creation and dissemination Degree of creativity

of creative, informational,

and scientific works

Availability

Congruence of incentives

B. Enhancement of

the learning

environment

C. Economic growth

and development

Degree of scientific

and technological

development

State of the arts and

entertainment

Overall condition of education

Growth of information-based

industries

International competitiveness

2. Efficiency in achieving goals Costs and benefits of granting

rights

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

Ž

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

indicators/types of Information

that might be collected

Evaluations of creators, critics, users

Output of works

Number of prizes offered in these fields

Number of people engaged in these fields

Interactions of members of the creative environment

Number and variety of informational resources

Evaluations of creators, publishers, producers,

users

Diversity of works

Price of works

Opportunities for access

Evaluations of creators, publishers, and producers

Level of output

Emergence of new fields

Number of scientists/technologists

Number and quality of scientific publications

Interactions between members of the scientific/

technical community

Patents issued

Awards granted

Evaluations by members of the scientific/technical

community

Emergence of new fields

Number of creators

Condition of production/distribution industries

Availability of resources for creation/production/

distribution

Awards granted

Market for creative works

Evaluations by national educators/businessmen/

parents/National Science Foundation/etc.

Literacy rates

Test scores

Availability and qualifications of faculty/teachers

Quantity and quality of educational materials/

information-based resources

Interactions among members of the educational

community

Development of new industries and profit-making

opportunities

Percentage of employment

Number of firms

Contribution to gross national product

Use of information-based products and services in

non-information industries

Balance of trade

Institutional costs

Transactional costs

Social costs in terms of achieving systems goals

Benefits measured in terms of achieving system

goals

Estimates of harm due to infringement/lack of

intellectual property protection

Profit margins

Industry competition

Estimates of economic value of intellectual

property rights to proprietors
Ch. 1—Conceptual Framework for Analyzing Intellectual Property Rights Issues ● 27

Table 1-2.—Framework of Analysis—Continued

—

Indicators/types of information

Evaluative criteria Questions for research that might be collected

Costs and benefits of

alternative measures for

achieving system goals

3. Enforceability Extent of Infringement

Ease of detection

4. System durability

Legitimacy of the system

Flexibility in the face of

change

Legitimacy of the system

Ability to resolve conflicts/

harmonize interests

Reliability/predictability as a

guide to action

Robustness of principles

5. Precision as policy tool Predictability of outcome

independence/compatibility

with respect to other policy

areas

Sensitivity to differences

among different kinds of

information-based products

and services

6. Congruence with international Ability to resolve conflicts -

and other national systems

Harmony with other intellect

al property systems

Compatibility with other international regimes—i.e.,

GATT, UNESCO

SOURCE Office of Technology Assessment

—

● Institutional costs

● Transactional costs

● Social/economic costs/benefit in terms of achieving system goals

● Public/institutional behaviors

● Technologial capabiIities to access/reproduce/

reformat information-based products and services

● Privacy of use and decentralized access to

reproductive/access/and communication technologies

• Technological capabiIities to preclude authorized

access/use

● Transaction costs

● Technological capabiIities to monitor access/use

● Public attitudes/support for the system

• Frequency of legislative revision/amendment

Ž Resort to alternative forms of protection

● Consensus in cases of first impression

● Consistent/coherent application of law

• Public attitudes/support for the system

● Extent of infringement

● Acceptance of decisions by parties in dispute—i.e.,

number of appeals

● Extent of unresolved issues — I.e., fair use,

copyrightability of computer software

Ž Internal coherence/consistency of law

. Resort to other forms of protection

● Overlap with other law

● Quality, quantity, independence of available informat ion

● Number of agencies involved

● Cross-cutting issues

• Interested congressional committees

. Convergence of stake holder Interests

● Intensification of issues

● Roles of different kinds of Information-based

products and services

● Economics of different kinds of information

markets

● Public attitudes toward different types of

information-based products and services

● Technological characteristics of different

information-based products and services

● Enforcement mechanisms

● Level of infringement

● International court cases

● Resort to other policies mechanisms to deter

infringement— i.e., trade sanctions

● Level and participation in International regimes

● Scope of International treaties

. IncompatibiIities with international law — i.e., informalities

● Policy conflicts and inconsistencies
Chapter 2

Intellectual Property Goals in a

Changing Information Environment
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . 32

Evolution of the Concept and Practice of Granting Intellectual Property Rights. . . . 33

Emergence of the Concept of Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . 33

Copyright as a Mechanism for Censorship and the Regulation of Trade . . . . . . . . . . . 34

Copyrights To Prevent Monopoly Practices: The Idea of Author Rights . . . . . . . . . . . 35

Traditional Goals of the U.S. Intellectual Property System . . . . . . . . . . . . . . . . . . . . . . 37

Opportunities and Policy Choices in an Information Age. . . . . . . . . . . . . . . . . . . . . . . . . . 39

Three Realms of opportunity . . . + ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ● . . . . . . . ● ● . 40

Opportunities in the Techno-Economic Realm. , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

New Opportunities in the Political Realm ... , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Opportunities in the Cultural Realm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

The Potential for Conflict in the Use of New Technologies . . . . . . . . . . . . . . . . . . . . . . . . 53

Implications for the Intellectual Property System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Figures

Figure No. Page

Z-I. The Evolution of Information Occupations . . . . . . . ., ....... . . . . . . . . . . . . . . . . . 41

2-2. Uses of Information Technology Within the Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

2-3. Information Industry and Its Related Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

2-4. Development of Custom Targeting Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

2-5. Carnegie Mellon Flowchart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Chapter 2

Intellectual Property Goals in a

Changing Information Environment

FINDINGS

In an information age, decisions about the

granting of intellectual property rights are

Linked to other information policy decisions,

and in making them, we are making decisions

about the nature of society itself. Given the

convergence of these issues, it may be necessary to establish clearer priorities about the

goals towards which intellectual property policy is directed.

The new information and communication technologies create, for both individuals and society

as a whole, new cultural, economic, and political opportunities, as well as new information requirements and needs. These technologies are

capable not only of generating, storing, and

processing vast amounts of information; they

can also provide greater access to information,

enhance the environment for learning and creativity, generate new opportunities for profitmaking and economic growth, and facilitate

participation in political and social affairs.

Insofar as they afford new socioeconomic opportunities, the new information and communication technologies will assume a greater role

in society, and in the economy, giving rise to public policy issues about their use. Issues will

emerge, for example, with respect to which information needs will be met; which opportunities will be developed; and which parties will

benefit from them.

Concerned primarily with the use and flow of

information in society, intellectual property law

has historically served in the United States to

decide many of these issues. In resolving them,

an effort has been made to strike a suitable

balance between the needs of creators, producers, and distributors of intellectual properties

and the social, economic, and political needs

of the nation as a whole. In such a fashion, intellectual property law has been able to simultaneously serve a wide variety of social and

economic public policy goals.

The ability of intellectual property law to

strike such a balance was not particularly difficult in the past, when the social and economic

stakes in information were lower than today

and when relatively few and well-defined players were involved in the intellectual property

process. Information-based products and services were peripheral to the performance of

many social and economic activities, and people had lower expectations about their use and

the level of profit that might be derived from

them. As a result, issues involving the granting of intellectual property rights could be

worked out among the major players without

much public involvement or concern.

The resolution of these issues in an information age, however, will be more problematic, requiring that more stakeholders be taken into account and that decisions be made about the

distribution of incentives and rewards. Given

the variety of opportunities that the new technologies afford, the increased value of information, changing relationships among the traditional participants in the intellectual

property system, and rising expectations

about the benefits of these technologies, the

number of stakeholders with disparate interests and competing claims on the system will

be greater than ever before. In such a context,

the granting of intellectual property rights, instead of mutually serving a variety of different stakeholders, and equally fostering a broad

set of diverse policy goals, may pit some stakeholders and goals against one other. Moreover,

given the ease of access to the new technologies, members of the public are now major

stakeholders in the system, and as such their

attitudes and behavior are likely to have a

greater impact on policy choices and outcomes.

31
32 . Intellectual Property Rights in an Age of Electronics and Information

INTRODUCTION

Although intellectual property rights have

been recognized in natural law, historically,

governments have granted such rights to

achieve a variety of policy goals. This is equally

true today. In the West, the granting of copyright, for instance, is viewed primarily as a

mechanism for encouraging the dissemination

of information. But in Eastern bloc countries,

the policy goals differ and it is regarded chiefly

as ‘an instrument for the management of cultural processes.”1

Which policy goal a particular intellectual

property system is designed to serve depends,

in large measure, on the history, circumstances, and overriding needs of a society at

the time the system is first set up. Developing countries, for example, which must import

most cultural and scientific materials, have

often been unwilling to extend protection to

foreign works. This was true of the United

States during its first 100 years, and is the case

in many Third World countries today.

Despite their varying goals, however, all intellectual property systems basically concern

policies involving the use and flow of information. This is especially true of the copyright

system, which was established specifically to

deal with the social and economic changes

brought about by what, historically, has

proved one of the most “world shaking” information technologies-the printing press.

Characterizing copyright role in structuring

information flow, Edward Plowman and L.

Clark Hamilton wrote:

In a wider perspective, a number of basic

dimensions of the nature and function of

copyright may be distinguished. In an overall, cultural perspective, the stated purpose

of copyright is to encourage intellectual creation by serving as the main means of recompensing the intellectual worker and to protect

his moral rights. In an economic sense, copyright can be seen as a method for the regulation of trade and commerce.

Copyright thus serves as a mechanism by

which the law brings the world of science, art,

and culture into relationship with the world

of commerce. In a social sense, copyright is

an instrument for the cultural, scientific and

technological organization of society. Copyright is thus used as a means to channel and

control flows of information in society. [emphasis added].2

The patent and trade secrets systems also

involve the flow of information. The patent system is designed primarily to foster scientific

and technical information. Although patent

law permits only the inventor or patent holder

to make, use, or sell his invention, it also requires that the inventor disclose to the world

the information necessary to enable others to

reconstruct the invention after a 17-year period

of protection has elapsed. Patent law, therefore, seeks to encourage the distribution of information by making disclosure a condition of

protection. The trade secrets system, in contrast to the patent system, is designed to discourage the widespread flow of certain types

of information. Secrecy is maintained in order

to give the holder of the trade secret a competitive advantage in the marketplace.

Like the printing press, the new information

technologies also affect society. They are

changing the way people work and conduct

their business; how they interact and relate to

one another; the way they learn, create, and

process information, and their needs and expectations. In fact, these new technologies are

altering the way man views himself and his

place in the world.3

Together, the development and widespread

use of these new technologies have helped to

usher in what some social observers characterize as a “post-industrial,” or “information”

‘Puscher, “Copyright in the German Democratic Republic,”

Copyright IMZetin of the LEA, vol. 10, No. 3, 1976, as cited

in Stephen Stewart, The Law of Internati”omd Copyright and

Neighboring ~“ghts (London: Butterworth & Co. (Publishers)

Ltd., 1983), p. 10.

‘Edward W. Plowman and L. Clark Hamilton, Copyright:

Inteflectmd Property in the Information Age (London: Routledge and Kegan Paul, 1980), p. 25.

‘Sherri Turkel, The Second Self: Computers and the Human

Spirit (New York: Simon & Schuster, 1984),
Ch. 2—Intellectual Property Goals in a Changing Information Environment ● 3 3

society.4 In this society, the creation, use, and

communication of information plays a central

role. Not only will the amount of information

continue to increase, but people will also rely

on it in more and in different circumstances.

The changes brought on by the new technologies will generate new social, economic, and

cultural opportunities and choices, which will

bring with them the need for major policy

decisions.

Because intellectual property policy, and especially copyright policy, serve as a policy tool

that structures the use and flow of information, it is likely to play a major role in an information age. How the intellectual property system is structured will determine not only which

individuals and groups benefit from the new

opportunities afforded by the new technologies, but also in what ways and the extent

to which, as a society, we might take advantage of them. Furthermore, if the enhanced

value of information creates conflicts between

economic, political, and cultural goals, the

structure of the system will establish some of

the rules that determine whether information

will be treated as an economic commodity or

a societal resource.

Given the relationship between intellectual

property goals and social change, and the probable influence of the copyright system in an

information age, the question arises of whether

the policy goals of the United States intellectual property system, established in an agrarian society and when print technology dominated, are still appropriate for today.

Evolution of the Concept and Practice

of Granting Intellectual Property Rights

Social, economic, political, and technological factors all influence the nature of intellec4For discussions and characterizations of the “ Information

Society. ” See, for example, U.S. Congress, Office of Technology Assessment, Computer-Based National Information Systems, OTA-CIT-146 (Washington, DC: U.S. Government Printing Office, September 198 1); Susan Artandi, “Man, Information,

and Society: New Patterns of Interaction, Journal for the American Society for Information Science, January 1979; and Daniel

Bell, The Coming of Post Industrial Society (New York: Basic

Books, 1973).

tual property systems and the goals that governments have sought to promote by granting

those rights. The connection between these factors and intellectual property systems is clearly visible if one examines the concept of intellectual property as it evolved over time. Intellectual property rights began in a autocratic

period, as a tool of monarchs to stimulate

invention, regulate trade, reward favorites,

establish patronage, and control and censor the

dissemination of ideas and information. Two

hundred years later, in a democratic context,

this tool evolved into a system designed to foster freedom of expression and the creation and

dissemination of new ideas.

Emergence of the Concept of

Intellectual Property Rights

The birth of the idea of intellectual property

itself demanded certain social conditions. It

required a centralized political authority and

a government that intervened in economic affairs; the development of trade and commerce;

a market for literature, art, and invention; and

the growth of the idea of, and respect for, the

individual as creator. Only in the late Middle

Ages did such conditions develop, and only

then did the concept of intellectual property

rights, as we know it today, emerge.5

In addition to these societal changes, technological change-and in particular, the development and widespread deployment of the

printing press— also created the need for intellectual property protection. Before the development of printing, inventors, embodying

their ideas within their own persons, did not

need to concern themselves with the prospect — ---- - -----

‘Bruce W. Bugbee, Genesis of American Patent and Copyright Law (Washington, DC: Public Affairs Press, 1967). This

latter condition existed in Roman times where the social climate was supportive of individual attribution and payment for

intellectual activities. In a number of texts from the period, for

example, there are references to individuals as authors and to

the terms of payment for intellectual contributions. Moreover,

plagiarism was clearly considered to be unethical. There is no

evidence, however, that such attitudes and procedures were in

any way sanctioned by law. Conditions radically changed during the Middle Ages, however, when monasteries and other religious institutions began to assume primary responsibility for

intellectual and creative pursuits. As in pre-Roman times, the

idea of individual, as author, lost support. Plowman and Hamilton, Copyright, pp. 9-11.
34 ● Intellectual Property Rights in an Age of Electronics

of others reaping the financial rewards of their

work. They simply went from town to town

selling their intellectual wares. However, once

their ideas were recorded and widely distributed in print, the inventors lost this control

and, hence, their economic bargaining power.

The problem created by the printing press was

even greater for authors whose profits were

derived not from their ideas but from what subsequently was even more easily duplicated, the

written word itself.

The first intellectual property rights were

granted as patents. Characterized by one author as being “the idea of progress appearing

in the law, patents were associated with technological development from the start.6 Offered

by sovereigns and local governments as part

of their overall economic policies to stimulate

commerce and technological advance, they

were, essentially, monopolies designed to entice artisans and inventors into their States

or localities.7

Copyrights-or the granting of rights in literary property—did not develop in either concept or practice until the 15th century. Even

more than patent rights, copyright can be identified with one specific technology, the printing press.

The printing press brought about major social, economic, and political changes.8 By great-

‘Significant inventions of the late Middle Ages included

various processes that would increase the efficiency of artisans,

such as textile-making equipment, textile dye processes, glass

manufacturing, stained glass processes, mining and metallurgy,

windmills, and ship-building designs. Bruce W. Bugbee, Genesis of American Patent and Copyright Law (Washington, DC:

Public Affairs Press, 1967), pp. 12, 167.

‘The city-state of Venice, with its important role in world

commerce and its strong central government, became the first

government to grant patents. The importance that the Venetians attached to the goal of economic development is reflected

by the fact that a patent right granted in a work had to be relinquished if it did not prove to be commercially successful. As

towns and commerce revived, technological development accelerated, and political centralization increased, this practice of granting patent rights spread throughout Europe.

‘For a detailed and in-depth discussion of the social changes

brought about by the advent of printing, see Elizabeth L. Eisenstin, The Printing Press as an Agent of Change: Communications and cultural transformations in early modem Europe, vol.

I and 11 (Cambridge, England: Cambridge University Press,

1982); For a discussion of the more general impact of communication technology on society, see Harold Innis, The Bias of Communication (Toronto: University of Toronto Press, 1951).

and Information

— — .

ly increasing the speed and reducing the costs

of reproduction, printing made it much easier

to disseminate ideas. By increasing the general level of literacy, it also made more people

susceptible to, and eager to partake of, such

ideas. As a result, the market for information

products and literary works grew, and their

economic value was greatly enhanced. In fact,

one might say that printing was the growth

industry of the time. Later, as books and

manuscripts ceased to be isolated on monestary shelves, and became available to many

people simultaneously, they began to serve as

an important forum for public discussion.

Occurring at the time of religious and political turmoil, printing presented the monarchs

of Europe with both a political threat and an

economic opportunity. The law of copyright

was developed to deal with this threat, as well

as to take advantage of this opportunity. The

shape the law took reflects its dual purpose:

censorship of the press and regulation of trade.

Although copyright systems were established

across Europe, England provides the most useful illustration of how the system worked, since

the American system was derived from English experience.

Copyright as a Mechanism for

Censorship and the Regulation of Trade

As in most European countries, England’s

need for copyright protection arose with the

invention of the printing press, and it had its

origins in the English censorship laws. These

acts included the Star Chamber Decrees of

1566, 1586, and 1637, as well as three acts

passed in the 1640s during the Interregnum,

and the Licensing Act of 1692. Together, they

provided for such things as the granting of patents for specified works, the confinement of

printing to authorized presses, the licensing

of books before publication, and the use of

trade organizations and special government

agencies for enforcement.9

While direct censorship was the most effective means of confronting the political threat

‘Benjamin Kaplan, An Unhurried View of Copyright (New

York and London: Columbia University Press, 1967).
Ch. 2—Intellectual Property Goals in a Changing Information Environment ● 35

.

brought about by the new technology, it also

stifled the printing industry, and thus limited

the government economic benefits from printing. Seeking to both end the dissemination of

heretical and seditious literature, but still

profit from the burgeoning printing trade, the

English Government aligned itself with publishers. In exchange for an agreement to enforce the censorship laws, the government

granted the publishers’ guild, known as the

Stationers, a monopoly right to print, publish,

and sell works—a copyright. ’”

The effectiveness of this arrangement came

about, as Ithiel de Sola Pool has noted, because

“the printing press was a bottleneck where copies could be easily examined and controlled."11

The arrangement was also beneficial to publishers. It not only provided them with a monopoly; but also, as partners with government,

they were free to manage their own affairs,12

Thus, through their bylaws, they regulated the

book trade. ’3

Copyrights To Prevent Monopoly

Practices: The Idea of Author Rights

In the period following the Restoration, the

Government’s major concern was no longer

press censorship. Instead, there was a growing wariness about the publishers’ monopoly —. —

“’The copyright was limited to members of the Stationers’

guild so that only registered members could print books. Once

a publisher entered the title of a work, his name, and the date

of publication into the company register, he obtained a perpetual

copyright in it. With what was essentially an economic right

designed to protect his investment from competition, the publisher could also trade in rights. He could buy copyrights, sell

them, or assign them to any other member of the company. When

cases of copyright infringement and disputes among publishers

arose, they were decided by the company courts. The Stationers’

copyright remained in force for over 150 years, when the conditions underlying the system changed significantly. Stephen

Stewart, Law of International Copyright, and Neighboring

Rights (London: Butterworths & Co. (Publishers), Ltd., 1983).

‘‘ Ithiel de Sola Pool, Technologies of Freedom (Cambridge,

MA: Belknap Press, 1983), pp. 16-17.

“Originating as a craft guild in the early 15th century, the

Stationers were established as a company by Henry VIII in

1557. They consisted of members of the book trade—printers,

book binders and booksellers. For a discussion of the history

of the Stationers’ Company and its role in the development of

copyright, see Lyman Ray Patterson, Copyright in Historical

Perspective (Nashville, TN: Vanderbilt University Press, 1968).

Chapter IV.

“Stewart, The Law of International Copyright, p. 18.

of the book trade. By buying up all of the rights

to copy books, the publishers had effectively

limited their competition, restricted the supply of books, and artificially raised prices. No

longer in favor of blatant censorship,14 or sympathetic to monopoly, the Parliament found

this situation unacceptable. In 1695, it failed

to renew the Licensing Act of 1692, thus allowing the Stationers copyright to lapse.

The result was confusion in the book trade.

Piracy became commonplace. The Stationers

aggressively appealed to Parliament to reestablish order with a new copyright law. As

Lord Camden later described it:

They–the stationers (whose property by

that time) consisted of all the literature of the

Kingdom, for they had contrived to get all

the copies into their own hands-came up to

Parliament in the form of petitioners, with

tears in their eyes, hopeless and forlorn, they

brought with them their wives and children

to excite compassion, and induce Parliament

to grant them a statutory security. ’5

Responsive to the Stationers’ petitions to

reestablish order in the book trade, but opposed to excessive monopolies, the Parliament

passed legislation in 1709 that was supposed

to meet both concerns. This was the Statute

of Anne. Characterized as the first modern

copyright law, it served as the model for copyright law in the United States, and all other

English-speaking countries.

Although the Statute of Anne resembled the

Stationers’ copyright in some ways, it was designed to end their monopoly of the book trade

and included several provisions to assure this

end. Copyright would no longer be exclusive;

the statute made it available to everyone.

Moreover, it was limited to a period of 14

—-.—_.———

“It should be noted that the repression of the press did not

end in 1693. Instead of using copyright as a mechanism to control the press, the British Government used a tax policy. The

government imposed taxes, for example, on newsprint, ads, and

on newspapers. one newspaper The Spectator, folded in 1712,

as a result of increased publication costs due to heavy taxation. de Sola Pool, Technologies of Freedom, p. 15.

“’’Donaldson v. Becket” (H.L. 1774), as reported in 17 Hansard, Parh”amentary History of England, 953, 995 (1813), as

quoted in Kaplan, Unhurried View, p. 7.
36 ● Intellectual Property Rights in an Age of Electronics and Information

years. ’G As a concession to the Stationers, the

act allowed them to maintain their existing

copyrights for a period of 21 years, after which

the works attached to them would be returned

to the public domain.

Entitled “A Bill for the Encouragement of

Learning and for Securing the Property of Copies of Books to the Rightful Owners Thereof,"

the new statute stated clearly that copyright

should benefit authors. The law advanced the

idea of authors’ rights, absent from the Stationers’ copyright, although authors had previously been paid for their works. 17 In the new

political and economic context, however, parliamentary leaders viewed the granting of

copyright to authors as a good device to break

the publishers’ monopoly, although not necessarily inherently virtuous.18

The legitimacy of the claim of authors’ rights

also found support within the larger society.

In 1690, John Locke argued in his TWO Treatises on Civil Government that the author has

a natural right in his work since he had expended his own labor in creating it. ” At the

same time, European thinkers and jurists put

forth similar views.20 The public and the courts,

—. . -. -

“The statute allowed a second’ term of 14 years if the

author was alive. Even if he had sold his copyright, the author

could claim it back after 14 years.

“Manuscripts were generally bought from authors for some

lump sum. Once the authors sold his material to the publishers,

it was the publishers who had the right to make multiple copies, Kaplan, Unhurried View, 1967.

‘“Ironically, in the end, the publishers were the most effective and outspoken constituency in generating acceptance for

the idea of authors’ natural rights in their work, and it was they

who benefited most from it. The previous statutes, it should

be remembered, provided publishers with an economic right,

which protected only the economic benefits derived from the

publication and sale of copies. The issue of who owned the work

was not involved. However, with the growing acceptance of the

idea that the author had a natural right in his work, the notion

of what the right protected was considerably expanded. Since

authors routinely assigned their copyrights to publishers, having no other recourse to distribute their works, it was the publishers, and not the authors, who benefited over the long run

from this expanded right. Patterson, Historiczd Perspective,

p. 18.

“John Locke, Two Treatises on Civil Government (Cambridge, England: Cambridge University Press, 1967).

“’European jurists conceived of authors rights as being natural to the way things are. In France this attitude was incorporated into two basic decrees granting authors: 1) the right to

public performance (1791 ), and 2) the right to copy and reproduction (1793). These two decrees served as the mainstay of

French copyright law for over 160 years. Plowman and Hamilton, Copyright, p. 16.

too, were generally more willing to reward the

author for his special contribution to society.

As Kaplan has pointed out, there was a gradual moving away from the Elizabethan perspective that imitation was admirable and innovation dangerous, and a growing appreciation of the role of the creator.21

These developments, notwithstanding, copyright in England remained a statutory right,

reflecting its origins as a privilege granted by

government to achieve a particular public policy purpose. The issue of authors’ common law

rights was tested in two major court decisions.

In the first, Millar v. Taylor (1769), the publishers’ and authors’ point of view prevailed:

the court ruled that the author had a common

law copyright in perpetuity. Five years later,

however, this position was reversed with the

decision in the case of Donaldson v. Becket delivered by the House of Lords in 1774. While

recognizing the author’s common law right to

print, publish, and sell his work, and his right

to assign his copyright to another, the House

of Lords held that this right was supplanted

by the Statute of Ame. Thus, while the author

had a right to decide whether to publish or not,

once he had chosen to do so, his copyright was

a statutory one and it was limited by the terms

of the statute.22

As this brief account suggests, the concept

of intellectual property rights emerged at a particular time when socioeconomic conditions

were ripe for it. It emerged as a public policy

device to deal with the problems and enhance

the benefits of the rash of technological innovations that occurred in the late Middle Ages

and early Renaissance. The law of copyright,

in particular, was related to the advent of one

technology, the printing press. —-———— —

“As Kaplan notes, “From the classical writers as expounded by critics of the Italian and French Renaissance, the

Elizabethans had received the notion that artists’ excellence

lay in imitating the best works of the past, not in attempting

free imitations. All they needed, indeed, all the possible subjects and materials for literary production were already disclosed

in existing writings, the “publica materia ” to which Horace referred. What was required of an author was to give an expression compatible with his own time. ” Kaplan, Unhurried View,

p. 23,

“Ibid., p. 14; see also discussion by Patterson, which suggests that if the common law courts had had a role in the early

development of copyright, the English might have adopted a

stronger position in favor of the author. Ibid., p. 16.
Ch. 2—Intellectual Property Goals in a Changing Information Environment ● 3 7

While the structure of the laws and the goals

to which they were put have changed with time

and historical circumstance, intellectual property law has essentially remained a mechanism

government can use to structure and channel

the societal impacts of technological change.

In the Elizabethan era, intellectual property

law was used to control the flow of information. But when transplanted to the United

States, it was conceived of not only as an instrument to foster the creation of new inventions and ideas but also to encourage their dissemination among the public.

Traditional Goals of the

U.S. Intellectual Property System

Although the ruling monarchs of Europe had

regarded the widespread dissemination of information with considerable alarm, the opposite view prevailed in the United States. Building a nation required the establishment of

communication links, the development of a unified market, the forging of a common culture,

and the building of a democratic polity. The

widespread flow of information was essential

to accomplish these tasks, and the establishment of an intellectual property system, they

believed, would aid the creation and spread of

information. Appreciative of the potential that

information held for fostering national development, the Founding Fathers saw the granting of intellectual property rights, not as a natural right, but as a statutory, or positive right,

in this case granted to promote learning.

To understand the import attached to the

idea of learning, one must consider the historical context of the times. The writers of the Constitution were products of the enlightenment.

Their views and attitudes reflected the increasingly pervasive awareness of the power of

knowledge to affect social change. As the historian Peter Gay has described it:

In the century of the enlightenment, educated Europeans awoke to a new sense of life.

They experienced an expansive sense of power over nature and themselves; the pitiless cycles of epidemics, famines, risky life and early

death, devastating war and uneasy peace—

the treadmill of human existence—seemed to

be yielding at last to the application of critical intelligence. Fear of change, up to then

nearly universal, was giving way to fear of

stagnation; the word innovation, traditionally

an effective term of abuse, became a word of

praise. 23

Looking at the concept of learning in this

context it is clear that, to the Founding

Fathers, learning was more than an end in and

of itself. It was the hope of an age, the means

to achieve a whole range of goals. With knowledge and learning, virtually anything was considered to be possible.

That knowledge should be fostered and disseminated was also a paramount belief of the

times. The age of enlightenment was, according to Gay:

... an age of academics—academics of medicine, of agriculture, of literature, each with

its prizes, its journals, and its well attended

meetings. In the academies and outside them,

in factories and workshops and coffeehouses,

intelligence, liberated from the bonds of tradition, often heedless of aesthetic scruples or

religious restraints, devoted itself to practical results; it kept in touch with scientists and

contributed to technological refinements.24

Given this general mood of the age, it is easy

to understand why the idea of granting intellectual property rights was so popular. Correctly anticipating acceptance of such a right,

James Madison, wrote in The Federalist, for

example, “The utility of this power will scarcely be questioned.”25 He was right. There was

practically no discussion of intellectual property rights at the Constitutional Convention,

even though provisions for granting such rights

merited a prominent place in the Constitution.

The convention was convened in early May

1787, and was adjourned in mid-September.

The issue of intellectual property rights, however, did not arise until August 18th, when

James Madison and Charles Pinckney each put

‘{Peter Gay, The Age of Enlightenment: An Interpretation.

The Science of Freedom (New York: W. W. Norton & Co., 1977),

p. 3.

“Gay, Age of Enlightenment, p. 9.

‘“As quoted in Bugbee, Genesis, p. 130.
38 ● Intellectual Property Rights in an Age of Electronics and Information

forth proposals to include among Congress’

powers the right to grant intellectual property

rights. And the idea was not considered again

until September 5th, when the Convention

unanimously approved without discussion a

committee proposal to adopt a constitutional

clause empowering the Congress “To Promote

the Progress of Sciences and Useful Arts, by

securing for limited Times to Authors and Inventors the Exclusive Right to their respective Writings and Discoveries.”26

That the enhancement of learning was the

purpose of this clause–Article 1, Section 8 of

the Constitution—can be reasonably discerned

despite the lack of debate at the convention.

Two intellectual property rights proposals

were submitted, one by Madison and one by

Pinckney. Although introduced independently

of each other, they both were couched among

other proposals aimed at advancing the state

of science and learning. Both proposals also

authorized Congress, for example, to:

grant charters of incorporation in cases

where the public good may require them;

establish a university;

encourage by premiums and provisions,

the advancement of knowledge and discoveries; and

establish public institutions, rewards, and

immunities for the promotion of agriculture, commerce, trade and manufacture.27

Because all of these proposals were submitted

jointly, one can assume that they shared a common intent.

Just as it was clear from the time of the Constitutional Convention that intellectual property law was intended to serve the goals of education and learning, so it was also plainly

understood that intellectual property rights

were to be considered statutory rights, granted

to fulfill a public policy purpose. This idea is

apparent in the first Federal copyright act of

1790 insofar as it excluded nonresidents from

the benefits of copyright. It was reaffirmed,

moreover, by the Supreme Court in the famous

————

“Ibid., 128-130.

“Patterson, Historical Perspective, ch. 12.

case of Wheaton v. Peters which, drawing

heavily on the British case of Donaldson v.

Becket, concluded that copyright was a statutory construct to the point of requiring compliance with the formalities of the law as a condition of protection.28 It is clearly laid out again

in the legislative committee report on the 1909

Copyright Act, which describes the purpose

of copyright as follows:

The enactment of copyright legislation by

Congress under the terms of the constitution

is not based on any natural right that the

author has in his writings, for the Supreme

Court has held that such rights as he has are

purely statutory rights, but on the ground

that the welfare of the public will be served

and progress of science and useful arts will

be promoted . . . Not primarily for the benefit of the author, but primarily for the benefit of the public such rights are given. Not

that any particular class of citizens, however

worthy, may benefit, but because the policy

is believed to be for the benefit of the great

body of people, in that it will stimulate writing and invention to give some bonus to authors

and inventors.

The Founding Fathers’ hopes for the intellectual property system were well founded. In

the century and a half after its establishment,

there was not only a great flourishing of creative, technological, and scientific works; but

also, many of these works were designed with

the needs of society and the common man in

mind. Edward Riddle noted how much American technology reflected a concern for the public welfare in his report to the commissioner

of patents about the 1851 technology exhibit

at the Crystal Palace in London. Comparing

the U.S. contribution to those of other European states, he said:

The Russian exhibition was a proof of the

wealth, power, enterprise, and intelligence of

Nicholas; that of the United States an evidence of the ingenuity, industry, and capacity of a free and educated people. The one was

the ukase of an emperor to the notabilities

of Europe; the other the epistle of a people

to the workingmen of the world. . . . We

‘

HKaplan, Unhurried View, p. 26.
— .

Ch. 2—Intellectua/ Property Goals In a Changing Information Environment ● 39

showed the results of pure democracy upon

the industry of men. 29

This close association of technology with

democracy was widespread throughout America in the first 100 years of its development.30

A democratic polity was thought to be a prerequisite to advancement in applied science,

while technological achievements were expected to provide the physical means of achieving the democratic objectives of political, social, and economic equality. Visiting America

in 1831, Alexis de Tocqueville, the well-known

commentator on American society, observed

this linkage. Describing the relationship between technology and democracy, he wrote:

. . . the extreme social mobility in America

was fertile soil for progress in technology, because democratic peoples were ambitious,

never satisfied with their status, and-above

all—were always free to change it. . . . You

may be sure that the more a nation is democratic, enlightened, and free, the greater will

be the number of these interested promoters — -.

‘Wdward Riddle, “Report on the World’s Exposition, ” Report of the Commissioner of Patents for the Year 1851, House

Exec. Docs., 32 Cong., 1 sess., No. 102, Part 1, pp. 484-85, as

cited in Hugo A. Maier, “Technology and Democracy, 1800-

1869, ” Journal of American History, vol. 43, p. 625.

“ Meier, Technology & Democraq’, p. 618.

of scientific genious, and the more will discoveries immediately applicable to productive

industry confer gain, fame, and even power

on their authors. 3 1

This enthusiasm for learning and the belief

that it is linked to technological development

and socioeconomic progress is less apparent

today. One can particularly see this in the area

of intellectual property law. Unlike the founders of the intellectual property system, who

saw the law as mutually serving both educational and economic goals, many people now

see these goals as competing with one another.

A number of people fear, for example, that

widespread public access to the new technologies will limit industry’s ability to exploit

fully the economic potential of these technologies. Emphasizing that economic growth and

development is to the benefit of all individuals,

they urge that the law be restructured to favor business needs over individual ones, and

economic goals over social ones. As the following discussion points out, conflicts such as

these are likely to become more prevalent in

an information age.

“Alexis de Tocqueville, Journey to America, translated by

George Lawrence, J.P. Mayer (cd. ) (New York: Anchor Books,

1971).

OPPORTUNITIES AND POLICY CHOICES

IN AN INFORMATION AGE

The development of new technologies creates

opportunities for society as a whole, as well

as for individuals and groups. The new information and communication technologies will

also create such opportunities. These technologies are capable not only of generating, storing, and processing vasts amounts of information; they can also provide greater access to

information, enhance the environment for

learning and creativity, generate new opportunities for profit-making and economic growth,

and enhance the decisionmaking process as

well as facilitate participation in political and

social affairs.

Whether and how people develop technological opportunities offered by recent advances,

and who will benefit from them, depends on

an array of societal variables. The direction

technology takes, for example, might be affected by such factors as the role of government and policy makers, cultural mores, the extent of existing technological infrastructure,

or the structure of the economic system.

As we have seen, one way that governments

have historically sought to structure and channel the direction of technological change has

been through the intellectual property system.

To understand how intellectual property policy might affect the development of the new

information and communication technologies

and the distribution of the opportunities that

these technologies afford, it is necessary, first,
40 . Intellectual Property Rights in an Age of Electronics and Information

to briefly identify these opportunities and

point out where the realization of one may complement or preclude the development of

another.

Three Realms of Opportunity

Examining how society has evolved in the

face of technological development, the sociologist, Daniel Bell, characterizes modern society as being divided into three distinct realms:

the techno-economic, the political, and the cultural.32 In preindustrial societies, these realms

were relatively indistinct from one another.

However, with the advance of technology and

the specialization that it imposes, they have

become increasingly differentiated. Today,

each has its own rhythm of change, its own

set of values, and its own corresponding mode

of behavior. Moreover, because the forces that

drive each of these realms are no longer complementary, they are generating a growing

number of conflicts between them.33

Bell’s framework for anaylzing advanced industrial societies is a useful tool for identifying the kinds of economic, political, and cultural opportunities that the new information

technologies provide. Because it describes how

each realm operates and the values that it supports, it can help to pinpoint the particular

needs that the new technologies might serve.

Moreover, insofar as it identifies the areas

where there may be conflict between realms,

it may suggest circumstances under which

there might be competition for information resources, and hence conflicts about intellectual

property goals.

Opportunities in the

Techno-Economic Realm

The techno-economic realm is organized primarily to produce and distribute goods and

services. The principle value underlying this

realm is that of ‘functional rationality’ ‘—that

is to say, according to the rule that each indi-

“Daniel Bell, The Cultural Contradictions of Capitalism

(New York: Basic Books, 1976).

“Ibid,, p. 10.

vidual and each group in the system carry out

rationally conceived, specified roles which,

when taken together, are designed to maximize

production. The principle means of achieving

this value is by economizing; decisions are

made on the basis of cost/benefit analyses, and

technology is applied to substitute less efficient processes with more efficient ones. Designed to further this kind of rationality and

efficiency, the techno-economic realm is structured in a bureaucratic, and hierarchical fashion. 34

Today, the new information and communication technologies provide numerous ways of

enhancing the values of the techno-econom.ic

realm: they can improve efficiency, increase

productivity, and thus they can engender economic growth. Information is, for example, reusable and, unlike capital resources such as

steel or iron, it requires very few physical resources for its production and distribution.35

Moreover, information can now be used not

only to substitute more efficiently for labor;

it can also be used to improve the overall efficiency of the productive process itself. And,

as productive processes become increasingly

complex in advanced industrial societies, the

largest reserve of economic opportunities will

be in organizing and coordinating productive

activity through the process of information

handling.” Given these characteristics and capabilities, information is likely to become more

important as a resource in the techno-economic

realm.

This growing importance of information to

the economy is evident from the continued

growth of the information sector of the economy, a trend that, as can be seen from figure

Z-I, has been paralleled in other advanced industrial societies. In fact, it was to highlight

such changes that terms such as the “information society” and the “information age”

“Ibid., p. 11.

“Harlan Cleveland, “The Twilight of Hierarchy: Speculations on the Global Information Society, ” Bruce R. Guile (cd. )

Information Technologies and Social Transformation (Washington, DC: National Academy Press, 1985), p. 56.

“Charles Johnshur, “Information Resources and Economic

Productivity, Information Economics and Policy I (North Holland: Elsevier Science Publishers, 1983), pp. 13-35.
Ch. 2—Intellectual Property Goals in a Changing Information Environment ● 4 1

Figure 2-1 .—The Evolution of Information Occupations

Information occupations as percentage of

the labor forc e

45

40

35

30

25

20

15

10

5

0

I I 1 1 1 1

1950 1955 1960 1965 1970 1975 1980

Year

NOTE Data for Finland was derived from two separate sources:

a

I. Pietarinen

b

The central Statistical Office of Finland

SOURCE: H.P. Gassman, “Is There a Fourth Economic Sector?” OECD Observer, No 113, November 1961, PP 18-20, as cited in Magda Cordell McHale

(Center for Integrative Studies, SUNY at Buffalo), Facts and Trends

The Changing Information Environment An Information Chartbook

(Rome Intergovernmental Bureau for Informatics, 1985), p 32

were first employed.37 A recent analysis estimates that the information sector constitutes

“Fritz Machlup was one of the first to note these changes

and to measure the information sector in his pioneering work,

now a classic, entitled The Production and Distribution of Knowledge in the United States. Others have followed this tradition.

By far, one of the most ambitious efforts to date has been the

innovative work of Marc Uri Porat for the Office of Telecommunications in the U.S. Department of Commerce. In 1967, according to Porat, information activities accounted for 45.2 percent of the GNP—25. 1 percent in the “primary information”

sector (which produces information goods and services as final

output) and 21.1 percent in a “secondary information” sector

(the bureaucracies of non-information enterprises).

34 percent of the gross national product (GNP),

and accounts for 41.23 percent of the national

labor force.38

The changing economic role of information

can also be seen by examining how information technologies are being used by business

and industry. Businesses are now applying

computer technology to almost all of their

activities: from recruiting to laying off workers, from ordering raw materials to manufacturing products, from analyzing markets to

performing strategic planning, and from inventing new technologies to designing applications for their use.39 These technologies,

moreover, are being applied not just to traditional tasks; the diffusion of the new technologies is also being used to reconfigure the nature of the business process itself.40 Figure 2-2,

for example, identifies how new technologies

might be used to rationalize all of a firms activities. As a result, some economists are suggesting that in the future, whether or not a businss

will be competitive, will depend on the extent

to which it can find creative applications for

these technologies.” Representatives of industrv agree. As Airlliam H. Gruber, President “ -

of Research and Planning, Inc., described it:

The difference between now and five years

ago is that then technology had a limited

function. You weren’t betting your company

on it. Now you are.43

. . . . . . . . .

3RMichael Roger Ruben and Mary Taylor Huber, The

Knowledge Industry in the United States: 1960-1980. This volume updates work done by Fritz Machlup. In their breakdown

of the information sector of the economy, Rubin and Huber note

that, leaving education aside the contribution of knowledge pro

duction to the GNP increased from 17.9 percent in 1967 to 24.5

percent in 1980. The contribution of education, on the other hand,

fell from 16.6 percent to 12.0 percent during the same period,

a decline that accounts for the fact that knowledge production’s

overall contribution remained relatively stable at about onethird of the GNP.

‘Theodore J. Gordon, “Computers in Business, ” Guile, 1nforrnation Technologies ami Social Transformation, p. 154.

‘“’’Information Power: How Companies Are Using New

Technologies To Gain a Competitive Edge, Business Week, Oct.

14, 1985, p. 108.

“Michael E. Porter, Competitiw Advantage: Creating and

Sustaim”ng Superior Performance (London: Free Press, 1985).

431bid.
42 . Intellectual Property Rights in an Age of Electronics and Information

Figure 2.2.—Uses of Information Technology Within the Firm

Procurement

Technology

development

IHuman resources

management

Firm

infrastructure

I 1

technology -

1 I

Inbound Operations Outbound Marketing &

logistics logistics sales

SOURCE Michael E Porter, Competitive Advantage: Creating and Sustaining Super/or Performance (London: Free Press, 1985),

Many businesses are already successfully

employing technology to their competive advantage. Merrill Lynch & Co., for example,

used computers to identify and automatically

invest funds that were idle in checking, savings, credit card, and security accounts: In so

doing, it was able to attract billions of dollars

in assets from other places. Even though competitors were soon to-follow suit with their own

service offerings, Merrill Lynch, with its head

start, was able to maintain almost 70 percent

of the market.44 Similarly, the America Hos- — . . — . . — “Ibid., p. 109.

Service

pital Supply Corp. gained a competitive advantage by being the first to communicate directly

with its customers via computer terminals. As

a result, it was not only able to provide services

at less cost than its rivals, it could also use

the data collected in the process to more accurately analyze trends and customers needs.45

Because of its new economic and managerial

importance, information is becoming much

more commercially valuable. Businesses have

always been willing to pay for information such

“Ibid.
Ch. 2—Intellectual Property Goals in a Changing Information Environment . 43

as market research and economic forecasts.

Today, however, they are not only buying

more; they are willing to pay much higher

prices for it. Consider, for example, the high

price that a consortium of Japanese engineering companies was willing to pay to understand

what went wrong on Three Mile Island. They

offered to contribute $18 million to assist in

the clean up in exchange for access to all of

the pertinent documents and records related

to the accident.46 On a more routine basis,

American business firms might pay $800 per

year for a monthly professional information

service, or perhaps $15,000 for a market research report shared by others in the industry.47

Today even private information can have

commercial value. The direct mail business is

a good example. Packaging data about individual credit ratings, security clearances, and

background checks together with demographic

data, this $13 billion industry sells individual

names to magazine publishers and local service companies for prices as high as $1 per

name.48

The new technologies provide new ways and

new opportunities to meet these burgeoning

information needs. They allow information to

be processed in a whole variety of new ways,

adding value to it from the point at which it

is created or composed to the point at which

it is assimilated or used. For example, a book

may be produced with paper and ink, on audio

cassette, or on optical disk; its content may

be adapted into a television “mini-series” or

an interactive game that can be distributed in

a variety of forms.

As the opportunities for creating new information products and services have increased,

so too has the number of commercial providers.

Taking advantage of the increased demand for

information, the new technologies have spawned

a rapidly growing information industry, the

—-——— — ——

“Christopher Bums, "Three Mile Island: Information Meltdown, ” Information Management Review, May 1985.

‘

-Christopher Burns, Inc., The Economics of Information,

contract report prepared for the Office of Technology Assessment, U. S. Congress, 1985.

‘“Ibid.

scope of which can be seen in figure 2-3. Developing hand in hand with the new technologies, this industry is relatively young. More

than half of the companies that comprise it

were formed since 1970. Nevertheless, it is one

of the fastest growing industries in the economy. In 1984, there were nearly 2,500 online

databases. Based on an Information Industry

Association survey of 1982, it is estimated that

these services accounted for revenue of $3.6

billion. 49 By 1985, the number of data bases

had grown by about 12 percent.

In addition to service providers, new industries have also been established whose sole purpose is to provide information-on-demand.

With estimated revenues of $660 million, this

industry consists of small research companies

and a few major libraries that have made a

business out of finding documents and copying them for users. In the private sector, these

are called “fee-based libraries, ’ “on-demand

companies, or sometimes ‘information brokers.” They also include 5,000 special research

libraries in the United States supported by a

few inter-library loan networks such as the Online Computer Library Center and the British

Lending Library.50

Given its increased value, information will

most likely be exchanged less freely. Instead,

it will be treated more and more like a commodity, to be bought and sold in the marketplace. In fact, the rush for profits in information products and services is so pronounced

that it might reasonably be compared to the

California Gold Rush, a metaphor used most

effectively by the information industry as the

theme for its 1985 annual conference.

New Opportunities in the

Political Realm

The polity is the realm of power. It is the

area of social activity where disputes are resolved and social justice is defined, and where

resources and values are allocated in accordance with the general idea of justice. The basic

“Ibid.

“’Ibid., p. II-8.
Figure 2-3.—lnformation Industry and Its Related Industries

Information Industry

and Its related industries

● ●

I

Data processing related industries

I I

-

, Computer Computer sales

Industr y and leas e

Peiphera l Maintenance

equipment Service

industry

Data

Equipment part s

transmission

and supplier Industry

Sectors

Personnel W ucat ton drl d

persor r~el c~tspatrh

Machine time

service

J oh order

- proc~sslng

service

F,le

ma In te nance

serwce

ml Data supply

service

Data

col Iectlon .

sc, v I ce

Inquiry

serwce -

I nformat [on

dlstrbut{on -

service

Resedrch \er/lce -

8

Advertls ng

6rOdCt CdSt Ing

Ne.vsp~per

pLlbl lsh I nq

,01Educat Ion

research and

development

Ldwyt?r

dccountan t

etc

I n forma! I or) processor> Information producers I n format Ion Infrastructure Information distributors

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I n puts Th~ response may be 10

mac h I nes and tectl nol crg Ies convey! ng I n format Ion from

I rl d form a pprOD nate [() d used to sup port I n format Ion the I mt Ia[or to the reclptenl

the I n for rnal I or) Inputs

, . . . . . . . . . . . .“. . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sc I en [ I f L and tech n I ra I

Ad rT) r) st r at VP d rl d !m an ag~ri a I I nfor maf IOrI rna[- h I ntc v, orkers workers lcrrmponer) ts I

Po\tal ,3 nd fe leL om (;, r, I - a I arrc ,, ~, ,3’C[; I n tormat I LJn qat herer \

Consuttatlv* servl-c

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

;OtJRCE l-l P Gassman, “IS There a Fourth Economic Sector?” OECD Observer, No 113 November 1981, pp 18-20, as cited In Magda Cordell McHale (Center for Integrative Studies, SUNY at Buffalo),

Facts and Trends The Changing /n format/on Environment An Information Chartbook (Rome Intergovernmental Bureau for Informatics, 1985), p 32
Ch. 2—Intellectual Property Goals in a Changing information Environment ● 4 5

.

Courtesy of Information Industry Association

value that maintains the polity is “legitimacy”

—the general adherence of the people to the

conception of justice embodied in the society’s

traditions or constitution, and acknowledgement of the authority that governs on its behalf.51 Whereas in the economic realm change

takes place in a linear fashion through increased specialization and economization, in

the political realm change comes about more

haphazardly, through the competition for

power and influence. In a democratic polity,

the means of bringing about change is participation and persuasion; individuals and groups

seek to gain access to resources and values by

shaping attitudes and beliefs about what constitutes justice. To be effective, they must have

access to both the means to influence as well

as the means to be influenced. They must have

the right to obtain information as well as the

right to distribute it. In contrast to the bureaucratic structure of the economic realm, the political realm in a democratic society is decentralized and open.”

Communication and information pervade political life.” Without them there can be no na-

“Bell, Cultural Contradictions, p. 1.

“’Ibid.

‘“In the discussion that follows, the term communications

refers to both the information and the process by which information is shared and exchanged.

tion. For it is through the process of communications that people first develop a sense of

community and a shared set of values that legitimize political authority.54 By magnifying

and amplifying some actions, the communications process, moreover, distinguishes between

what is a private act and what is a public affair. It organizes what may seemingly be random activities to show how individuals and

groups are related to one another in the pursuit of power, providing individuals who want

to influence the course of political events a road

map to guide them.55 Citizens rely on the communications process to gather information, to

identify like-minded people, to organize their

forces, and to articulate their political preferences. Furthermore, because it generates a

common fund of knowledge and information,

the communication system facilitates productive and rational debate. Without some knowledge and understanding of how others are informed, and of what they believe, individuals

could not make reasoned and sensible arguments and decisions. 56 The communications

process also provides guidance to political

leaders. Because communication channels flow

in two directions, communications serve not

only to inform citizens about political events,

they also provide feedback to political leaders

about the values and attitudes of their constituents. 57

Given this intimate relationship between the

communications and political processes, it is

not surprising that, just as the new technologies afford opportunities in the economic

realm, so they create new political opportunities. Capable of sending a vast amount and a

54Karl Deutsch, IVa tionalisrn and Socia) Communication

(New York: Free Press, 1963).

‘5Lucien W. Pye (cd.), Communications and Political Development, Studies in Political Development [Princeton, NJ: Prince

ton University Press, 1965), p. 6.

5’Ibid.

57Mass media communicators, for example, interpret public

attitudes, They adjust their materials to take into account how

the public reacts to their descriptions of news and events. Those

in position of political power, in turn, adapt their behaviors to

conform to the media’s portrayal of the public’s mood at any

one time. For a discussion of this theory see, Elihu Katz, “The

Two Step Flow of Communications: An Up-To-Date Report on

the Hypothesis, ” Public Opinions Quarterly, vol. 21, spring 1957.
46 . Intellectual Property Rights in an Age of Electronics and /formation

wide variety of information long distances at

unprecedented speeds, these technologies allow entire populations to experience major pub

lic and political events in common, thereby

fostering a sense of national community. Because they are also interactive, these technologies can play a greater role in helping political leaders to communicate to the public and

to assess its mood, thus helping to reinforce

the legitimacy of the political system. Moreover, given the decentralized distribution of

many of the new technologies, and their capacity to store, copy, manipulate, retrieve, and

send information, they can be used to foster

participation, helping individuals to gain access to information and other political resources, to locate parties holding similar positions, to articulate and widely disseminate

their views, and to more effectively and efficiently organize their political involvement. Already we see evidence of the new technologies

being used in several of these ways.

In the past few years, for example, a growing number of political leaders are beginning

to use the new technologies to communicate

more effectively with their constituents. A

number of senators and representatives now

produce their own news clips and interviews,

which they transmit via satellite to their local

television stations. This technique allows them

to speak directly to the public, without others

commenting on, or interpreting, their remarks.58

Computer technology also provides new

ways to enhance the efficiency of political communications. Using the mass media, for example, politicians have to spend considerable

money and effort to send a message’ that will

have enough overall appeal to pay for the effort. Using the new electronic media, on the

—.————

‘“Paul West, “The Video Connection: Beaming It Straight

to the Constitutents, ” Wasfu”ngton Journalism Review, June

1985, pp. 48-50. Congressmen have always appealed to the public

directly through newsletters, questionnaires, and other franked

materials. However, some observers consider the use of satellite technology as a different kind of development, which may

give cause for alarm. Unlike the previous kinds of appeals, which

were sent to individuals and which were clearly identified as

being politically oriented, the new video materials are often distributed as part of local news broadcasts, and thus their origin

and intent might be misconstrued.

other hand, whether it be cable, teletext, or the

computer, politicians can “custom target”

their messages to those who are the most likely

to be responsive to it. In this manner, they can

more efficiently allocate their time and resources, focusing them on those voters who

are the most likely to give them support.59

The new technologies, moreover, have potential to aid citizens in acquiring the information about government that they need in order to participate effectively in political life.

A growing number of communities and government agencies, for example, now allow individuals to access their computerized records using

public terminals.60 Moreover, some people hope

that, in the future, individuals will not only

be permitted to access an agency’s data but

also the computer software used to analyze this

data. With such information, citizens would

be able to rerun agency decisionmaking models, using their own assumptions or data.61 In

62 and teletex t

63 provid e addition, cablecasting —-.—— 59 Kevin L. Kramer and Edward J. Schneider, “Innovations

in Campaign Research: Finding the Voters in the 1980s, ” Robert

G. Meadow (cd.), New Commum”cation Technologies in Politics:

The Papers for a Conference, The Washington Program, Annenberg School of Communications, 1985. See also William C.

Paley and Shelly Moffett, “The New Electronic Media-Instant

Action and Reaction, ” (knpm”gns and Elections, C. 4, 1984,

pp. 4-12.

~he idea of government databases, accessible to the public, has existed since the 1960s and early 1970s. At that time,

many people hoped that the automation of government operations would produce vast stores of information about the government and community which could be made available to interested citizens through remote computer terminals. Although

the ideal of remote access never materialized, today use of public terminals for access to these databases within government

agencies is common, and becoming more so. Kenneth L.

Kraemer, John Leslie King, and David G. Schetter, innovative

Use of Information Technology in Facih”tating Public Access

to Agency Decisionmak”ng: An Assessment of the Experience

in State and Local Governments, final report prepared for the

O~~~;:;f Technology Assessment, March 1985, pp. 35-36.

“Utilization of these channels by local government is generally low. Most cities have only about two cable applications for

governmental affairs programming. These have mainly been

limited to a variety of one-way services that require a minimal

production effort, such as for broadcasting city council meetings, for community bulletin boards, and for calendars and short

local news items. Ibid., p. 35.

“There is considerable potential to provide public access to

information related to government decisionmaking via teletext

and videotex services. At present, the kinds of information provided generally are limited to such things as notification about

schedules for hearings, meetings, etc., or to the posting of the

results of such activities. Ibid.
Ch. 2—intellectual Property Goals in a Changing Information Environment ● 4 7

new channels for public access to governmental

decisionmaking by increasing the levels of public awareness, interest, and knowledge about

governmental affairs.

To effectively champion one’s views, individuals, however, do not just act alone; they

act in concert. The new technologies, with their

capabilities to store, manipulate, retrieve, and

network are optimally suited to help them in

this regard. With a personal computer and a

modem, individuals can collect and store information related to their concerns; they can

maintain lists of potential supporters and contributors and target specific messages to them;

they can match organizational resources with

organizational needs; and they can gain constant feedback about the progress being made.

Figure 2-4 below illustrates, for example, how

the new technologies can manipulate and structure information in a way that will improve

both the efficiency and effectiveness of a political campaign.

Clearly one need not be a seasoned political

activist to take advantage of these new capabilities. Acting on his own, one man in Colorado

Springs, for example, led a successful campaign to block a local ordinance placing restrictions on home-based entrepreneurial activities.

Surprised that he was the only citizen to attend the first hearing on the ordinance, he

brought the issue to the community’s attention by publishing it together with a list of his

concerns on his computer bulletin board. A

small notice in the local newspaper helped to

advertise his plan. A number of people contributed their comments via the computer network. When, several weeks later, a second hearing was held, 175 people appeared to defeat

the ordinance.64

Information technologies can even be used

to lobby. Lobbyists for the Environmental

Fund, for example, carry a personal computer

when visiting congressional offices. Their specially designed interactive software allows congressmen to look at population projections

“’Dave ~ughes, “The Neighborhood ROM, Computer-Aided

Local Politics, ” 45, Whole Earth Ret’iew, March 1985, p. 89.

using a range of different assumptions. According to lobbyist Casy Dinges, this kind of interaction is not only effective in informing congressmen of an organization’s point of view;

it also provides them with a memorable experience, thereby engaging their interest in the issues over the long term.65

Because of their effectiveness as political

tools, the new technologies are becoming essential to all those who aspire to influence the

political process. For, just as these tools are

often the critical competitive factor in the economic realm, so too are they in the political

realm. Thus, politicians and politically active

citizens, like their businessmen counterparts,

are hurrying to establish their own information bases. This move towards technology is

very apparent, for example, at the level of national politics. Trying to catch up with the

Republican Party, which began very early to

incorporate technology into its campaign operations, the Democratic National Committee is

now endeavoring to equip itself with an information infrastructure that will include a national bulletin board, that is capable of trading political information between the national

office and key House candidates.66

With the numerous possibilities that the new

technologies afford, attention is becoming, focused on the politics of information. In the international arena, for example, Third World

countries now assert that the control over information within their national boundaries is

vital to their economic, political, and social

well-being. To achieve their ends, they are calling for a new World Information Order, that

would allow them to select the information that

enters their nations and that would assure

them access to the information they require

for development.67

“Interview with Casy Dinges, Lobbyist, Environmental

Fund, April 1985.

‘

i

’ David Burnham, “Democrats Chase Dollars With Computer Aid, ” The IVew York Times, Feb. 5, 1986, p. B6.

‘“Joge Becker, Information Technology and A New Information Order, Information and Society Series (Amsterdam:

Chartwell-Bratt Ltd., 1984).
48 ● Intellectual Property Rights in an Age of Electronics and Information

Figure 2-4.— Development of Custom Targeting Database

Work flow

.

Survey Census Election

data data returns

.

Derive Derive neighborhood Derive

custom clusters profiles precinct profiles

,

● Candidate vote ● Age ● Core republican

intentions . Income ● Core democratic

● Issue orientation . Education . Ticket splitting

● Job approval . Race areas

● Turnout . Occupation

Custom targeting database

● Rank “neighborhoods” from the most to least

attractive on vote intention

. Select best “neighborhood” targets

● Determine appropriate message appeals

I

w

Registered voter file

I

● Name and address • Carrier routes

. Phone numbers, ● Party affiliation

● Vote history ● Date of birth

Phone banks canvassing Direct mail Party building

,

Telephone calling Computer tape Check off lists

forms Precinct walk lists Mailing labels Precinct lists

Clerical needs

b &

SOURCE Kevin L Kramer, Edward J. Scheneider, “Innovations in Campaign Research, Finding the Voters in the 1980s, ” New Communications Technologies in Politics.

The Washington Program, Annenberg School of Communications, Robert G. Meodans (cd.), Washington, DC, 1985, p 24 Used with permission
Ch. 2—Intellectual Property Goals in a Changing Information Environment ● 4 9 —

Political observers in advanced industrialized societies are also considering how the new

technologies might affect political life. Among

them, they have developed two quite distinct

and contradictory scenarios. One of these

posits “the rise of the computer state."68

According to this scenario, government and

large corporations will use the centralized storage and processing capabilities of computer

technology to consolidate their control and to

monitor and manipulate behavior. The second

scenario, in contrast, envisions the opposite

state of political affairs. Characterizing the new

technologies as “technologies of freedom, ” this

view of the future postulates that, given their

decentralized use and increased availability,

these technologies will lead to a dispersal of

political power and permit enhanced participatory democracy.”

Evidence can be found to support both of

these contentions. As has already been pointed

out, some local communities are taking steps

to increase the public’s access to information.

On the other hand, taking advantage of the

monitoring and processing capabilities of the

new technologies, government is looking more

favorably at the prospects of employing such

devices as electronic surveillance, computer

matching, and polygraph testing.70 In the long

run, the political outcome will depend less on

the technology itself and more on the legal and

social structure that determines how the new

technologies will be used.

Opportunities in the Cultural Realm

Culture is the realm of “sensibility of emotion, moral temper, and of the intelligence

[that] seeks to order these feelings.’’” Providing a consistent moral and aesthetic frame of

reference, it serves to develop and sustain the

‘“See, for example, David Burnham, The Rise of the Computer State: The Threat to Our Freedoms, Our Ethics, and Our

Democratic Process (New York: Random House, 1984).

‘‘Ilarlan Cleveland, “The Twilight of Hierarchy: Speculations on the Global Information Society, Bruce R. Guile (cd.),

Information Technologies, p. 61.

U.S. Congress, Office of Technology Assessment, Federal

(;o~ernment Information Technolog~’: Electronic Sur\’eillance

and (’i~rif I.iberties, OTA-C IT-293 (J1’ashington, DC: U.S. Go\rernment Printing (Mice, October 1 985).

Bell, Cultural Contradictions, p. 12.

identities of both individuals and societies.72

This realm comprises all of those imaginative

and spiritual activities—such as painting, poetry, or music, as well as litany, liturgy, and

ritual—whereby men and women seek to understand their natures–who they are, their

relationships to others and to God.73 Although

the ways that people have dealt with these existential concerns have changed considerably

over time and in different eras, the themes that

have preoccupied mankind–death, tragedy,

love, sacrifice, heroism, obligation, and redemption–have remained constant. Thus new

art forms and new ideas do not replace old ones;

they become apart of an ever expanding source

on which individuals can draw to recreate and

reinterpret aesthetic and religious experience.

The cultural realm, then, is governed by the

principle of communal sharing and exchange.74

Communication is the process by which culture is developed and maintained. For it is only

when people develop language, and thus a way

of communicating, that a culture can, in fact,

emerge and be imparted.75 Information, the

content of communications, is the basic source

of all human intercourse.7’ Over the course of

human history, it has been embodied and communicated in an ever expanding variety of

media, including among them spoken words,

graphics, artifacts, music, dance, written text,

film, recordings, and computer hardware and

software. Together, these media and the channels through which they are distributed, constitute the web of society, which determine the

direction and pace of social development. Seen

from this perspective, the communication of information permeates the cultural environment

and is essential to all aspects of social life.77

Linked as they are to all social activity, the

new information and communication technologies provide endless opportunities to enhance

the cultural realm. Given their networking ca-

“Without a cultural tradition, individuals interactions

would be meaningless. For, in order to define themselves and

to take purposeful action in different situations and in relationships to others, individuals need reference to a relatively stable

construct of shared symbols. Talcott Parsons, The Social System (Glencoe. IL: Free Press, 1964), pp. 11-12.

“Bell, Cultural Contradictions, p. 12.

“’Ibid. p. 15.

“ Ibid.

“Pye, Political lle~’elopment. p. 4.

Ibid.
50 c /intellectual Property Rights in an Age of Electronics and Information

pabilities, they provide an expanded infrastructure for information sharing and exchange.

They can be used, moreover, not only to generate greater amounts of information and new

kinds of cultural forms, but also to make this

knowledge more accessible and to provide it

in more convenient and suitable ways. In addition, because they are decentralized and widely

available, they open the way for many new people to become actively involved in creative

activities. Finally, given their ability to store

and retrieve vast quantities of information,

they can serve as a storehouse of cultural resources, making them accessible and available

for generations and civilizations to come.

Many of these opportunities are already being developed. Most prominent is the opportunity to provide more and more information.

Between 1960 and 1977, for example, the words

supplied in all media grew at a rate of 8.7 per

year, which is 5 percent faster than the rate

of growth of the the GNP (measured in constant dollars). The total number of words

produced has increased from 1.07 X 109 in 1960

to 3.36 x 109 in 1977.78 And individuals are

consuming, on the average, 1.2 percent more

words each year. As already noted in figure

S-3, the largest proportion of this growth is

attributable to electronic media.

Moreover, this information can now be provided in a much greater number of forms,

giving people the opportunity to have more

control over, and choice about, the kinds of information and cultural works that they enjoy.

One new technology that will increase information channels, for example, is videotex. By

taking advantage of television’s full channel

capacity, this technology can augment the

number of information outlets 100-fold.79 Other

new technologies that increase the available

sources of information are videocassette recorders, optical disks, direct broadcast satel-

——

‘81thiel de Sola Pool and Roger Hurwitz, “Methodological

Issues in the Measurement of Information Flows, ” Workshop

on Measurement of Information, Sponsored by the National

Science Foundation, Research Program on Communications Policy, Massachusetts Institute of Technology, July 1982, p. 8.

“’Irving Louis Horowitz, “New Technology, Scientific Information and Democratic Choices, ” Information Age, vol. 5, No.

2, April 1983, p. 69.

lites, and computer bulletin boards, to name

but a few.

The new technologies also allow people to

receive information specifically tailored to their

needs. Today many newspapers, for example,

use computer technology to create and distribute special editions for different geographical

audiences .80 Similarly, community, religious,

and citizen-based organizations use technology to select the audience for whom their messages would be most relevant. Using home

technologies, people can also select the information they desire. They might, for example,

choose bibliographic data or financial information from on-line databases such as the Source

or CompuServ. Or, they might just place a

query on their electronic bulletin boards.

With the new technology, people can, moreover, use information at times and under conditions that are most convenient for them.

With an audio or video recorder, they can listen to or watch programs at a time other than

when they were originally aired. Moreover,

they can rent or buy an ever growing number

of tapes and programs to enjoy at their leisure

in their homes. Such flexibility not only allows

viewers the choice of when and what to watch;

because it permits them to record programming for later viewing, it also allows them to

expand their repertoire of home entertainment.

The power of the new technologies to enhance the cultural realm are evident not only

with respect to the quantity, variety, and accessibility of the information that individuals

can receive in their homes. Of equal, if not

more, significance is the fact that these technologies are interactive. As such, they encourage active, not passive, behavior.81 Moreover, given their ability to copy, store, and

reprocess information, and to transmit it to

large audiences, they make it possible for ordinary individuals to carry out activities that

once required the skills of a specialized elite.82

Now conceivably, everyone can be a creator

‘“Anthony Smith, Goodbye Gutenberg: The Newspaper

Revolution in the 1980s (Oxford: Oxford University Press, 1980),

pp. 51-61.

“Horowitz, Information Age, p. 69.

“’Ibid.
Ch. 2—lntellectual Property Goals in a Changing information Environment ● 5 1

and a publisher. Each person can actively contribute to his culture, and not just partake of it.

The ability of technologies to help individuals reach out to the community is no where

better illustrated than in the case of videotex.

Although this technology has not yet taken

hold in the United States, the French experience with it provides a clue about what a national system such as this might entail. Established by the French Government in 1981,

the French system, Teletel, now consists of 1.4

million terminals—called Minitels —operating

in households and businesses throughout the

country. 84 Using le Kiosque, Teletel’s most

popular feature, the French people can select

from over 200 different kinds of information

services. Many use the system simply to “chat”

with Minitel friends. Farmers rely on it for in

formation about the weather and commodity

prices. In addition, the government is now beginning to expand the system to provide human services. Already, pilot programs are

underway to develop networks for such groups

as diabetics, victims of AIDS, parents of

epileptic children, and battered wives.85

Although the use of videotext has been much

less popular in the United States than in

France, Americans are also reaching out to

others on electronic bulletin boards. Becoming increasingly popular among the public,

bulletin boards not only allow individuals to

access information from their homes; they also

help them to contact others in similar situations or with similar needs, to discuss and share

information, or even to collaborate with them

on-line. Groups, such as the disabled, who have

traditionally been isolated from society, have

found in networking a new way of socializing.”

The new technologies also serve as catalysts

for social action. Still eager to learn, many

elderly people have found computing to be a

very engaging past time. In fact, because computing is an activity that does not require phys-

“Nadine Epstein, “Et Voila! I.e Minitel, ” The ,Vew York

Times i$lagine, Mar. 9, 1986, pp. 48-49.

‘ Ibid.

“Sherry SonLag, “For Disabled, Computers Are Creating

New I,i\es,” The ,Vew York !l’imes, vol. 134, p. l(n) and 1(1).

ical prowess, and which can be done at home,

a number of senior citizens are thinking about

using their newly acquired skills to begin a second career. Recognizing this potential interest, some communities have begun programs

to get the elderly more involved.” The Little

House Senior Adults Center in San Mateo,

California, for example, has been so successful with its computer programs that its directors are now thinking about building a computer network for the elderly.

In the same way that individuals benefit

from the new technologies, so too will cultural

institutions such as libraries, schools, and

museums. Using technology, these institutions

will be able not only to reach out into the community to provide information and cultural

works to those who would otherwise not have

access to them, but also to help people to participate in cultural activities. Thus they serve

to replenish the cultural store.

As documented in a previous OTA study,

Informational Technology and Its Impact on

American Education, the computer and other

information-related technologies can help

educational institutions play a major role in

providing people with the knowledge and skills

they need to participate in and enjoy the benfits of an information age.88 The interactive nature of computer technologies allows students

to become actively involved, and thus, more

engaged, in their own learning process. Using

a videodisk to simulate laboratory experiments, for example, students can view on a

monitor the explosion that would take place

if they were to mix incompatible chemicals .89

Videocassettes are also being successfully used

for educational purposes. The film company,

Education and Learning, for example, has re-

“’Kathy Chin, “The Elderly Learn To Compute, ” Infoworki,

May 7, 1984, pp. 24-29.

‘*U.S. Congress, Office of Technology Assessment, Informational Technology and Its Impact on American Education, OTACIT-187 (Washington. DC: U.S. Government Printing Office,

November 1982). This study found that information technology is already beginning to play an important role in providing

education and training in some sectors, and that it is likely to

become a major vehicle for doing so in the next few decades.

“Jim Bartimo, “Classrooms To Utilize Videodisc Technology, ” Infoworld, Mar. 12, 1984, p. 40.
52 ● Intellectual Property Rights in an Age of Electronics and Information

cently compiled a Video Encyclopedia of the

20th century, comprising 75 one hour videocassettes that cover major events from 1893

to 1985. Students can randomly access these

tapes to witness famous historical events, such

as the Scopes trial, or to view periodic pieces

describing such things as the costumes of a

particular era.90

Universities, too, are also taking advantage

of new technologies. Over the past few years,

for example, many universities and colleges

have been experimenting with ways of integrating computers into their course curricula. At Stevens Institute of Technology, for

example, interactive calculus programs are

used to assist students in learning to do mathematical analysis. In chemistry, computers are

used for graphic simulations and for drill and

practice. In introductory computer graphics

courses, computers serve as electronic drawing boards, and in the labs they are being used

to assemble data, provide interface with equipment, and stimulate experiments that might

otherwise be unfeasible, too expensive, or too

dangerous. 91

Of particular benefit to universities will be

the development of computer networks, which

can connect students and faculty members to

a wealth of information, both on and off campuses. These networks, still in their infancy,

are modeled after ARPANET, the research

network developed by the Department of Defense. Carnegie Mellon University in Pittsburg, Pennsylvania, has already taken major

steps to develop such a network. By the end

of this year, they plan to link all of their students’ personal computers into a time-sharing

file system. This system will not only provide

for point-to-point communication and electronic mail; it will also allow the user to browse

through all of the databases on campus.92 Other

universities such as MIT and Rensselear Polytechnic Institute are following suit.93 Most im- — ..——

“’Fred M. Hechinger, “Video Cassettes Bring History to

I.ife, ” The IVew York Times, Jan. 14, 1986.

“Donna Osgood, “A Computer on Every Desk, ” BJ’te,

June 1984.

‘“Ibid.

“MIT network system is being developed through Project

Athena, a $70 million effort to create a single operating system

portant of all, universities are now thinking

about expanding their networking efforts to

link their own systems to those that connect

researchers and research throughout the

United States.94

As institutions that acquire, store, manage,

and disseminate information, libraries are also

well suited to take advantage of the opportunities that new technologies afford. And, in

fact, these technologies have affected all

aspects of library services. Software is now

commercially available for practically all library operations: circulation, inventory, acquisitions, periodicals, cataloging, and reserves.

Moreover, using these technologies, libraries

have developed networks that can access national databases, allowing users faster and

more efficient access to information.

Considering all of these opportunities together, the new technologies would appear to

have been designed especially for a modern age

such as ours, which seeks self-fulfillment and

self-realization. They offer convenience and

personal choice. They can promote self-discovery. And with them, people can enter new

realms, mental as well as physical.

Whether or not these opportunities are fully

exploited is, of course, uncertain. For just as

there are two opposing scenarios about political life in an information age, so too are there

two visions of the impact of technology on the

individual, one more favorable than the other.

While acknowledging their potential, some peopie, for example, are concerned lest these technologies serve to further divide the world between the information rich and the information

poor, reinforcing or even exacerbating existing social and economic differences. In fact,

the more powerful the technology, the wider

the gap might be.

that will allow programs available on one part of the system

to be available on all others. Similarly, Rensselaer Polytechnic

Institute is planning a system that will not only be geared to

problem-solving and calculations, but that will also serve to provide electronic mail, word processing, on-line libraries, and communication among faculty and students. Ibid.

“Dennis M. Jennings, Lawrench H. Landweber, Ira H.

Fuchs, David J. Farber, and W. Richards Adrion, “Computer

Networking for Scientists” Science, vol. 231, Feb. 28, 1986,

p. 950.
Ch. 2—Intellectual Property Goals In a Changing Information Environment ● 5 3

Those who are concerned fear that the poor

will be unable to afford the products of the information age if they are distributed primarily in the market.95 They worry, moreover,

about the possibility that only those who are

already skilled will be able to take advantage

of the highly differentiated and individualized

services offered by the new technologies.96

“see, for example, Carol A. Tauer, “Social ,Justice and Access to Information, ” Minnesota Libraries, vol. 27, No. 2, summer 1982, pp. 39-42; see also, Stephanie Siegal, ‘‘The IIigh Cost

of Information, ” Freedom of Information Center Report, No.

489, School of Journalism, University of Missouri at Columbia, March 1984, pp. 1-7.

‘E;dward Plowman, “The Communications Revolution, ”

ASI.ZB Proceedings, vol. 33, No. 10, October 1981, p. 377.

They fear too that, given the growing market

value of information, information providers

may increasily focus on producing high cost

and highly profitable information products and

services and cut back on their efforts to meet

the information needs of the poor.97 Where,

they ask, in the midst of the information revolution, is the information that ordinary people need to solve their everyday problems.98

‘“Ibid.

‘“b;ugene Garfield, “Societ-y’s Unmet Information Needs, ”

.4S1S Bulletin, october No\rember 19N5, p. 6.

THE POTENTIAL FOR CONFLICT IN THE USE

OF NEW TECHNOLOGIES

The new communication and information

technologies will play a greatly enhanced role

in all aspects of life. In fact, as we have seen,

their availability and use may, in many cases,

be the critical factor for success. The enhanced

value of these technologies is reflected, first

of all, in the growing number of people who,

from whatever realm of life, are striving to integrate these technologies into their daily activities and operations. It is reflected, moreover,

in the greatly increased market for information-based products and services, and the

flourishing of new industries to provide for

these burgeoning information needs.

Not all of these technological opportunities,

however, will be exploited. In fact, taking

advantage of some opportunities may preclude

the development of others. The potential for

conflict in the use of new technologies can be

seen most clearly by contrasting how information is valued in the realms of economics, politics, and culture. Conflicts are likely to be most

pronounced when the economic value of information is very high. For it is under such circumstances that the discrepancy between the

need for exclusion, and the need for distribution, sharing, and use is the most starkly

drawn.

From the perspective of the economic realm,

the value of information is in its exclusivity

—that is to say, in the ability of its owner to

be able to exploit the difference between what

he knows and what other people do not know.99

In a horse race, for example, the value of an

accurate assessment of the horse’s chance increases directly with the exclusivity of that

wisdom, and the value is obviously decreased

by sharing. Similarly, an important factor in

encouraging investment is the presumption

that the investor is better informed than others

about the outcome of the enterprise. To the

degree that all investors have equal access to

information this potential for difference is reduced, along with the incentive for investment. 100

To be supportive of democratic values, information, on the other hand, cannot be exclusive. It must be plentiful, varied, and the channels of access to it must be open. Politicians

and political advocates, for example, seek to

influence through persuasion. To be successful, they must disseminate their views as

widely as possible. In contrast to the business-

“

qBurns, The Economics of Information, p. III-3,

““’Ibid.
54 ● Intellectual Property Rights in an Age of Electronics and Information

man who seeks to maintain his trade secrets,

the politician benefits when his cause becomes

the subject of widespread discussion. And if

they are to be politically responsible and to

hold legislators politically accountable, citizens

also need to become acquainted with and discuss a wide range of political points of view.

In the cultural realm too, information is

made more valuable not by its exclusion, but

rather by its perpetual use and reuse. To understand a thought or an idea, people must

process it together with the information that

they already have. In making use of information, therefore, they do not diminish it. They

enhance its value.101 Moreover, even the individuals who are involved in cultural activities

can benefit from the repetitive use of their

works. For a scholar’s reputation and prestige

will be more rapidly enhanced the more often

his works are cited, and will dwindle if his

works are ignored. Similarly, a recording artist may seek to have his records broadcast as

widely as possible, just to establish a widespread reputation and a loyal following. 102

Concerned primarily with the use and flow

of information in society, intellectual property

law has historically served in the United States

to decide which technological opportunities

would be developed, and thus which values

would be served. For example, the granting

of an exclusive right to the creator or provider

of an intellectual work changes the basis on

which it is made available to society. The criteria to use the work becomes the ability to

pay. The granting of such a right, therefore,

can favor the values of the economic realm over

those of the political and cultural realms. On

the other hand, the fair use doctrine, which provides exceptions to what would otherwise be

considered a copyright infringement, has the ——

‘(’’Harlan Cleveland, “Information as a Resource, ” The Futurist, December 1982, p. 37.

““”Harlan Cleveland, “The Twilight of Hierarchy, ” pp. 186-

187. Gossip, for example, spreads rapidly among family members, friends, and neighbors. Books and magazines, and now

records, tapes, software programs, and films are commonly

passed along from one person to the next. Ideas are discussed

and debated at social gatherings, among scholars, and in the

press. And by making information more available, and more

easily accessible, the new technologies will foster these practices even more.

express purpose of fostering the values of the

cultural and political realms. In like fashion,

the first sale doctrine, which limits the proprietor’s control of a work once he has sold it, is

designed to ensure public access to works.

However, neither of these doctrines are supportive of the value of exclusivity.

In resolving these issues, policy makers have

sought to strike a suitable balance between the

needs of creators, producers, and distributors

of intellectual property and the social, economic, and political needs of the nation as a

whole. In such a fashion, intellectual property

law has been able to simultaneously serve a

wide variety of social and economic public policy goals.

The ability of intellectual property law to

strike such a balance was not particularly difficult in the past, when the social and economic

stakes in information were lower than today

and when relatively few and well-defined players were involved in the intellectual property

process. Information-based products and services were peripheral to the performance of

many social and economic activities, and people had lower expectations about their use and

the level of profit that might be derived from

them. As a result, issues involving the granting of intellectual property rights could be

worked out among the major players without

much public involvement or concern.

The resolution of these issues in an information age, however, will be more problematic,

requiring that more stakeholders be taken into

account and that decisions be made about the

distribution of incentives and rewards. Given

the variety of opportunities that the new technologies afford, the increased value of information, changing relationships among the traditional participants in the intellectual property

system, and rising expectations about the benefits of these technologies, the number of stake

holders with disparate interests and competing claims on the system will be greater than

ever before. In such a context, the granting

of intellectual property rights, instead of mutually serving a variety of different stakeholders

may actually pit one against another.
Ch. 2—Intellectual Property Goals in a Changing Information Environment ● 55

The problem is exacerbated by the fact that,

as the market value of information increases,

so does the pressure to treat information activities in economic terms alone. Today, for example, there are a growing number of people

engaged in information activities, which were

once clearly considered to be outside of the

realm of economics, who are now aggressively

competing to economically exploit their works.

And, to assure that they can do so, they are

avidly seeking intellectual property rights.

Not surprisingly, such rivalry for ownership

is becoming common in institutions of higher

education and research, where the potential for

profits is high. Here the claims and counterclaims of ownership are continually multiplying: claims of students against students, students against faculty members, faculty against

faculty, and the university against students

and faculty. ’03 A particularly contentious issue in this regard is “work-f or-hire.” Some

university administrators now argue, for example, that, just as companies automatically

own the copyright on works done on company

time and with company resources, so too

universities should have the rights to everything created in conjunction with their facilities.104 These issues of ownership will not be

easily resolved. For, as the Carnegie Mellon

University flowchart illustrates, there are a

wide variety of ways in which rewards can be

distributed. (See figure 2-5.)

As the rush to make a profit in information

becomes increasingly prevalent, many people

are less willing to share their ideas and exchange their views. Some teachers report, for

example, that they are unwilling to use computer software that they have developed in

‘

r

’’ Dorothy Nelkin, Science as Intellectual Property: Who

Con.tro)s Scientific Research (New York: Macrnillian Publishing Co., 1984), pp. 1-8.

“’’Just beginning to grapple with these issues, universities

vary considerably in their work for hire policies. Brown University, for example, follows a relatively liberal policy, allowing

faculty, students, and staff to share rewards. In contrast, at

Virginia Polytechnic Institute lawyers for the university have

recently concluded that students’ assignments are the property

of their professors. Ivars Peterson, ‘‘Bits of Ownership: Growing Computer Software Sales Are Forcing Universities To Rethink Their Copyright and Patent Policies, ” Science News, Sept.

21, 1985, pp. 189-190.

Figure 2-5. —Carnegie Mellon Flowchart

rd

per agreement

r,

,,

ownership

,

U Has firsl c Has firs!

optxon to 0Pt30n to

develop develop

I I

C Receives

net

.,

U Receives U Rece, ws 16°0 of C S nonexclusive

net above risk hcense

SOURCE Richard Stern, Carnegie-Mellon University
56 ● Intellectual Property Rights in an Age of Electronics

their classrooms. Because of its high market

value, they fear that their local school district

will try to copyright it.105 Similarly, many people who participate in joint projects, such as

electronic conferences, are becoming more hesitant about what they say. Because their ideas

bring a high price, they want to reserve for

themselves the right to profit from them.106

The growing focus on protection and securing ownership rights is also evident in the fields

of art and entertainment. One extreme, but perhaps highly illustrious, example is the recent

case in Seattle, Washington, where the estate

of a well-known songwriter sued a church for

singing the benediction to the tune of a copy-

“’’Discussion with participants, Workshop on Educational

Policy, National Educational Computing Conference, summer

1984.

““Ma rguerite Zientara, “Watch Your Words: Who Owns Information in an Electronic Conference?” Moworki, Aug. 6,1984,

pp. 333-334.

and /formation

righted melody. Protesting the profit-oriented

climate of the times, one outraged churchgoer

protested saying:

Well, we do understand that the copyright

law becomes involved. However, to us simple

folk, it would seem that both creator and

owners of [the tune] could very easily waive

their rights and by doing so enjoy a sense of

great honor and deep gratification that their

song is now a beloved hymn sung in chorus

by many thousands of good people during

church services, rather than to threaten and

crush their own beautiful song into near

oblivion.

In these times, these fearful, unruly, egotistical and utterly selfish times, this action

to stop the singing of a hymn in our churches

is surely the ultimate low.

“

]

”Harry A. MacLaren, “Letter to the Editor, ” Seattle

Times, July 26, 1985, p. A-20.

IMPLICATIONS FOR THE INTELLECTUAL PROPERTY SYSTEM

To the Founding Fathers, the design of an

intellectual property system appeared a relatively simple matter. Building on a long tradition, and on years of European experience, they

simply followed the British model, which was

equally well suited to meet both countries’

needs. This model assumed that, by granting

economic rights to the creator of intellectual

works, information would be created and disseminated, and thus a number of other social

and economic objectives would be achieved.

In this model, not only were other societal goals

understood to be furthered by fostering the

learning environment, these goals were also

seen to be mutually compatible and self-enforcing.

In an information age, the situation is more

complex. Information is central to all aspects

of society. Moreover, the new information technologies provide new opportunities to move

ahead in almost all areas of activity. With these

opportunities, however, will also come new conflicts. For, given the pivotal role that information will play in the future, its enhanced value

will give rise to a greater number of competing claims on its use.

Given this potential for conflict, a key assumption on which the Founding Fathers established the intellectual property system may

no longer be valid in an information age. Instead of equally fostering a number of diverse

political, economic, and cultural goals, the

granting of economic incentives may, under

some circumstances, pit one kind of goal, or

one societal purpose, against another. In an

environment such as this, it is more essential

than ever to remember that in making decisions about the intellectual property system,

we are making decisions about the nature of

society itself. Therefore, in addressing the

question of what are the most appropriate

goals for the intellectual property system in

an age of information, we must ask ourselves

first, given all of the opportunities that the new

technologies afford, what kind of a society

would we like to live in.
Chapter 3

The Accommodation of Intellectual

Property Law to Technological Change
Contents

Page

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Introduction: The Law’s Race With Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Part I: Some Basic Intellectual Property Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

The Nature of Intellectual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Intellectual Property Boundaries and Policy Objectives . . . . . . . . . . . . . . . . . . . . . . . . . 61

Idea and Expression-The Boundary Between Mine and Yours . . . . . . . . . . . . . . . . . . 62

“Clear Distinction” Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

"Abstractions" Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Some Related Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Part II: The Impact of Technology on Three Varieties of InformationBased Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

An Open-Ended Protection Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Three Categories of Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Computer Programs and Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 87 

Part III: Implications for Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Option #l: Rely on the Marketplace. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Option #2: Judicial Accommodation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Option #3: Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Option #4: Sui Generis Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Option #5: Revision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Option #6: Alternatives to Copyright and Patent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Table

Table No. Page

3-1. Who Should be Responsible for Solving Intellectual Property Problems?. . . . . . . . . 89

Figures

Figure No. Page

3-1. Property Rights in Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

3-2. Types of Information-Based Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

3-3. Flowchart for the ’’Minstrel’’ Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

3-4. Computer Programs- "What Is Protected?".. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Chapter 3

The Accommodation of Intellectual

Property Law to Technological Change

●

●

FINDINGS

The application of a uniform system of intellectual property principles, such as that embodied in copyright and patent law, to divergent types of information-based products may

no longer be possible. Modern technologies

are exaggerating dissimilarities between information products that were once protectable under a single system of law, and are,

in some cases, giving rise to new products

that strain the applicability of old principles

of law. Under these new circumstances, information-based products can be grouped

into three large categories—works of art,

fact, and function, which are subject to

different principles of intellectual property

protection.

The assumption of intellectual property law

that intellectual property rights-can be determined and remain stable over time is less and

less valid. Copyright law, in particular, assumes that the works it protects have a fixed

form, and that ownership can be determined

by protecting particular expressions of information. Today, however, computer and

communication technologies are changing

the nature of information-based products in

a fundamental way, making them dynamic,

interactive, and functional components of

processes. The present system of copyright

law, which evolved under the model of print

publication, may no longer serve to determine the boundaries of ownership in computer-based methods of creation and dissemination.

●

Some of these technological impacts may only

appear in the long term, when technologies

for creating and disseminating information be

come more widely used. Many of the technologies, such as computer networks and

digital editing, are still in the developmental stage, and the intellectual property issues they raise are only just emerging.

Some of the effects of technology on the adequacy of intellectual property law, however,

have already begun to undermine its usefulness as a policy tool, In particular, neither

copyright nor patent law has successfully

accommodated works of function, such as

computer programs. Copyright law may provide either too much or too little protection

for them, and patent law, while available for

some novel processes that utilize computer

programs, may be unavailable or too cumbersome to protect many types of computer

programs .

Alternatives to Federal intellectual property

protection are available, but these too have

their drawbacks. State trade secrets law, although widely used for specially designed

products, is ineffective in protecting massmarketed products. Moreover, it may entail

foregoing uniform Federal and international

protections, and, in some cases, it may be

preempted by Federal law.

INTRODUCTION: THE LAW’S RACE WITH TECHNOLOGY

Ten years after the general revision of the have raised a

United States copyright law, new technologies law’s ability

for creating and disseminating information change. This

new set of questions about the

to accommodate technological

uncertainty comes from many

59
60 ● Intellectual Property Rights in an Age of Electronics and Information

quarters: the judiciary, the legal community,

academia, and the creators whose work the law

is designed to protect. Such doubts are not

limited to copyright law; they extend to other

areas of intellectual property law where information technologies have also left their mark. *

Although most observers agree that technology is changing the way in which intellectual property law operates, many disagree over

just how sweeping these technological changes

are, and what ought to be done in response to

them. Some suggest that the changes are

occurring primarily at the margins of intellectual property law, and can be dealt with incrementally by the courts or through specific

amendments to the law.2 Proponents of this

view argue that new technological developments are in many ways like “old wine in new

wineskins. Some observers believe that,

where problems are specific, they can be dealt

with in a specific fashion, without the need to

completely rethink or revise intellectual property law.3 The Semiconductor Chip Protection

Act is an example of a measured, specific congressional response to such a problem.

Others, however, believe that recent technological changes are revolutionary, and have ——- -..——.——.

‘See e.g.: {~ottschafk i. Benson. 409 U.S. 63,73 (1972):

If programs ar[~ to be patentable, considerable problems

are raised which only commit tees of Congress can manage.

‘l’[I]n the main, it seems to me, the Copyright Act is working pretty well. There are some gaps, some parts of it that don’t

address current needs, but I don’t think it is working all that

badly right now. ” Testimony of David Lange before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the Committee on the Judiciary, House of Representatives, 98th Cong., 1st sess. on Copyright and Technological

Change, July 20-21, 1983, p. 73.

“’Some specifics of copyright law may change–some may

have to change–but the basic principles of copyright . . . will,

I think, bear retention. ” Jon Baumgarten, “Copyright at the

Crossroads, ” Billboard, Nov. 12, 1983, p. 1.

fundamental implications for intellectual property law. Typical of this perspective is a statement in a recent report by The President’s

Commission on Industrial Competitiveness:

Although the application of our intellectual

property rules has been adjusted over time

in response to changing commercial practice

and evolving technologies, the continuing

stream of the new scientific advances calls for

rethinking the very concepts derived from

earlier centuries on which those rules are

based. New concepts of what intellectual

property is and how it should be protected–

beyond patents, trademarks, trade secrets,

and copyrights—may well be needed, as well

as sweeping changes in intellectual property

laws and the ways they are administered and

enforced. 4

Advocates of this position argue that the

concepts employed in intellectual property

law–” authorship, ‘‘ “invention," “writing"—

and related notions, are increasingly the obsolete products of a bygone age of print.

Participants in this ongoing debate often

confuse the issue of whether intellectual property, as presently conceived, should survive

with the issue of whether it can survive. This

chapter does not attempt to evaluate the first

of these questions, but considers the viability

of the present system in the light of vast technological change. The question of viability can

be separated into two distinct issues: enforcement, which is dealt within chapter 4, and the

law, which is the subject of this chapter.

‘Global Competition: The New Reality, The President’s

Commission on Industrial Competitiveness, January 1985; Appendix D, “A Special Report on the Protection of Intellectual

Property Rights, ” p. 305.

PART I: SOME BASIC INTELLECTUAL PROPERTY CONCEPTS

The Nature of Intellectual Property While personal property law determines ownership over things, intellectual property law seIntellectual property can be distinguished cures ownership in the particular form or exfrom other forms of property in that it is a bun- pression embodied in things. A comparison of

dle of rights attached to the intangible form two types of property rights in the same item

of an intellectual, scientific, or artistic creation. illustrates this distinction:
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 61

●

●

s

●

●

9

A phonorecord with

“Misty" recorded on it

A copy of the local

telephone hook

A bottle of chemical Z

A microbe containing

●

●

●

●

●

●

intellectual property.

The circuit design for all Brand

X television sets

The pictoral work embodied in

all copies of the photograph

‘‘Tree s

The musical composition

embodied in all phonorecords

with "Misty" on them

The particular arrangemcnt of

names in the literary work

known as the local telephone

book

A method of manufacturing

chemical Z

The process of engineering

gene Y

Civil War, just as patent rights in a particular

thermostat design could extend to all devices

that performed similar functions.

In the United States, however, policy makers

have set far more limited boundaries for copyrights and patents. As stated in the U.S. Constitution, ownership in writings and inventions

is bounded by policies that will ‘‘promote the

progress of science and useful arts."5 Marking off boundaries in intellectual property is

essentially a policy choice which has major im-

. . . . . plications for innovation. Boundaries that are An intellectual property right is the exclusive prerogative to make tangible objects in

particular forms. At its simplest, a copyright

is the exclusive right to make copies of particular tangible expressions of information, and

a patent is the exclusive right to make, use,

or sell a particular application of an idea.

Intellectual Property Boundaries

and Policy Objectives

Any property right, whether tangible or intangible, must have boundaries. Property is

by definition exclusive; what one owns must

be distinguished from what is owned by others.

Boundaries of tangible property are relatively

easy to establish. A property right in a parcel

of real estate, for example, refers to a specific,

measurable terrain.

However, because ownership in intellectual

property attaches to the intangible characteristics of tangible objects, the boundaries of

ownership must be established in terms of

those intangible characteristics. For example,

to extend a property right to the author of a

book on auto mechanics, one must specify

which features of the book are subject to the

property right: the precise wording of the book;

the structure of paragraphs; the style of writing; the organization of topics; the information

conveyed to a reader; or the practice of auto

mechanics as described by the book. The boundaries of intellectual property are ultimately

agreed on by convention, and require that policy makers choose where and why they are established. In theory, copyright in a book on

the Civil War could extend to all books on the

‘marked too broadly may impair the ability of

individuals to create, innovate, or improve

upon the works of others. Boundaries that are

set too narrowly, or that fail to protect the most

socially valuable aspects of writings or inventions, may diminish the incentive to create or

innovate. To promote science and useful arts,

policy makers must strike an optimal balance

between what belongs to a creator and what

belongs to the public domain.

For patents, the boundaries of ownership in

an invention encompass only the novel features

of that invention. Patent ownership is established by the “claims’ made in the patent application and accepted by the Patent and Trademark Office, and patent law requires that the

claimed invention be distinct from previous inventions, which are known as the ‘‘prior art.

In contrast, copyright protection attaches

to a work at the moment of its creation, and

the law requires only that the work be original-that is, not a copy of another author’s

work. Copyright law does not require that an

author claim some aspect of a writing as his

own, or that a writing be distinguished from

the prior art. Because copyright does not have

a threshold determination of ownership, the

boundaries of ownership in a work are, of ne-

“Article 1, Section 8, clause 8 of the Constitution, authorizing the Congress to establish intellectual property, law, reads:

Congress shall have Power To promote the Progress of Science and useful Art c., h? ~wwrlng for hrmte(i “1’Imes t o A ut hor~

and I n~entors the exclusII’e Right to their respect I\e \\’rtt ]ng~

and I)isco\.cries

The term “Science, as it was used h~’ the authors of the Constitution, was derived from the Latin ‘‘scientia, meaning knowledge, or to know.
62 . Intellectual Property Rights in an Age of Electronics and Information

cessity, established by limiting ownership

rights to the particular manifestation or expression of information. Copyright does not

protect abstract ideas, concepts, systems, and

themes.

This assessment is concerned exclusively

with the effects of technology on proprietary

rights in information-based products and services. Since copyright law has been the traditional system of protecting these works, the

boundaries most germane to this chapter are

those established by copyright. For this reason, copyright law’s method of defining boundaries-the “idea/expression dichotomy" —merits a detailed discussion.

Idea and Expression—The Boundary

Between Mine and Yours

The distinction between idea and expression

is one of the most fundamental yet elusive concepts in intellectual property law. Ideas, as

such, are neither patentable nor copyrightable.

To obtain a patent, the inventor must reduce

the principles on which an invention is based

to a concrete application. The photoelectric effect is not patentable, although the design for

a particular photovoltaic cell may be. Similarly,

copyright does not protect “[i]deas, abstract

conceptions and similar matters, but rather

the “manner of treatment, expression, incidents and details . . . "

6 The distinction is crucial, since a monopoly on ideas might impair

the very goals that intellectual property law

seeks to promote. If, for example, the idea of

combining music and drama were protected

by copyright, Gilbert and Sullivan’s plays

might well have been the last musicals pro-

‘ Loew's, Inc. v. Columbia Broadcasting System, 1 31

F. Supp. 165 (D.C. Cal. 1955); aff’d 239 F.2d 532; aff’d 356 U.S.

43, reh, den. 356 U.S. 934, The idea/expression dichotomy was

codified in the 1976 CopJ’right Act as follows:

In no case does copyright protection for an original work of

au t horshlp extend to any idea, procedure, process, s.},stem,

method of opera t]on, concept, principle, or disco~wr.),, regardless

of the form In which it is descrl})ed, explained, illus~rated, or emhodled in such work.

17 [J. S.C. § 102(b) (emphasis addedl. None of these terms are

defined, and the legislative commentary on the subject says

only that section 102(b) “in no way enlarges or contracts the

scope of copyright protection. S.Rep. No, 94-473, supra at 54;

H.R. Rep. No. 94-1476, supra at 5 7 .

duced. Instead, we have available a vast and

varied range of musical drama.

Despite its importance, the distinction between an idea and an expression is difficult to

draw with certainty. Through the years, courts

have developed at least two different theories

of what the idea/expression dichotomy means.

We will refer to these theories as the “clear

distinction” test and the “abstractions” test.

“Clear Distinction” Test

Copyright scholars generally regard the case

of Baker v. Selden7 as the wellspring of modern thought on the doctrine of idea and expression. This case concerned an alleged infringement of Selden's Condensed Ledger, or Bookkeeping Simplified, a book that consisted of

a series of blank ledger sheets and an introductory essay explaining their use. The unique feature of Selden’s ledger was that, “by a peculiar arrangement of columns and headings, [it]

presents the entire operation, of a day, a week

or a month, on a single page, or on two pages

facing each other in an account book. ” In his

own account book, the defendant in this case

accomplished a result very similar to Selden’s,

using a different arrangement of columns and

headings.

The Supreme Court, although agreeing that

the plaintiff book might be copyrighted, nevertheless drew “a clear distinction between the

book, as such, and the art that it is intended

to illustrate. ” “[N]o one, ” said the court,

‘‘would contend that the copyright of the treatise would give the exclusive right to the art

or manufacture described therein. ” A copy -

right in books on medicine, art, or mathematics

gives the author an exclusive right to print and

publish those books, but the systems, ideas,

or methods described in them “are the common property of the whole world” and any

author has the right to express or explain them

in his own way. Moreover, since copyright, unlike patent, requires no novelty, the grant of

an exclusive right in the art described in a book,

‘‘when no examination of its novelty has ever

been officially made, would be a surprise and

101 Us. 841 (1880).
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change . 63

a fraud upon the public. . . That is the province of letters patent, not of copyright.”8

“Abstractions” Test

Courts have interpreted “idea and expression in other ways. The “clear distinction’

test distinguished copyright from patent protection, but did not define the scope of copyright protection. If copyright protects only the

literal expression adopted by an author, it allows others to escape claims of infringement

by changing the original in only trivial or insignificant ways. The courts have avoided this

result by treating idea and expression as a continuum of similarity. Thus, in Nichols v.

Universal Pictures Corp.,’ Judge Learned

Hand articulated what is now known as the

“abstractions test”:

Upon any work . . . a great number of patterns of increasing generality will fit equally

well, as more and more of the incident is left

out. . . . [T]here is a point in this series of abstractions where they are no longer protected,

since otherwise the playwright could prevent

the use of his “ideas, ” to which, apart from

their expression, his property is never extended. Nobody has ever been able to fix that

boundary, and nobody ever can . . . As respects plays, the controversy chiefly centers

upon the characters and sequence of incident,

these being the substance.

The abstractions test differs subtly from the

holding of Baker v. Selden, and points to a confusion in the meaning of idea/expression. The

abstractions test relies on general similarities

between works that are largely a matter of degree. If, for example, it was alleged that My

Fair Lady infringed Pygmalion, one would look

to the degree of similarity of expression in the

two stories—the plot, the characters and their

‘Id. pp 842-44, The ruling in Baker is more subtle than it

appears at first glance. The work in question was of an explanatory, functional sort (see discussion below under works of function), Unlike Furely artistic or factual works (see discussion below under works of art and works of fact). the accounting book

explained a method or procedure, which thus raised the specter

of patent-like protection not present in the case of art or fact.

For artistic works in particular, “expression ‘‘ i.~ not limited to

the Iiteral expression of a u’ork, ‘‘else a plagiarist would escape

by immaterial \’ariations. ,Vichols t’. Unii’ersal Pictures Corp.,

45 F.2d 119 (2d C’ir. 1930).

’45 F.2d 119, 121 {2d Cir. 1930), cert. denied, 282 ~J, S. 902

(1931).

roles, and the dialog. The principle articulated

in Baker v. Selden, however, concerns the kind

of protection afforded a writing, drawing a line

at the the manner of expression, and extending to neither the underlying concepts or information expressed, nor to the activities or

techniques described. These two analyses—

the ‘‘abstractions’ test and the ‘clear distinction” test—are often combined into the term

‘‘idea/expression, but they are essentially different, Although both limit the boundaries of

copyright, each sets that limit in a different

way. As we shall see in Part Two of this chapter, neither of these two fundamental copyright

principles is particularly applicable to computer processable information.

Some Related Concepts

A number of closely related, but distinct

copyright principles can be derived from the

idea/expression dichotomy (see figure 3-I). For

example, in order to be copyrighted, a work

must be original, which simply means that it

cannot have the same expression as another

work. The boundaries of a given original expression also include the right to build upon

it by creating a derivative work.11 A given copyright is infringed when there is substantial similarity of expression between the original and

another work. The notion of a copyrighted

work emphasizes that the boundary of a given

expression is intangible, and is distinct from

the actual physical object–the copy–in which

it is embodied. 12 The work is the subject of intellectual property ownership; the copy is ordinarily the private property of the purchaser. —

‘However, an identical, but independently created work, is

not an infringement, The ‘‘originality necessary to support a

copyright merely calls for independent creation, not novelty,

1 Nimmer on Cop~right, Y2,01 [A] ( 1982), originality} is, however. subject to a de minirnus standard, and works ent~rely lacking in creativity or substance cannot be copjrrighted. Simple

phrases, such as “apply hook to wall, ’ for example, maj not

meet this standard.

‘derivative work is defined in section 101 of the act as:

. . a work t)ased upon one or more preexist Ing works, such as

a translation, musical arrangement, drama tiTat lon, Slct Ion ali~ atlon, mot Ion picture version, sound recording. art reproduction,

at)ridgment, condensation. or an}. ot her form in which a work

may be recast, transformed, or adapted.

‘Section 202 of the act says that “[ownership of a cop~Tright, or of any of the exclusive rights under a copyright, IS

distinct from ownership of an} material object in which the work

is embodied, The material object, or copy, is usually the pri -

\’ate property of its purchaser. 17 U.S.C, §109.
64 . lntellectual Property Rights in an Age of Electronics and Information

Figure 3-l.— Property Rights in Information

Public domain Private property

Ideas Copies

\

Infringement through Infringement through

substantial similarity copying

\

(“Abstractions” and

“Clear Distinction ”

theories)

(including derivative works)

SOURCE Office of Technology Assessment

PART II: THE IMPACT OF TECHNOLOGY ON THREE

VARIETIES OF INFORMATION-BASED PRODUCTS

The variety of intellectual and artistic works

protected by copyright law in the United States

has grown steadily since Congress enacted the

first copyright statute in 1790.13 As technology introduced new and unprecedented forms

of expression into the commercial, artistic, and

scholarly worlds, copyright law has taken each

into its protective system of rights. Although

the forms of expression, media, and economics

of creation, distribution, and use varied widely

among new types of works, copyright law absorbed each new type of creation with very little change to its underlying concepts, distinguishing only slightly between the types of

works that it protects.

An Open-Ended Protection Scheme

Copyright protects a vast range of works,

many of which bear little similarity to each

other. Through the years, copyright has come

— to protect virtually all artifacts of communi-.

13Ch. 15, §1, 1 Stat. 12 cation: piggy banks and doctoral theses, tele-
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 65

vision programs and restaurant menus, ash

trays and news documentaries, bread wrappers

and sound effects recordings, artistic photographs and tablecloth designs, road maps and

stock market reports, toilet paper designs and

movies, computer programs and greeting

cards. Prior to the Copyright Act of 1976, a

work had to fall under a category of work defined by statute to be copyrightable. Thus,

each time technology created a new form of

expression—photography, for example—Congress had to amend the copyright law.

The drafters of the Copyright Act of 1976

sought to avoid the need for constant amendment by making the subject matter of copyright open ended and “technology neutral."14

Instead of listing types of works, the act defines the attributes a work must possess to be

protected:

Copyright protection subsists . . . in original works of authorship fixed in any tangible

medium of expression, now known or later developed, from which they can be perceived,

reproduced, or otherwise communicated, either directly or with the aid of a machine or

device. 15

The act, therefore, treats all informationbased products and services the same for purposes of copyrightability. By making the criteria of copyrightability nonspecific and purely

formal, the act gives the necessary and sufficient conditions of statutory protection applicable to any conceivable work, regardless of

the technologies involved in its creation, distribution, or use.

Since a work can be fixed in any tangible

medium ‘‘now known or later developed, ” all

works fixed after 1978 are automatically copyrighted, without the earlier requirement that

they be published or disseminated;16 and, with

“’Authors are continually finding new ways of expressing

themselves, but it is impossible to foresee th~~ forms that these

new expressi~’e methods will take, The bill does not intend eit her to freeze the scope of copyrightable subject matter at the

present stage of communication technology or to aIlmv unlimlted expansion into areas completely outside the present congressional intent. Section 102 implies neither that that subject

matter is unlimited nor that new forms of expression within

that general area of sub]ect matter would necessaril}r be unprotected. 1 I. R. Rep. No, 94-1476.

17 U.S.C. §102(a),

‘ 17 U.S.C. § 302(a).

some exceptions, all works are protected under the same basic bundle of rights. ”

Given the broad and pliable language of the

act, with its emphasis on technological accommodation, the question is how technology can

affect its continuing viability. The answer to

this lies in the very broadness of the concept

of “works of authorship, ” and in the legacy

of copyright principles carried forward in the

1976 Act. The 1976 Copyright Act assumes

that, by making “works of authorship’ a comprehensive category, the copyright system

could successfully assimilate unforeseeable

technologically based works. However, as illustrated below, because it continues to use

concepts fashioned over the previous 200

years, the new copyright law is, like its

predecessors, encountering some familiar problems now placed in relief by modern technology.

The central problem of copyright law’s continued accommodation to new technologies lies

in the indiscriminate application of the doctrine of idea and expression to three fundamentally different categories of works: works of

art, works of fact, and works of function. Unless the law recognizes the inherent differences

among these types of works, technology may

make the boundaries of intellectual property

ownership difficult or impossible to establish,

and less relevant to the policy goals the law

seeks to further.

Three Categories of Works

Although the copyright law adopts a uniform approach to protected works, not all types

of information-based products are the same,

nor can they be treated as if they were. A list

of stock and bond prices, for example, differs

from the musical score of a motion picture, and

both of these are distinct from a computer program. In the case of stock prices, the value is

in the information itself—the number of shares

traded and the daily fluctuation in prices. The

value of a musical score, in contrast, lies in the

‘-17 U.S.C. §106. All works are subject to reproduction. derivation, and dissemination rights; some are subject to performance eights: others to display rights.
66 ● Intellectual Property Rights in an Age of Electronics and Information

way it sounds to an audience—the appeal of

its melody, rhythm, and harmony. And computer programs are valued for what they do–

their effectiveness at performing a given task

in a computer.

This analysis has identified three types of

copyrightable works: works of art, works of

fact, and works of function. Figure 3-2 shows

one way of conceptualizing this trichotomy,

and gives examples of the types of informationbased products and services that might fall

into each category. Although dividing lines between each categories are not absolutely distinct, major differences between the categories do exist. It is these differences that pose

problems for the uniform application of copyright principles to all three categories.

Works of Art and Interactive Technologies

The phrase works of art, as used in this discussion, denotes works that are created for

their own intrinsic value-whether that value

is primarily aesthetic, entertaining, or educational in nature. This definition implies no appraisal of qualitative or artistic merit; labels

for soup cans and recordings of symphonies

are both works of art. Although it is impossible to fix firm boundaries on what constitutes

a work of art, this category includes such traditionally copyrightable items as fiction, paintings and other graphic works, sculpture, music,

drama, film, and choreography. Other works,

such as sculpture used as bases for lamps19 or

film documentaries20 also fall within this category, but contain factual or functional elements as well.

Traditionally, works of art have been amenable to an analysis of idea and expression under the “abstractions test, ” since very often

the intrinsic value of the work depends heav-

‘“Copyright does not concern itself with the qualitative aspects of a work. See: Bleistein v. Donaldson Lithographic Co.,

188 U.S. 239 (1903).

‘“AS in the case of Mazer IF. Stein, 347 U.S. 201 (1954),

where a statuette used as the base of a lamp, was found copyrightable insofar as its utilitarian aspects could be separatsd

from its aesthetic aspects.

‘

(

’Such as the documentary of the Hindenberg disaster in

Heeling v. Um”versa.1 Cit&V Stud”os, Inc., 618 F.2d 972 (2nd Cir.),

cert. denied, 449 U.S. 841 (1980),

ily on the particular expression adopted. The

intrinsic value of Duchamp’s ‘Nude Descending a Staircase, for example, lies in the overall style and manner of execution, the use of

lines and solids, and the colors chosen. It is

these values that copyright protects when protection is limited to the painting’s expression.

Furthermore, works of art have always had

a fixity and completeness to them. Although

their creation involved preliminary steps such

as drafting, sketching, and revision, they did

not change in appearance or structure, and retained a distinct and perpetual identity. Particular works were distinguishable from one

another because the expression was complete

and final once the work was fixed. Moreover,

the fixation of a work in a tangible copy allowed its preservation over time.

It is this static, individuated, and localizable quality of works of art that allows copyright law to speak in terms of the work21 created by an author or authors22 belonging to him

from the moment of creation,23 subject to the

laws of the country in which the work was created. 24 As we have seen in chapter 2, printing

made copyright both possible and necessary,

since it permitted the existence of many identical copies of a work and so shifted the primary economic value in writings from the

ownership of a particular manuscript to the

ownership of a right to make copies of that

manuscript, while it simultaneously created

markets for unauthorized copies. The very notion of a particular “expression” as the product of a particular author was to a large degree enabled by the invention of the printing

press. Evidence for the proprietary boundaries

of a work relied on the existence of a single,

unchanging artifact-the book, the painting,

the sculpture.

This model of the static work of art may no

longer apply to works involving certain new

technologies. In particular, digital computing

and communication technologies pose both

“17 U.S.C. §20.

’

2

17 U.s.c. §20.

‘

[

17 U.s.c. §30 .

“17 U. S. C., ch. 6, infra.
Ch. 3—The Accommodation of Intellectual Property Law to Technological Change ● 67

Figure 3-2.— Types of Information-Based Products

Works of art

Copyrightable works

(shaded area)

Drama Inspirational

Sculpture Film literature

Painting (abstract)

Photographs Biography

\

Recorded music drawings Clocks

Historical Recipes Computer music,

literature

graphics

Computer Computer programs

and

charts

Patients’

Raw x-rays Photographs

satelIite

data

Uncompile d

statistics

(as news-footage)

News stories

Telephone

directories

databases (applications)

(text) / Computer

Instructions z Code books circuitry

I

Computer programs

(operating systems)

Computer databases

(compilations) Circuit Circuits

I

diagrams

Phone \ I

bills

Semiconductor Computer Semlconductor

The chip masks algorithms chips

calendar A

/\

Cam shaft

/

Works of fact

DNA nucleotide Gears Stock market quotes sequence? Microcode? A

SOURCE Office of Technology Assessment

conceptual and legal problems for copyright

law in this regard. If print technologies” permitted stasis, electronic technologies permit

a new dynamism that makes proprietary boundaries for many works of art indistinct, elusive,

and subject to constant change. Although

opinions vary widely on the viability and commercial deployment of such things as electronic

——.———

‘

r

’’ Print technologies”’ is used here in a very broad sense,

and would include not only the methods of printing books and

magazines, but photographs, records, and motion pictures as

well.

Works of function

publishing, on-line conferencing and editing,

and interactive computing, these technologies

have reasonably clear implications for the principles of ownership:

In short, the process of computer communication produces multitudinous versions of

texts, which are partially authored by people and partly automatic. The receivers may

be individuals, or they maybe other machines

that never print the words in visible form but

use the information to produce something else

again. So some of the text that is used exists
68 ● Intellectual Property Rights in an Age of Electronics and Informatio n

electronically but is never apparent; some is

flashed briefly on a screen; and some is printed

out in hard copy, What starts out as one text

varies and changes by degrees to a new one.

Totally new concepts will have to be invented

to compensate creative work in this environment. The print-based notion of copyright

simply will not work.26

Some have suggested that, for art and scholarship, the new technology has created an environment more like that of the Middle Ages

than of the post-Gutenberg era, resembling the

oral tradition rather than the print culture. The

ramifications of such a change can be explored

by considering two particular embodiments of

information technology as they apply to works

of art: computer networks and interactive computing.

Computer Networks. The advent of computer

networks may mean the loss of the identifiable boundaries of works on which copyright

has relied to distinguish yours’ from “mine.

In this fluid environment, works of art may

lose the singular thing-like quality that made

copyright protection possible. The extent of

the problem is hard to estimate given our limited understanding of the full impact of electronic networks on the creative environment.

A computer network is a collection of computers, called hosts, that communicate with

each other. The host computers may be microcomputers, commonly used in homes and businesses, or they may be larger mini-, mainframe, or supercomputers. With connections

between hosts ranging from local area networks to satellite-mediated long-haul networks, data in the form of text, voice, and, in

principle, video, can be stored, modified, and

exchanged by anyone anywhere on the planet.27

Computer networks offer a variety of advantages over centralized computing. They permit remote processing, which allows any host

in the network to use computer programs

stored on another host in the network. Users

‘hlthiel de Sola Pool, Technologies of Freedom (Cambridge,

MA: Belknap Press, 1983), p. 215.

“For a detailed description of computer networks, see: Andrew S. Tannenbaum, Computer Networks (Fjnglewood Cliffs,

NJ: Prentice-Hall, 1981).

in such a network can gain remote access to

supercomputers to do advanced graphics, chip

design (and remote fabrication), or scientific

or economic computer simulation. Networks

also allow users to access remote databases.

Finally, communications, such as computer

conferencing, allow collaboration among users

of the network. z

”

The capacities of computer networks for online creation and worldwide collaboration will

demand rethinking several key aspects of copyright law.29 First, concepts dealing with the creation of a work will have to take into account

several novel features of networks. A network,

for example, allows an author to collaborate

with others in ways that are different from the

past. Collaboration may occur in a very haphazard and informal fashion, and each contributor may be anonymous and his contributions

unrecorded. Some may be independent authors,

while others may be creating works for hire.30

Imagine, for example, a network “magazine”

in which the readers are also contributors, receiving and perhaps modifying a different version of the text or graphics in the magazine.

Under these circumstances, who has a right

to claim ownership of a work if it becomes commercially valuable? To which of the multitude

of different versions of the work did this person contribute? What share of the contribution was his? What rights does this person possess to insure the integrity of his work?

—— —— .

‘“’’The experience of the ARPANET, which is being reconfirmed in CSNET and other networks, is that collaboration, of~n

envisioned as the least of the three (applications), is in fact the

most important. ” Peter Denning, “The Science of Computing:

Computer Networks, ” American Scientist, vol. 73, 1985, pp.

127-129.

“Many of the difficulties alluded to here apply with equal

force to works of fact and works of function, discussed below.

This analysis of the impact of networks and interactive programs on works of art is therefore cumulative. It is confined

to works of art for the sake of clarity.

“’Some textbooks have already been written (although not

published) “on-line.” See, for example, C. Mead and L. Conway,

Introduction to VLSI Systems (Reading, MA: Addison-Wesley,

1980), which was written over the ARPANET.
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 69

Although copyright law allows for the possibility of collaborative and anonymous works,31

the application of copyright law to on-line creation may become forced and arcane. Questions will arise, in this regard, over what ‘‘the’

copyrightable work is. If, for example, a picture, a musical composition, or a story is being constantly embellished, and separate versions are being culled from an original and

reworked over time, issues of ownership and

identification of the work become exceedingly

intricate. As with on-line computer databases

(described below), the perpetual creation and

modification of works of art raises questions

about when copyright protection begins and

ends. 32 The deposit and registration of frequently changing works is likewise complicated. 33

Networks also pose immense practical difficulties for administering the copyright system.

Once in a host computer, a work can be easily

and quickly transferred to any other host in

the network. Even if the work is confined to

one ‘‘closed network, 34 it can be entered into

other networks by a given host, at which point

control over the work is lost. 35 Copyrighted

works, such as photographs, that exist in a

closed database library, which is itself part of

a network, may be downloaded onto one host

in the network and transferred to another network, where they may be excerpted or modified by others with access to the network.” If

.———

“17 U.S.C. §§§ 101,201, and 101, Joint works require that

the authors intend that their contributions be merged inseparably into one work, but collective works are separate and independent elements of the whole (like the individual stories which

comprise an anthology). In the case of joint works, the intention of the authors may have to be inferred or constructed by

a court.

‘ 17 (J, S.(’. i 1102,302,

See page 7’7 of this chapter for a discussion of the application administrative formalities for works of fact,

‘Closed networks usually ha~.e proprietary access equipment, which permit only those with the right equipment to access the information in the network. I.EX IS, the legal database

network, and airline reservation systems are examples of closed

networks. Solomon, ‘‘I ntellectual Property and New Computerhased Media, ” OTA contract report, Aug. 1, 1984.

of course, these acti~ities may be illegal under copyright

law, but lacking an “audit trail, ” and an awareness of the “leak”

on the part of the copyright holder, the possibility of enforcement is practicall~’ nonexistent, See ch. 4 on enforcement.

“Questions concerning modification and deri~ation are perhaps the most perplexing of all. How, for example, can propsuch “sharing” occurred in simple exponential fashion at 15 minute intervals, it would

take approximately 8 hours to blanket the entire world’s population with copies. ”

The problems of administering copyright for

on-line works also occur internationally, but

with an added twist. Under U.S. law, copyright

protection of published works hinges upon the

nationality of the author or the location of first

publication. 38 But satellite data transmissions

and submarine optical fiber links may muddle

the concept of a work’s “national origin, ” and

international collaborative efforts and the

simultaneous existence of numerous versions

of a work worldwide will preclude its easy identification with a particular nation. Thus, publication and location many no longer be workable criteria when numerous versions of a work

are simultaneously appearing throughout the

world .39

Interactive Computing. Interactive computing refers to any creative process in which a

preliminary or final version of a work is the

result of interactions between a person and a

programmed machine. The proportion of the

work that is the product of the machine, and

the proportion that is the product of a human

may vary. In many cases, as with word processing programs, the machine contributes little to the creation of a work; it is ‘ ‘transparent’ to the writer’s creativity. But with some

programs, such as those that summarize (abstract) written articles, the processing done by

the computer could constitute “an original

work of authorship’ if it were done by a human being.40 Indeed, the machine itself is at

once a series of processes, concepts and synerty rights attach to works which are intended to be modifiable

components of an interactive process? This question will be dealt

with presentl~’ under “ Interactive Technologies. ”

‘-232 is approximately 4.29 billion.

‘“In general, a work is protected under (J. S. law if: 1 ) one or

more of its authors is a national or domiciliary of the United

States or any nation which is a member of a copyright treaty

to which the United States is a party, or if 21 the work is first

published in the United States or in a country which is party

to the Universal Copyright Convention. 17 U.S.C. § 104.

“’Publication is the distribution of copies to the public, 17

U.S.C. \ 101; is transmission of digitized information to thousands of host computers a ‘‘distribution of copies?’

4’ Originality is the sina qua non of copyrightability, but refers only to the fact that a work is not a copy of another.
70 . Intellectual Property Rights in an Age of Electronics

theses of human intelligence-so mixed that

it is difficult, if not impossible, to separate its

parts from the whole.” Interactive computing

takes many forms, and cuts across many disciplines. Some examples of interactive computing are:

●

●

●

●

Interactive fiction is a computer-mediated

form of storytelling/writing that permits

the user of a program to “co-author” a

story by making choices about details of

the plot as the story unfolds on the

computer.

Computer-aided design (CAD) is a technology that is widely used in science and engineering. Using CAD systems, engineers

may design new products, invent new

processes, or even create other software

programs that are based on interactions

between their own experience and expertise with a CAD system. A program called

SYNGEN, for example, suggests potentially useful chemical reactions based on

chemical reaction-mechanism theory. Using

SYNGEN, some completely new reactions

are “invented” that may prove important

enough to be further developed in the laboratory. ’z

Interactive computer graphics permits a

creator to use another’s images as the

“grist” for computer-assisted manipulation in the production of further works.

Creators using this technology cannot

only generate images of nature that have

never existed in reality; they can also take

images from existing photographs or

films, “map” them into a computer memory, and bring them back to life in totally

new settings, with new movement and

dialog.

Computer-processed music permits the

processing, editing, and resynthesis of

.

“Richard Solomon, “Intellectual Property and the New

Computer-Based Media, OTA contractor report, Aug. 1, 1985.

p. 2.

‘“James Hendrickson, “Synthesizing Chemicals by Computer, ” Technology’ Review, April 1984, pp. 24-27: see also R.K.

I,indsay, et al., ,4pplications of Artificial Intelligence for Orgw”c Chemistry: The DEIVDRAL Project (New York: McGrawIiill, 1980). In this example, similar questions might be raised

of patent law: who is the “inventor? ’’-the programmer, the

operator, or the machine’?

and Information

— .—

sometimes costly preexisting works in the

production of new works. Music can be

sampled and manipulated in a process

known as digital editing, and the notes and

even the work itself can be rearranged and

manipulated to create entirely new works.

The interactive capability of computers

poses unique problems for the category of

works of art. The problem is in determining

where the programmer’s expression ends and

where the user’s contribution to the final form

of the expression begins. This problem stems

from the fact that computers often mediate between programmer and user, and intermingle

the creative efforts of both. Indeed, the program itself may contribute substantially to a

creator’s final artwork, and in ways that could

be considered an autonomous or creative activity if done by a human being.43 Because the

programmer’s, the user’s, and even the computer’s expressions are intermingled in the

process of creation, separating rights in the

products of interaction with a program from

those in the program itself will become increasingly difficult. Consequently, many interactive

computer-based applications may generate entirely new questions of ownership and originality. 44 Figure 3-3, which describes a hypothetical interactive program called “MINSTREL,”

illustrates the difficulties that can arise in sorting out the contributions of the various parties to interactively produced works.

The problems of interactive computing and

machine-generated works were considered by

the National Commission on New Technological Uses (hereafter CONTU) in its 1976 Re-

“Computer programs may modify themselves based on an

interaction with the environment, and then alter the environment itself. Programs now exist, for example, that permit a computer to “learn, ‘‘ in some sense, from its environment. A number of rules for producing a given result are compared with an

environment; generalizations are formed as a result of the comparison; and these generalizations are then incorporated into

the rules of production. See “Learning” in Proceedings of the

National Conference on Artificial Intelligence (Los Altos, CA:

American Association for Artificial Intelligence, 1983), and Sleeman & Brown (cd.), intelligent Tutoring Systems (London: Academic Press, 1982), Part IV “Self-Improving Teaching Systems. ”

“There are disputes today, for example, over ownership in

the output of programs that automatically route signals through

gate-arrays, and in code that is compiled by a proprietary compiler program. Conversation with Richard Stern, Nov. 11, 1985.
Ch. 3—The Accommodation of Intellectual Property Law to Technological Change ● 71

Figure 3-3.— Flowchart for the “Minstrel” Program

Minstrel selects

random notes

Minstrel arranges

notes into piece I Update algorithm I

I

per algorithm

I

1

Pieces stored in RAM

1

I

Tone generator I

T i

Composer selects

a piece

I ~

Composer modifies No

piece

* -f Yes

Synthesizer generates

analog etude 4

b

t

, * I 4 t

A Composer uses a software program. named “Minstrel” which was

written and developed by a Programmer One of the results of this

program, Etudes for Unaccompanied Computer, a collection of thematic musical pieces, Is the subject of a Iawsuit between Programmer and Corn poser

The Programmer had made no Iicense or sale agreements with the

Composer for either the use or the purchase of “Minstrel. ” He expected to receive no remuneration fort he Composer’s use of the program or for the computer time Indeed. the Programmer had given permission to the Composer to use “ Minstrel ” and the computer simply

“to see what It could do “

The software program “Minstrel” randomly selects “notes” from

the standard twelve tone scale These notes are represented as variables in the program On the basis of rules embodied in a music composing algorithm developed by the Programmer, these notes are combined into melodies and chords, and processed into pleasing

harmonic, rhythmic, and thematic structures A number of pieces are

thus created and stored in Random Access Memory (RAM) The Composer then selects one of the pieces on the basis of his own aesthetic

tastes and modifies the selected piece to make improvements These

modifications are then incorporated into the original “Minstrel” algoport.” The commission found that “there is

no reasonable basis for considering that a com- ——

“CONTU was created by the act of Dec. 31, 1974; Public

rithm. This process is reiterated so that the program in effect “learns’”

from the composer’s judgment

Etudes for Unaccompanied Computer was recorded in the following media: 1 ) the final object code (digital) version was downloaded

from RAM onto a floppy disk; 2) a final audio (anal`ogue) version was

prepared using a commercially available music synthesizer and recorded on magnetic tape; 3) a sheet music version was printed using

a special printer designed by the Programmer

When the Composer left the Programmer’s laboratory, he took with

him the floppy disk, the magnetic tape. and the paper upon which

the sheet music to Etudes was printed—all of which were his personal property. The Composer Iicensed the audio recording to the Record Company, and the sheet music to a Publishing House. This raises

some questions:

1, Who is the author of the “Minstrel” Program after it has been

modified by Composer?

2. Who IS the author of ‘<Etudes?” The Composer? The Programmer? The “Minstrel” program?

3. Does the Composer’s use of “Minstrel” infringe the Programmer’s

right to make derivative works from ‘‘Minstrel?“

4 Is “Etudes” a work derivative of “Minstrel?”

——-. -

Law No. 93-53, tit. II; 88 Stat. 1973. See, generally, The Final

Report of the National Commission on New Technological Uses

of Copyrighted Works (Washington, DC: Library of Congress,

1979), The Final Report was issued July 31, 1978.
72 . Intellectual Property Rights in an Age of Electronics and Information

puter in any way contributes authorship to a

work produced through its use. The commission said:

The computer, like a camera or a typewriter, is an inert instrument, capable of functioning only when activated either directly or indirectly by a human. When so activated it is

capable of doing only what it is directed to

do in a way that it is directed to perform

. . . . The obvious answer is that the author

is one who employs the computer.46

It is misleading, however, to think of programs as inert tools of creation, in the sense

that cameras, typewriters, or any other tools

of creation are inert. Moreover, CONTU’s comparison of a computer to other instruments of

creation begs the question of whether interactive computing employs the computer as cocreator, rather than as an instrument of creation. It is still an open question whether the

programmed computer is unlike other tools of

creation. Authorities in the field of artificial

intelligence (AI), although disagreeing on AI

nature and purpose, do agree that its aim is

to produce a pattern of output that would be

considered intelligent if it were displayed by

a human being.47 One must ask, therefore,

whether machines or interactions with machines might produce a pattern of output that

would be considered creative or original if done

by a human being. If machines are in any sense

co-creators, the rights of programmers and

users of programs may not be easily determined within the present copyright system.

If the questions raised by interactive computing are not settled in the legislature, the

judicial system will be called on to resolve

them. Thus far, there have been few court decisions on the matter of interactive computer

programs, and those that exist have been resolved on extremely narrow grounds. Most of

the relevant cases have concerned video games,

which employ computer programs (usually recorded in Read Only Memory, or ROM) to generate video images and sounds that respond

in a limited way to the game player. The case —. —. ..-—

“CONTU Final Report, p. 44.

4 Howard Gardner, The Mind New Science–A Histor}’ of

the Cognitive Revolution (New York: Basic Books, 1985), ch.

6. Depending on whom one talks to, AI may have in part already achieved its objectives.

law has, for the most part, been built on litigation involving traditional audiovisual works.48

In the only case dealing with interactivity, the

defendant asserted that, because the player interacted with the game, he was a coauthor of

the video work.49 The court rejected this argument, saying that a substantial proportion of

the work was repetitive and not subject to

player control. However, as computer programs increasingly permit the user wider choice

in structuring input and output, the analogies

between interactive computer programs and

traditional works will begin to break down.

Courts will then be left with little guidance,

and even less expertise, to solve these highly

complex conceptual and technological issues.

But the decisions they render will, in effect,

be policy decisions affecting many aspects of

the creative environment.

The courts may not have to react immediately to the difficulties of interactive computing. Creation through interactive computing

is new, and is still the domain of pioneering

artists with access to the necessary computing power and memory .50 However, as interactive techniques become cheaper and more

widely available, either the legislature or the

courts will have to confront some questions

that will be very difficult to resolve under the

present system. These include:

● Does copyright in a program (for example, an interactive graphics program) entitle the copyright owner to the output of

these programs? If so, under what circumstances? If that output was unforeseen by

the programmer? When the user inputs

the data? When the work is “predominately” the result of the machine program, presuming that authorship in outputs might

be measured?

‘xSee, e.g., Midway Manufacturing Co. v. Arctic International, Inc., CCH Copyright Law Reporter 125,526 (7th Cir.

1983); Stern Electrom”cs, Inc. v. Kaufman, 669 F.2d 852 (2d Cir.

1982); Midwa-v Manufacturing Co. v. Omni Video Games, Inc.,

668 F.2d 70 (lst Cir. 1981). Courts have held video game programs embedded in ROM copyrightable, and video game manufacturers have often copyrighted the audiovisual portion of

the game separately. Atari, Inc. v. North American Phih”ps Consumer Electronics Corp., 672 F.2d 607 (7th Cir. 1982).

“t$’illiams Electronics, Inc. v. Arctic International, Inc.,

685 F.2d 870 {3rd Cir. 1982).

“’’See ch. 5 for a discussion of the impact of interactive computing on the works of artists.
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 73

●

●

Ought protection of the program to extend

to its output? Where, for public policy

purposes, ought expression in a program

leave off? What are the appropriate boundaries necessary to insure that both programs and their creative interactions are

given incentive?

How are legal distinctions to be applied

to this new-creative environment? Does

expression include all of the ways in which

a program may literally express itself?

Does the user’s interaction result in the

production of a derivative work, and to

whom does the derivative work belong?51

What of originality in works that are

predominately automated? Who is the

author?

Providing answers to these questions will

become more urgent as creative activities continue to fuse with machine intelligence. One

effect of computer-mediated works of art on

copyright may be the blurring of the distinction between the copyrighted work and its

product. It may no longer be possible to ascertain the ownership of a particular expression.

Both the creators and users of a program may

have some claim to its output. Similarly, the

line between the creator and the user of a work

of art may be less clear, and distinctions may

have to be made between the creation, use, and

appropriation of an expression.

Works of Fact and Computer Databases

The category works of fact, as used here, encompasses any work whose value lies in the

accurate representation of reality. As with

works of art, works of fact is an amorphous

category, and may include biographies and

dramatized or fictionalized accounts of events,

which are also works of art. Maps, nautical

charts, news programs, documentaries, and scientific and scholarly literature are examples

of works of fact. Compilations, such as telephone directories, stock market quotations,

statistical tables, and bibliographies, may also

fall into this category.

——

‘‘A derivative work is a work “based upon one or more preexisting works. ” 17 U.s.c. ~\lo2, 106,

Works of fact have long been copyrightable,

but copyright protection in works of fact is limited to the way in which facts are expressed.

It does not extend to the underlying information or facts expressed. In a map, for example, protection is limited to the details, colors,

and symbols chosen by the author, and does

not extend to the terrain that is represented

by the map. In a statistical table, copyright

protects the arrangement and labeling of columns and variables, but not the numbers or

statistical values represented. In a news story,

copyright protects the wording and the way

in which the information is expressed and presented, but does not protect the information

about events that are the subject of the news

story.

Works of fact have always caused problems

for copyright law because, unlike works of art,

their economic value is often in the underlying

information, rather than in the manner in which

that information is expressed. Copyright,

therefore, does not necessarily protect the value of a work of fact. This discrepancy will likely

be exaggerated by information technologies,

because computers can easily manipulate the

expression of a work of fact, and communication systems can quickly transfer the work.

The problems with copyright protection for

works of fact stem from two otherwise complementary concerns of copyright: the provision of incentives to stimulate the production

and dissemination of original works, and the

policy goal of sharing information and ideas

and making them widely available.

Works of fact often take much time and effort to produce, and some economic incentive

is necessary to encourage their production.

Tabulating price data, covering news stories,

and drafting maps, for example, require independent research and investigation. If an

author knows that a competitor may reproduce

his work with impunity at little or no cost, he

may have less incentive to create the work in

the first place. Recognizing that the ostensibly copyrightable component of such works of

fact–the wording, selection, arrangement, and

presentation of information—is of little bene-
74 . Intellectual Property Rights in an Age of Electronics and Information

fit to a proprietor whose competitors can easily change the appearance of facts and information, some courts have sought to expand

copyright protection well beyond the particular form that the work takes:

. . . the test is whether the one charged with

infringement has made an independent production, or made a substantial and unfair use

of the complainant’s work.52

Despite the judiciary’s tendency to expand

copyright protection in works of fact to “unfair” appropriation by competitors, copyright

in these works is still severely limited: the information or data within the work is not copyrightable. 53 Given the imperative that copyright should “promote broad public availability" 54 of the ideas and information latent

in any expression, the protection of information is anathema to copyright philosophy. Early

in this century, the Supreme Court recognized

the inadequacies of copyright protection for

works of fact, and sought to get around them

by constructing a “quasi-property right” in

news stories to address an underlying wrongdoing.55

“Toskvig v. Bruce Pub. Co., 181 F.2d 664 (7th Cir. 1950) a

case that concerned a compilation, which is a work formed by

the collection and assembling of preexisting materials, or data

that is selected, coordinated, or arranged in an original way,

17 U,S.C. § 101, and are particularly vulnerable to this prohlem, See also: Leon v. Pacific Telephone & Telegraph Co,, 91

F.2d 484 (9th Cir. 1937), Triangle Publications ~r. New ~jng~and

Newspaper Publishing Co., 46 F, Supp. 198 (I). Mass. 1942), and

Quinto v. Legal Times of Nrashington, Inc., 506 F.Supp 554

(D. D.C. 198 1). As one court has said, if “protection (for compilations) is limited solely to the form of expression, the economic

incentives underlying the copyright law are largely swept away.

National Business Z~ists, Inc. v. Dun & Bradstreet, Inc., 552

F. SUpp, 99 (N. D, 111. 1982). Parenthesis added.

“’This statement is truer of compilations of data, such as

airline schedules or telephone numbers, but also extends to compilations in which the compiled material is itself copyrightable,

as in the case of NEXIS, a computerized database of news stories. In the latter, both the format of the compilation and the

compiled material is protectable by copyright. However, in no

case does copyright extend to the information conveyed by either the compilation or the material compiled.

“FOX Film Corp. v. Doyal, 286 U.S. 123 (1967).

‘

h

International New Service v. The Associated Press, 248

U.S. 215 (1918), in which the Court said that “the news element— the information respecting current events contained in

the literary production—is not the creation of the writer, but

is a report of matters that ordinarily are publicijuris; it is the

history of the day. ” Id. at 234. This case was based on the Copyright Act of 1909, and was implicitly overruled by the Copyright Act of 1976. The difficulties that the court faced, howThere is a tension, therefore, in copyright

protection for works of fact. The tension is between incentives and the public access to information,” and this tension is likely to be

heightened by modern information and communication technology. A good example is

computer database technology.

Computer Database Technology.–A computer database is a compilation of stored computer-readable information. A database vendor frequently sells both the data and the

means of accessing, searching, and assembling

that data through use of a computer program.

Computerized database technology has a number of characteristics that set it apart from

traditional methods of compiling information.

These characteristics have to do with the way

that information is stored, input, searched, and

distributed:

• Storage: The storage medium may take

many forms: punch card, magnetic tape,

hard or floppy disk, microelectronic components within the computer, and the

laser-read optical disk. Electronic storage

media greatly concentrate the amount of

information that can be stored in one location. One 5-inch optical disk, for example,

is capable of storing over 10,000 pages of

printed information.57 The information

may be stored in any fashion: serially,

chronologically, or as a hierarchy of information types. The type of information

stored may be print, audio, or still or motion audiovideo. Anything that can be represented digitally can be stored and ac- —— — . — —

ever, remain. A recent Supreme Court decision, Harper & Row

v. Nation Enterprises, No. 83-1632, May 20, 1985, also dealt

with the appropriation of a work of fact, but since the defendant copied some of the plaintiff’s work verbatim, the court

did not have to reach the issue of idea and expression.

“’’The tension is most acute in the case of factual compilations which document information compiled by the government,

or information that is already in the public domain, since proprietary rights in the information would have the public pay

twice for the same data. see, e.g., Dow Jones & Co., Inc. I. Board

of Trade, 546 F. Supp. 113 (S. D.N. Y 1982).

‘ ‘The optical disk, which is presently in use in some computer systems and in home stereo systems, is also capable of storing, in digital form, roughl~~ two hours of music or audiovisual

material, or thousands of stall pictures, The Library of Congress’

current project utilizes all of these capabilities. At present, commercially available optical disks are strictly for playback, but

‘‘write/erase’ versions will be available shortly.
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 75

●

●

●

cessed by computer. 58 The types of works

stored on present-day databases include

full text literary and legal works, bibliographic information, scientific, financial,

legal, criminal, demographic, and defense

information. However, since a computer

is indifferent to the nature of the information stored, computer programs are also

accessible as ‘‘data’ on a database.59

Input: Information may be input into a

database in a number of ways: it may be

typed in by a person at a computer terminal; it may be fed in automatically from

a sensing device, such as a heat sensor or

a pressure gauge; it may be read in from

a typed or written document by an optical character reader; systems are coming

into use that accept input from the human

voice.

Search: Information is accessed in a database by the use of a computer program,

through which users can instruct the computer to search for keywords or categories (fields) of information such as article

titles or authors’ names. Artificial-intelligence-based programs are becoming available that allow searches in natural languages, such as English, based on the

syntax or semantics of a query. Telecommunications links allow users to search for

information stored in computers in many

different locations throughout the world.

Distribution: Once accessed, the information is typically fed to a user’s terminal

and may be copied on a local storage device, such as a magnetic disk. This information may be processed in the user’s

computer such that it may no longer resemble the “original’ information. And

‘Information theory implies that anything seen, heard,

smelled, or felt can be represented, encoded, and replicated by

a series of 0s and 1s, although putting theory into practice has

required over 40 years and billions of dollars. Solomon, op. cit..

p, 14. I+~\’en smells maybe represented digitallv. “Robot Noses, ”

Business J1’eek, Ma? 13, 1985, p. 57.

‘Indeed, the de fimtion of “database’ can get quite confusing. For example, a current trend in the design of computer chip

manufacturing for \’ery large scale integration (VI.SI ) is through

the use of a ‘‘design’ database that, when guided by various

algorithms, can integrate database components in the design

of a chip. Thus, to say that databases store information is to

simplify the dynamic uses to which this information may automatically be applied.

it may, in turn, be searched by, distributed to, and processed in other computers.

These unique characteristics of computer

database technology may severely curtail the

usefulness of copyright protection for works

of fact that are distributed on-line, since copyright protection extends to only the work’s expression. This expression may be easily and

systematically changed by a person with access to the database and the ability to ‘download’ and copy information from it with all evidence of copying erased.’” Once the information

is modified, the user may no longer be liable

for infringement, since the information, as

such, is not protected. The downloading and

the subsequent rearrangement of the information may be entirely legal, especially if the

downloading onto disk is permitted under contract. Since information that is rearranged and

copied by hand may be legally appropriated,61

the same rearrangement might easily be done

by the computer in real time as it is being

received.62

Even if copying onto disk were illegal and

did infringe the owner’s reproduction, publication, or display rights, the copyright owner

could not possibly monitor and enforce all such

uses.63 Given the relatively low cost of down60A computer must, in some fashion, download the information in order to use it. The downloading may not be into permanent disk storage, but memories within the computer all possess some degree of permanence. Indeed, the information must

be stored in some way in order for a user to access it. Information that is accessible for only transient durations is very often

of little use, since the information must in some wa~’ be surveyed, compared, and selected. At least one industry representative cautions that: “(copyright is) a rock-bottom starting

point. . . If nothing else, the copyright enables the negotiation

of contracts providing for anticipated, and remunerated downloading. ” Letter from David Peyton to OTA, Information Industry Association, Aug. 8, 1985. Copyright, in this view, may

be necessary, but not sufficient for the protection of databases.

“The status of hand copying under copyright law is uncertain. See Chapter 7: New Technologies and the Intellectual Property Bargain. For works of fact, such as demographic tables

or phone listings, the rearrangement of the information is not

an infringement—otherwise, cop~’right would step be~’ond expression and protect information.

‘It might be argued that, in order to transform the information, the computer must first cop?’ into RAM before proceeding with the transformation. This 1s a strained application of

law, since the copy in RAM may be too ephemeral to constitute

a‘ ‘fixation, or it may be an ‘‘essential step’ under section 117

to an otherwise legal procedure.

‘ ‘See ch. 4 on enforcement.
76 ● Intellectual Property Rights in an Age of Electronics and Information

loading, and the continuing expansion of computer storage capabilities, a user might easily

compete with his provider, and secure copyright in his ‘‘new’” database. Although many

database services prohibit such activities by

contract, these contracts, as a practical matter, may be unenforceable. The copyright holder may find it extremely cumbersome, if not

impossible, to detect and prove infringement,

unless the contract itself provides for monitoring.

Beyond these questions about the scope of

copyright in works of fact, computer databases

also raise a number of separate, but related policy questions. The first is whether databases

generated by computers, such as Landsat

Earth resources data, can and should receive

copyright protection. A second is whether

copyright should extend to all contributors to

a database. Finally, there is the question of how

to best administer copyright in works on a computer database.

The question of computer authorship has to

do with a legal requirement that the item to

be copyrighted be an ‘original work of authorship. "64 Although “originality’ requires only

that the work not be a copy of another work,

questions still exist over whether information

that is automatically written or compiled by

a computer is a ‘‘work of authorship’ within

the meaning of the law.” As discussed at the

beginning of this section, in the absence of the

creative activity normally associated with writing a novel or composing a song, copyright in

works of fact often serves to protect the labor

or diligence of a researcher or compiler of facts.

However, machines are increasingly replacing

human labor involving the recognition, organization, and compilation of facts and information. Electronic compilers and assemblers,

for example, have taken over the process of

compiling computer code from high-level languages to machine-readable form. Work is also

— 6417 U.S.C. § 102(a).

“’’For example, oil production, electricity usage, or credit information may be automatically measured and compiled as

transactions occur. Even in cases of full text databases, the element of authorship may consist of little more than entering information at a keyboard, or using an optical character reader

to scan the material and enter it into the computer.

under way on natural language processing systems, which may enable computer systems to

‘‘understand’ documents within a database,

and then produce written abstracts of the document in response to queries from a database

user. Similar research is being conducted on

machine-generated translations of documents

from one language to another.” When the element of human labor involved in the processing of information is replaced by automation,

the incentive of copyright protection may become entirely disconnected from the authorship that it seeks to inspire. Information that

is automatically generated by a computer is

‘‘authored, if at all, by a program that is indifferent to legal incentives.”

If copyright is to be granted to machineproduced works, it would signal a new role for

copyright, and a departure from its traditional

role as an incentive for authors. This raises the

issue of whether copyright, in addition to providing incentives for authorship, skill, or diligence, should also serve as a method of protecting a return on capital investment in an

information-conversion business. In the information age, copyright may increasingly be

called upon to serve as an economic regulatory

device that establishes proprietary rights in

the products of automated processes. Accompanying such sweeping policy changes would

be changes in the law. Congress would have

to consider whether computer input, processing, and output are legally sufficient to constitute an original work of authorship.

Works of fact stored in computer databases

also pose the question of who should receive

copyright protection for the individual contributions to the database. Many databases consist of thousands of short records or entries

on a particular subject, which are typically

produced by many contributors. Very often,

none of these contributors can copyright their

*U.S. Congress, Office of Technology Assessment, information Technology Ii&D: Critical Trends and Issues, OTA-CIT268 (Washington, DC: U.S. Government Printing Office, FebIllmy 1985).

‘“The issue of whether the author of a program can claim

copyright in the output of the program is discussed in the previous section on works of art.
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 77

— — —

contributions, because the individual contributions are often “de minimus’’ –that is, so

lacking in quantity or originality as to make

them uncopyrightable, or containing expression

that admits of so little variation as to merge

with the idea. An individual bibliographic citation, for example, typically contains the

name of an author, the name of a book or article, the time and place of publication, and other

facts. This citation is probably not copyrightable, since the author of the citation contributed insufficient original expression to constitute authorship or originality. The database

itself, however, is a copyrightable compilation

or collective work,68 and the proprietor or the

database owner would own the copyright. Yet,

the database owner might not be the one who

exercised the skill, industry, and diligence that

copyright in works of fact is meant to protect.

Instead, countless field agents or government

employees perform the labor of researching and

assembling the information, and they do not

receive copyright. As with machine-produced

works, the incentive of copyright in databases

is disconnected from the authorship it seeks

to promote.” Copyright in many computer

databases may increasingly play a role as security for investments, rather than simply providing an incentive for authorship.

Finally, there is a question of how copyright

in computer databases that are continuously

modified should be administered. Copyright

law requires that the copyright owner comply

with a number of administrative formalities.

In general, the copyright owner must deposit

two copies of any published work bearing notice of copyright protection in the Copyright

Office within 3 months of publication.70 The

68 17 U.S.C.§§ 103, 101.

“

qThis issue was central to a controversy surrounding the

or-dine Computer Library Center’s (OCLC’S) bibliographic database. The contributors to the OCLC database are member

libraries, some of whom objected to what they saw as an undeserved windfall for the OCLC database proprietor. In a letter

from one of the member libraries to the Copyright Office, a question was asked “whether it is legally or morally legitimate to

copyright a database comprising records where both the intellectual content, the physical record creation, and the input of

a great bulk of the records are funded with taxpayer’s dollars.

Cop>’right Notices, vol. 32, May 1984.

17 U.S.C. ~407. Failure to deposit these copies may result

in a fine of the copyright owner. The Register of Copyrights

may exempt categories of materials from deposit requirements,

copyright deposit is required in order to acquire copies “for the use and disposition of the

Library of Congress."71 Indeed, much of the

Library of Congress’ collection is a product of

many years of copyright deposits.

Databases, like any other work, may be deposited for the Library’s use and disposition.

‘Many databases, however, are “dynamic”-

they-are constantly updated, expanded, and

modified, so that the “work’ is never in a fixed

or final form. Dynamic databases, therefore,

raise a question of whether and how copies are

to be deposited with the Copyright Office, and

whether the objectives of the deposit requirements can be met.

To get around the difficulties of depositing

dynamic databases, industry representatives

from the American Association of Publishers

and the Information Industry Association

have proposed “group registration” and the

deposit of “identifying materials’ of dynamic

databases, which would represent portions or

samples of the copyrighted database.72 Although the industry proposal may prove workable for administrative purposes, questions remain over whether the objectives of the deposit

requirement will be met. If, in the future, more

and more information is stored in computer

databases, and is subject to perpetual modification, policy makers may need to reexamine

the rationale for deposit in light of the needs

of the Library of Congress and the burdens on

copyright owners. -

or modify deposit requirements. Only the first and last 25 pages

of “identifying material’ of computer programs, for example,

need be deposited. 37 CFR !202.20.

“] 17 U.S.C. $407, Notes of the Committee on the tJudiciary,

H.R. No. 94-1476. The fundamental criteria gmerning exceptions to the deposit requirements are the needs and wants of

the Library, balanced against the hardship of deposit on the

copyright owner.

250 Federal Register, 24240 (June 10, 1985), W’hile such a

solution is perhaps plausible for databases which rely on a more

or less constant and overarching "selection and arrangement’

of information (see discussion below), it is less plausible for works

of art. The protectable expression in many works of fact is often

the format or arrangement of data—the formal “receptacle” into

which new content can be added. In works of art, however, the

protectable expression is the content itself–the way the picture looks or the way that the story reads. When the protectable expression is itself in flux and exists in many different versions in many different places, it may not do to register the

creation in the categorical way envisioned the proposals of the

AAP and the 11A,
78 . Intellectual Property Rights in an Age of Electronics and Information

Works of Function and Computer Programs

The category “works of function, ” as used

in this discussion, denotes those works that

use information to describe or implement a

process, procedure or algorithm.73 They may

be physical objects which embody procedural

information, such as cams or cogs in a machine,

thermostatic controls, or punch cards for a

loom. In general, physically embodied works

of function implement a procedure, process, or

algorithm directly by being incorporated into

the intrinsic design of the mechanism.74 However, not all works of function are physical embodiments of information. They maybe written

works, such as recipes or instruction manuals,

which merely describe a procedure or algorithm

that must be implemented by a human being.

Modern technology has created a new class

of functional works. They are hybrids of those

works of function that physically implement

processes and those that describe processes.

Computer programs are hybrid functional

works insofar as they employ words and symbols to implement and control a process. Although understandable by humans, computer

programs also initiate and control processes

or procedures by operating electronic switches

in a computer. These switches may, in turn,

control other machines or devices.75

Important differences exist between works

of function and works of art and fact. Unlike

works of art, works of function are seldom valued for their intrinsic or aesthetic qualities. ———. .-— .— .

“’rrhe Dictionary of New Information Technology (New

York: Vintage Books, 1982) defines an algorithm as “a procedure, or rule, for the solution of a problem in a finite number

of steps.

“For example, a cam in a machine is a physical embodiment

of the logical operation: “if there is a 3600 turn, push rod X.

It implements this procedure directly when the camshaft is

turned 360 . Similarly, a thermostat physically embodies the

logical operation “if the temperature rises above 70°, turn off

switch Z.” [n each case, the design of the object embodies information to a surrounding physical system.

7’Recombinant DNA may also be thought of as a hybrid

functional work; encoded genetic information can be used to

control the production of proteins in a living, physical organism. This section focuses principally on computer programs as

functional works, and considers recombinant DNA only briefly, and by way of contrast with computer software. One reason

for this is that, while both are arguably works of function, they

raise separate social, economic, and ethical issues which are beyond the scope of this report.

A recipe, for example, is useless without the

necessary ingredients and utensils. Similarly,

a step-by-step instruction manual for a nonexistent machine, or a computer program without a computer has no value. Works of function also differ from works of fact. The value

of a work of fact lies in its accurate representation of reality-maps and news stories, for

example, are reports about what is. Works of

function, in contrast, are descriptions of what

can be if a given procedure is followed.

Although copyright protection is available

for works of function, it is subject to a very

important limitation: Copyright does not protect the functional aspect of functional works.76

Copyright in a recipe, for example, does not

grant the copyright holder rights in the procedure described in the recipe. Others are free

to bake the cake, and infringe no copyright in

doing so. The functional aspects of a recipe are

separated from its descriptive aspects, which

alone are protectable.

For computer programs, the difficulty is protecting their descriptive aspect—the symbols

used in the program-without at the same time

protecting their functional aspect–what the

symbols do in a computer. Because programs

possess both a symbolic and functional nature,

copyright may either protect too little if the

copyrightable expression is limited to the literal program code, or too much if the copyrightable expression extends beyond the program

code.

Computer Programs.77 On the basis of the recommendations of the CONTU Commission,

and without legislative debate, Congress determined that computer programs could be

copyrighted as “literary works” under Section

“This is the law under Baker v. Seldon, which was discussed above.

“The words “program” and “software” are often used interchangeably, but software has, in recent years, broadened to include the supporting materials which accompany the sale of computer programs, and even the the content of technologically

based communications (e.g., prerecorded videocassettes are often

referred to as software). This chapter adopts the terminology

of the Copyright Act, and speaks in terms of computerprognwns,

which are sets of “statements or instructions to be used directly

or indirectly in a computer in order to bring about a certain

result. ” 17 U.S.C. § 101.
Ch. 3— The Accommodation

102 of the 1976 Copyright Act. 78 Although the

issue of whether computer programs could or

should be either copyrighted or patented was

the subject of considerable legal controversy,

it is now dormant.

In the nearly 10 years since CONTU’s recommendations, the types of litigation over

computer software have evolved through what

one lawyer has called ‘two generations."79 The

first generation concerned the issue of whether

computer soft ware is or should be protectable

by copyright. Except for certain details, the

courts have resolved these questions in favor

of copyright protection for programs.

The second generation of computer program

litigation, still in progress, concerns what kind

and how much protection will be afforded. The

questions emerging during this generation

point to strains within the conceptual fabric

of copyright, which have existed ever since its

inception. This chapter will focus on the issues

likely to arise in this second generation litigation.

The 1980 amendment to Section 101 of the

Copyright Act defines a computer program as

‘‘a set of statements or instructions to be used

directly or indirectly in a computer in order

to bring about a certain result."80 The courts

have interpreted this definition in a very comprehensive fashion:

Any Medium: The set of statements or instructions can be embedded in any medium,

from paper to magnetic tape to disks to ReadOnly Memory (ROM) silicon chips.81

“1 980 Computer Software Copyright Act; Dec. 12, 1980;

Public I.aw No, 96-517, \ 10; 94 Stat. 3028. The amendment affected only $ ]101 and 117 of the code, which, respectively, concerned the definition of ‘‘computer program and ‘‘ I,imitations

on h; xclusive Rights.

‘Jon Haumgarten, “(’copyright and Computer Software: L)atabases and Chip Technology, ” an unpublished bibliography, 1985.

“’Title 17 ~ 101, as amended Public I.aw 96-517, $ IOia}, I)ec.

12, 1980, 94 Stat, 3028. Note that “computer software’ is used

differently than “computer program” here and elsewhere in the

literature; the former includes such ancillary material as written instruction manuals, books, and supporting documentation.

M .See Apple Computer Inc.}, Franklin Computer (’orp., 714

F.2d 1240 {3d Cir. 1983), cert. dismissed per stipulation, 104

S. Ct. 690; and Apple Computer, Inc. ~’. Formula International,

Inc., 724 F.2d 521 (9th Cir. 1984), By implication, copyright

would also extend to programs in Programmable-ROMs

(PROMS) and Erasable-Programmable ROMs (E; PROMS).

of Intellectual Property Law to Technological Change ● 7 9

Any Form: The program may be “source

code, i.e., the form in which a programmer

writes the program in a particular language

(such as BASIC or PASCAL or FORTRAN);

or “object code, ” which is the source code

translated into a form directly processed by

the computer. ” Any program, whether used

to govern the internal operations of a computer or used to interact with the user, may

be considered copyrightable.83

Any Computer: The term “computer” is

quite broad, encompassing everything from

fast, specially designed Cray supercomputers, which may be constructed out of thousands of integrated circuits, to a single

microprocessor chip.

Computers are commonly described in terms

of hardware, which is the physical machine

components, and software, the term for computer programs. In modern computer design,

however, hardware and software functions are

largely interchangeable. The allocation of func-

“’This ‘(breakdown” is usually accomplished automatically!

by the computer through the use of an “interpreter,” “compiler,

or ‘‘assembler’ (which is itself a programl. An?’ computer program in a given language may be used as the source code for

an object code in another language. ‘‘1 I igh le~rel languages,

such as ‘‘1.1 SP, in their machine code form, ma~’ sertre as the

object code for a source code written in another language, such

as FORTRAN. The FORTRAN“ program can in turn function

in the presence of a “ PI, 1“ interpreter as the source code for

source code written in the language PI. 1. In this fashion, programs may be layered upon programs. Object code and source

code are merely relational terms, designating which language

the programmer may be working in, and which language the

machine operates in, Indeed, the so-called htwdwrm-e in a given

machine may itself be configured in 1. I SP (or any otherl ‘‘software language; the hardware software distinction is not absolutely distinct.

“’’Microcode,” also know as ‘‘firmware, is the most primitive level of programming, and embodies the sequence of paths

that a given electrical signal is to follow between the arithmetic

and logic units of the computer. Its function is to replace a "hardwired control system that ‘‘ mediate[s] the transfer of information between the central processor, the main memor~’ units,

and the various input and output devices. David Patterson,

“ Microprogramming, Scientific American, \’ol. 248, March

1983, p, 50. The copJ’rightability of microcode remains unest ablished, but it seems in principle no less “a set of statements

or instructions’ than any other form of program, although it

is not usually changed, or even seen, once it is etnbedded in a

microprocessor. Microcode has been held patentable, in re BradIPJT, 600 F.2d 807 (C. C,P.A, 1979), tiff”d, by an equallJ cfi~icfed

court, sub nom. Diamond ~’. Diehr, 450 U.S. 381 { 19811, and

a case is pending on the issue of its copy. rightability, ,N-EC ~.

Intel, Ci\r. Action No. 84-20799, A motion for summar~ judgment in the N F~C case has been denied, and is scheduled for

trial in April 1986.
80 ● Intellectual Property Rights in an Age of Electronics and Information

tions between them is the result of design decisions that balance such factors as the speed,

cost, and flexibility required in the final product. The symbols in any computer program,

therefore, are ultimately substitutes for hard

wiring. This interchangeability between software (symbols) and hardware (circuitry) make

programs a paradoxical sort of “writing, since

they are symbols expressed as components of

machines.

Like other copyrightable works, programs

symbolize information to human beings, and

can be read and understood by programmers.

The CONTU Report stressed that programs,

like other copyrightable works, communicate

to those who can read them.84 Because computer programs are symbolic, they appear to

be at least as eligible for copyright as sound

recordings, which require a record player to

be understood by human beings.85 But, computer programs unlike previous “literary

works, are both writings in the traditional

sense and tools for accomplishing particular

results. All traditional forms of writings are

inert and purely representational. Books, movies, musical compositions, paintings, or statuary do nothing that a user does not do with

them. They simply convey information or entertain a reader, viewer, or listener. But, as one

expert in artificial intelligence says:

 . . .. [t]here is a qualitative difference between

the computer as a medium of expression and

clay or paper. Like the genetic apparatus of

a living cell, the computer can read, write and

follow its own markings to levels of self-interpretation whose intellectual limits are still

not understood.86

Computer programs also differ not only from

works of art and fact, but also from traditional

works of function such as cams, thermostats,

instruction manuals, code books, or recipes.

“CONTU Final Report, p. 21.

‘“TO accommodate the way in which technology mediates information between human beings, a provision in the Copyright

Act says that all original works of authorship are copyrightable so long as they can be perceived, reproduced, or communicated, “either directly or indirectly with the aid of a machine

or device. ” 17 U.S.C. §102(a),

“Alan Kay, “Computer Software, ” Scientific American vol.

251 September 1984, p. 53.

These traditional works either describe a process to a person, who then intervenes to lend

the words or phrases their utility, or they implement a process without describing it. Computer programs, as hybrid functional works,

describe and implement processes. They cause

physical changes to occur in a machine, and

can interact with other programs or with an

environment. A recipe encoded in a program

language cannot only tell a programmer how

to bake a cake, it can “tell’ the computer, too.

With the appropriate robotic apparatus, the

recipe can cause the cake to be baked.

The hybrid character of computer programs

raises some very difficult problems for the law

of copyright, and has prompted commentators

to point to inconsistencies in copyright protection for programs:

No one would ever advise you that the copyright on a schematic diagram of a diode matrix would extend to the diode matrix, yet

that is exactly what is being done by extending copyright on 1s and 0s to a diode matrix

which it represents. Thus the same diode matrix could be covered by copyright on one

form of work and not the other. This is obviously wrong. 87

These inconsistencies grow out of the basic

copyright distinction between unprotectable

ideas and protectable expressions, and they are

symptoms of a very fundamental problem with

copyright protection for computer programs.

The problem is whether copyright protection

can be limited to the “expression” of a computer program, without also protecting the

“idea, procedure, process, system, method of

operation, concept, principle, or discovery. ’88

Although both CONTU and Congress made

““Letter to OTA from Manny D. Pokotilow, Esq., Cesar, Rivise, Bernstein & Cohen, Ltd., Philadelphia, PA, Aug. 5, 1985.

See also: Richard Stem, “The Case of the Purloined Object Code:

Can It Be Solved?” BYTE, September 1982; and Pam Samuelson, “CONTU Revisited: The Case Against Copyright Protection for Computer Programs in Machine-Readable Form, ” 1984

Duke Law Journal, 663 (1984).

“The quoted language is from 17 U.S.C. \102(b). The

‘‘idea/expression dichotomy codified therein is a broader formulation than “ideas,” per se. It comprehends the distinction

made in Baker v. Selden between the expression and the ‘‘art

expressed, rather than just the abstract manner of presentation.
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change S 81

clear that “the expression adopted by the

programmer is the copyrightable element in

a computer program, and that the actual processes or methods embodied in the program are

not within the scope of the copyright law,"89

the question still remains. What is the expression in a computer program?

Part of the problem is that the scope of the

expression of a computer program can vary

widely, depending on how the word expression

is interpreted. As figure 3-4 illustrates, computer programs can be described in many

ways, ranging from those descriptions that focus on the precise code used to those that generally describe the procedure or algorithm to

be implemented by the program. The boundaries of copyright protection in programs will

depend on what is considered an expression

and what is considered an idea.%’ Opinions vary

on where the protectable expression should

stop and where unprotectable ideas begin, One

author believes that ‘the expression in the software does not consist of the exact written

source code, but the specific logic and design

of the program."91 others take an opposing

view, and argue that copyright protection in

a computer program, ‘‘is limited to the literal

code and does not extend to the structure or

other nonliteral elements of the computer program."92

Regardless of how legal scholars resolve the

issue of idea and expression, the Federal courts,

in interpreting copyright law, will eventually

face a dilemma; either: 1) the copyrightable expression in a computer program will be limited

“‘{ l{c~~ Yfj. :144T:] , 94th (’ong., 1st sess. 1975, p. 54; and

11 R Rep A() 91- 14’76, 94th (’ong., 2d sess. 1976, p. 57 (emphasi~ added). I n k(wping with this notion, the circuit court in ,A\ppl(~ ( ‘omputt’r. In(,. \ b’ranklin Computer Corp., 714 F.2d 1240

~tld (’ir. 19H:;), said t haL ‘‘ .IIpplp does not seek to copyright the

met hcd which in+t ructs the computer to perform it~ operating

fun(tif)n< hut {~nl} t ht instructions thcmsel~cs.’

‘ SWI [’art 1 of t hls chapter for a discussion of idea and expr(’s<lon :i~ t ht. deterrn]nant of the boundaries of intellectual

propert~ OW nershlp.

I )un(an I )a~rlds{)n, ‘‘ [’protecting (’omput~~r Softvare: A

(’(jmprt’h[’n~i~ e /\nal}si\, ,lurimefric.~Journal,summer 1983.

p :jt;;

< I )efend;int ilemorandum in Support of Their hlotion for

New Trial and or to Alter ,Judgment, }I”helan .Alssociates, Inc.

I’. .Jaslow l)enta] I.atmratory’, Inc., Ci\’il Action NO, 83-4583 [P;,

1), I)a 1 W5), p, H; reported in 22,5 (1, S. P.Q. 156 {I<:. 1). Pa. 1985).

to the strict line-by-line program code, in which

case the unscrupulous might easily escape liability for infringement by simply varying the

code in a trivial way, or 2) the copyrightable

expression will be extended to the logic, design, structure, performance or even the output of the computer program, in which case

one has copyrighted a “procedure, process, system, or method of operation, ” The cases that

have been decided thus far indicate that the

courts are adopting the latter alternative, and

have extended the meaning of expression in

computer programs to include the processes

that the programs implement. One opinion, for

example, suggests that a program that achieves

results similar to other programs, or even to

other works of function—such as a commodities trading manual— will constitute an appropriation of a copyrighted expression. ” The

court in this case emphasized a similarity in

“overall structure’ between one work and the

other. In another case, a court found that 44

out of 186,000 lines of code constituted substantial similarity of expression.94 Yet another

court ruled that ‘‘the protectable expression

in a computer program is the manner in which

the program operates, controls, and regulates

the computer in receiving, assembling, calculating, retaining, correlating, and producing

useful information either on a screen, print-out,

or by audio communication."95

In theory, none of these rulings is permitted

under traditional copyright principles. This is

not because the courts have misinterpreted

copyright law, but because copyright law cannot be successfully applied to computer programs. Unlike artistic or factual works, which

44’i4’illiams \v. .4rndt, F. Supp. (1) hftlSS., 198S1, ~().

83-3397. In this case, the plaintiff’s work was a s~ep-hy-step

method for trading in various commodities. The defendant, without authorization, translated the plaintiff work into a computer program that achie~’ed similar results, and was found

~ilt~ of infringement.

“’S,4S Institute l’, S&H Computer S.v’stems, Inc,, F’.

Supp. (M.D. Term. 1985), No. 82-3669. The court in this

case also had before it e~’idence of actual cop}’ing b~ the defendant s–a fact which made the conclusion of infringement easier to draw.

‘ \$”helan Associates, Inc. J, Jaslour Dental Laboratory)’,

Inc., 225 (JSPQ 156 (F;.1). Pa. 1985), hut see: Q-CO, Industries.

inc. ~, Iioffman, F. Supp. , No. 85 C’i\’. 4653 RW’S

(S. D. N.}’. 1985)
82 . Intellectual Property Rights in an Age of Electronics and Information

Figure 3-4.—Computer Programs - “What Is Protected?”

Each of items (a) through (g) represents a

different, but equivalent expression of a

procedure for computing an average. Each of

these expressions could act as a program for

computing an average, depending on the

sophistication of the computer operating

system handling the information.

If copyright protection in one of these

expressions is broadened to include any or

all of the equivalent expressions, then

copyright protection has been extended to

ideas or processes, and assumed patentIike status without stringent patent

requirements (such as novelty and

nonobviousness).

If copyright protection in one of these

expressions is limited only to that expression, then copyright protection is almost

useless, because it allows others to escape

infringement by insignificant variation of

the expression.

The scope of patent protection in programs

IS also hard to ascertain. The distinction

between mathematical formulae,

algorithms, and computer programs, is not

clear. In theory, one cannot patent

mathematical formulae or laws of nature,

but how is this distinction between

discoveries and inventions to be drawn in

the context of computer programs?

Intellectual property protection for such

fundamental procedures as computing an

average is problematic. Proprietary rights in

the “building blocks” of computer science

may impede, rather than further, its progress. If rights are to be granted in

functional works such as programs, at least

one question is: what is so basic as to constitute a “staple” item in the trade?

As computers become more sophisticated

in their ability to process natural language

(conversational English, for example), the

line between what counts as a protectable

program and what constitutes user input

will begin to blur. As this illustration shows,

“program” and “algorithm” have no fixed

meanings.

(a)

To compute an average, sum the numbers

in the set to be averaged, and divide by the

number of items in the set

(b)

(c)

Get a data item

add item to total

increment index

if no more items, continue:

else go to get

divide total by index

(d)

10 data 10, 12, 17, 22, 6, – 1

20 read X,

30 If x = – 1 goto 70

40 let Xt = Xt +X,

50 n = n + 1

70 average= Xt/n

80 print average

(e)

Get item x(

I

xt

= Xt +x,

I

n=n+1

(f)

Call average

10, 12, 17, 22, 8

(9)

01100100110101010

10010011011001110

01110101001100100

110100110, ., .

SOURCE Off Ice of Technology Assessment
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 83

are subject to the ‘‘abstractions test between

idea and expression, copyright in computer

software is an either/or choice. Either one protects the words or variables as they are literally represented by the programmer, or one is

forced to interpret those words or variables in

terms of the procedure they implement in a

computer system; thus protecting a procedure,

process, or method of operation. ’G The “clear

distinction” made in Baker v. Selden, “between

the book, as such, and the art it is intended

to illustrate, collapses in a computer program,

because the program embodies both “the book”

and “the art. ” one cannot arrive at a “clear

distinction” between idea and expression in

a computer program by using traditional copyright analyses.

Policy Implications, The practical import of

appropriate protection for computer programs

lies in the public policy objectives of the copyright system itself. For computer program proprietors and creators, as well as to the domestic and international economies, it is important

that computer programs be adequately protected. 97 If courts construe copyright protection in computer programs narrowly, creators

and proprietors may well find unprotected the

very thing that distinguishes their product

from others–its logic and design. Equally important, if only the precise code is considered

expression, copyright protection will be of

limited use, since this expression can be easily changed by competitors.

... —

“ (’onsider the distinction logicians make between ‘‘object

languag e and ‘‘ met a 1 anKu age (or langua~e about the object

languag[’~ in the context of t h[~ following >tatements:

Ilake the cak(~

Fjxecute ‘‘ Ilake the (akef

The former is the object language; the latter is the meta language. This distinction collapses in computer programs, since

propositions can be ‘ ( recursike’ i.e., they can serve as both object and meta statements. ‘( Bake the cake, ’ depending on the

con t~’ x t of use within the running of a computer program. may

either be information to be displayed to the user, or a subroutine instructing the computer to bake the cake.

‘‘A major, if not the chief means of in~renting toda}’ is being done in a non-engineering liberal arts mode which is alien

to the historical patent-copyright paradigm, From a speech

given by .John I,autsch, “W7hy Be Concerned About Proprietary I%otection of Software’?’ American Bar Association Conference. W’ashingt,on, 1)(’, tJuly 1985.

If, on the other hand, courts continue to interpret the expression in computer programs

as broadly as they have in recent cases, developers of computer programs may also be adversely affected, If copyright in computer programs is held to extend to the “useful

knowledge’ ‘–the method of achieving certain

results—embodied in the program structure

or algorithms, copyright may block software

innovators by precluding the creation of programs that differ in detail, but implement and

perhaps improve on copyrighted programs.’”

The patent system was designed to have this

effect, but it is inappropriate for the copyright

system, which was neither doctrinally nor administratively designed to protect functional

information. Overly broad copyright protection would give the owner patent-like protection over processes for a much longer duration

than patent law provides, and do so with no

examination for the program’s novelty or nonobviousness, as is required by patent law.

Moreover, patent law requires that an invention bean advance over the ‘prior art, requiring an inventor to examine previously patented

claims before gaining patent protection. For

this reason, the Patent and Trademark Office

keeps records of all patents that have been issued. But the Copyright Office does not keep

records of “prior art, ’99 which leaves no way

of predetermining whether a program that performs similar functions or obtains similar results will infringe a previously copyrighted

program.

Copyright law does not distinguish between

the types of computer programs it protects,

which may exacerbate some of the difficulties

described above. The type of computer program that is copyrighted may significantly af-

“AS tJustice Bradley commented in Baker ~, Selden: “The

~’er~’ object of publishing a book on science or the useful arts

is to communicate to the world the useful knowledge it contains. But that object would be frustrated if the knov.ledge could

not be used without incurring the guilt of piracy of the book.

101 LJ, S. 841 at 103 ( 1880).

“Deposit of programs in the Copyright office is required if

the program is published with notice. 17 U.S. C. \407. Howe\rer,

only the first and last 25 pages of a program need be deposited,

and these need only be sufficient to identify the program in question. 37 CFR $202.20 (c)(viii(A). These pages need not disclose

any of the workings of the program,
84 ● Intellectual Property Rights in an Age of Electronics and Information

feet the market power a copyright owner can

possess.100 For example, both operating systems and applications programs are generically

computer programs, but crucial distinctions

exist between the two. Operating systems govern the internal operation of a computer, and

allow it to communicate with a range of applications programs (e.g., spreadsheets, graphics,

and word processing programs). The operating system will, therefore, determine which applications programs can run on a particular

computer. Thus, copyright on an operating system may be a far more powerful right than a

copyright on an applications package, and may

govern the market for applications packages.

Indeed, this desire to make one’s applications

program marketable may have been at the

heart of the Apple v. Franklin case, since it

was unlikely that the 15,000 applications programs written for Apple’s operative system

would be rewritten to run on the Franklin Computer’s machines. ’”’

Reverse Engineering. The trend of interpreting expression broadly in copyright for computer programs may also pose problems for

reverse engineering. Reverse engineering refers

to the unauthorized, although not necessarily

illegal, reproduction of programs in their object or source code form for the purpose of

teaching, analyzing, or evaluating the concepts, techniques, or ideas embodied in the program. 102 This process promotes innovation by

allowing programmers to build on the works

of others in the creation of new works. It also

eliminates the need for redundant research and

development. Reverse engineering allows abstract knowledge and techniques to be passed

on, while prohibiting the wholesale appropriation and sale of another’s work.

——- —

“’”For a thorough discussion of copyright and market power,

see ch. 6.

‘“’ Allan Schmid, “Intellectual Property Rights in Biotechnology and Computxx Technology, ” to be published in Zeitschrift fur die gmmrnte Staatswissenschaft, 1985. One writer

argues, however, that this problem has been contradicted by

the facts. Duncan Davidson, “Software and the Wealth of Nations, ” to be published in Computer Law and Practice, 1985.

‘“’The language used in this definition is adapted from the

Semiconductor Chip Protection Act, 17 U.S.C. f906.

Computer programs create unique concerns

about reverse engineering because, unlike other

copyrightable works, their expression is not

disclosed when they are published. ’03 While a

journalist can learn his craft without copying,

by reading the others’ published works, a programmer cannot. He must copy the program

from its original storage medium–probably

by decompiling it into source code form–in

order to read and learn from the works of his

predecessors. This copying may give rise to

copyright liability, even though it may in no

way interfere with the market value of the copied software.104 The copy that is made in the

course of reverse engineering may have relatively little financial value. It may bear little,

if any, resemblance to the work that is allegedly

infringed, and may even be destroyed after use.

Instead of examining the work, the court looks

to the “paper trail” left by the defendant in

the research and development process. The infringement often occurs in the process of copying a program to create a new one. However,

courts have used this initial copying as the basis for finding that the final work produced by

a defendant was an infringement, even though

it resembled the copied program only slightly.105 This creates uncertainty whether any

copying, even that for reverse engineering, is

legal.

As it exists, copyright law offers two conceivable ways of dealing with the problem of

reverse engineering. One possibility, Section

117 of the Copyright Act, permits copying of

software as an “essential step” in the utilization of a computer program for “archival pur-

— . .—

‘

r

’

] For a discussion of the disclosure issues surrounding computer programs, see Pamela Samuelson, “CONTU Revisited:

The Case Against Copyright Protection for Computer Programs

in Machine-Readable Form, 1984 Duke Law Journal 665.

‘“Pamela Samuelson, “The Demise of the Right To Reverse

Engineer Computer Programs: Is It Appropriate?” unpublished

draft, Sept. 25, 1984.

‘

(

’’Indeed, the emphasis on the conduct of the defendant, as

opposed to an assessment of the similarity in content between

works can be seen in several recent cases: e.g., SAS Institute,

Inc. v. S&H Computer Systems, Znc. (1985 M.D. Term.), No.

82-3669, Whelan Associates, Inc. v. Jaslow Dentaf Laboratory,

225 U. S.P.Q. 156 (E. D. Pa. 1985), and Hubco Data Products

Corp. v. Management Assistance, Inc., 219 U.S.P.Q. 450 (D.

Idaho 1983).
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change “ 85

poses. "

106 This provision does not explicitly address the issue of reverse engineering. CONTU,

which wrote section 117, interpreted ‘ ‘essential step” narrowly, to include only the copying done by a computer in the process of loading a program into the machine. Likewise, the

courts have followed this interpretation. 107 A

broader interpretation of “essential step”

might permit reverse engineering. But because

such a broad interpretation of section 117 may

also conflict with the copyright owner’s exclusive right to prepare derivative works,108 it

seems to be a slim reed on which to facilitate

reverse engineering.

Alternatively, the doctrine of fair use may

provide for reverse engineering, because it permits copying for scholarship or research. 109 Fair

use, however, evolved in the context of print

technology, and so several of its features make

it an uncertain device, at best. Two of the criteria used in determining the fairness of a use

are: ( 1 ) the purpose and character of the use,

including whether the use is of a commercial

nature; and 2) the amount and substantiality

of the work as a whole. 110 Because reverse engineering is often performed for inherently commercial reasons, the “purpose and character

criterion could weigh against a finding of fair

use. Furthermore, programs must often be copied in their entirety to understand their workings, or to study the relevant portions of code.

The fair use factors concerning “amount and

substantiality’ not only deal with the number of copies of a work made, but also with the

portion of a work that is copied. Hence, the

fair use doctrine may not allow reverse engineering. However, because there has been no

court decision on the matter of reverse engi-

‘“The relevant part of section 117 reads:

it IS not an Infringement for the owner of a copy of a cc)n)puter program to make a cop~ or adaptation of that computer

pro~am pro~ided ( 1 I that-~uch a new copy or adaptation I S

created as an csw’n tlal step in the ut]hzat Ion of the computer

pro~am In conjunction with a rnachlne and that It IS used In

no other manner

‘ See, e.g.: Midwa~’ Alanufacturing Co I’. Strohon, 564

F.supp. 741 (?J. I). Ill. 1984),

“17 U.S.C, ~ 106,

‘

qThe doctrine of fair use is codified in Section 107 of the

Copyright Act, and is discussed in ch. 7 of this report.

“17 U. SC. ~107, sections 1 and 3

neering, it is impossible to say definitively

whether fair use will allow it.

Computer Program and Patent Law

Given the problems of applying copyright

protection to computer programs, patent protection may be a more viable alternative than

fair use. Among other things, patent law protects new and useful processes,111 and computer

programs, as works of function, use information in a process. Many patents have been issued for computer programs.

Patent protection, however, also poses problems. Some are theoretical; not all programs

that need protection will be eligible for patent

protection. Some are practical, and have to do

with how suitable the patent system is to the

commercial environment of program engineering.

Programs and Patent Theory. Since 1966, the

issue of program patentability has been juggled among the Patent Office, the Court of Customs and Patent Appeals (now the Court of

Appeals for the Federal Circuit), and the Supreme Court.112 Computer programs have proven to be as problematic an “invention’ for patent law as they have been a “writing” for

copyright law.113 For, the same characteristics

that make programs acceptable subject matter under the copyright scheme cause problems

under the patent scheme. Whereas copyright

has problems with the functional nature of programs, patent law has difficulties with symbolic nature of programs. They represent processes that have heretofore been mental, such

——— ——

]‘ ‘Section 101 of Title 35 (Patents) states that whoe~er invents or discovers any new and useful ~ 1 I process, (2) machine,

{3) manufacture, or (4) composition of matter, or an}’ new or

useful improvement thereof, ma~’ obtain a patent on his in\ren -

tion or discovery.

‘ “SW Duncan Da\ridson ‘‘ I’rotecting Computer Software:

A Comprehensive Analysis, in 1983 .Arizona State I,awr Journal 611, 634-650.

“ ‘One writer has suggested that ‘‘[m]uch as the distinction

is breaking down in copyright because of technological changes

blurring the distinction between a product and its idea, so tooespecially in the area of computer software— is the dichotom~.

losing its meaning in patent law. ” James Beniger, Information

Technolo~”es and Commodities in the De~’elopment of intellectual Proper.\’: Changing Rights and Practices, OTA contract

report, April 1985, p. 58.
86 • Intellectual Property Rights in an Age of Electronics and /nformation

as balancing a checkbook or searching for a

word in a text.

Strictly speaking, computer programs are

not in and of themselves patentable. At

present:

. . . [patent protection] is available for computer programs that are intrinsically tied to a

device which physically and automatically applies the results of the computer program. . . .

The invention is not in the program: It is

merely implemented by the program (and) is

actually a new method of doing something.

Patentability is determined by whether the

program implements a physical process that

is itself the subject of invention, and meets the

criteria for patentable processes.115 For example, a method of typesetting,116 of timing the

curing of rubber,117 of searching for oil,118 or

of storing and manipulating telephone signals

and records in a database 119 are patented inventions that include computer programs as

components of the invention. Programs that

are the only novel component of an otherwise

unpatentable process, 120 or that merely implement an algorithm or a scientific or mathematical truth,121 are not patentable.122 This is the

‘John C. Lautsch, American Standard iiandbook of Software Business I.aw (Reston, VA: Reston Publishing, 1985), p. 65.

“That is, useful, novel, and nonob~ious (35 U,S.C. \\lOl,

103). Similarly, machines, methods of manufacture, and compositions of matter that employ programs and that meet the

statutory criteria for patentability are also patentable.

‘” In r-e Freeman, 573 F,2d 1237 (CCPA 1978).

“ Diamond v’. Diehr, 450 U.S. 175 (1981).

“In re Taner, 681 F.2d 787 (CCPA 1982).

“’I’atent No. 4,479, 196– Hyperedge E~nti~r-Relationship Data

Base Systems ( 1 984), for example.

‘“’ Parker ~. Flook, 437 U.S. 584 ( 19781.

“Gottschalk ~, Benson, 409 U.S. 63 { 19’72). The Supreme

Court ruled that a program for the conversion of binary coded

decimals into pure binary numerals could not be patented, since

“the patent wollld wholly pre-empt the mathematical formula

and in practical effect would be a patent on the algorithm itself. ” 409 U.S. at 71 72 (1972).

‘“’This statement is based on the caselaw that has so far developed. one observer, however, has pointed out that “[p]atents

are now being granted every week with claims covering a series

of steps which can be executed completely on a computer and,

it appezws, without any last-step output, that is, to turn a crank,

light a light, eject a part, and so forth. Whether court (sic) will

uphold such claims in infringement proceedings remains to be

seen. ” Letter to OTA from Robert Shaw, The Patent, Trademark, and Copyright Research Foundation, Franklin Pierce Law

Center, Oct. 11, 1985. Many paten s have been issued for “pure” #b,

programs (e.g., 4’SW’IFT-TECH” is a patented computerized

database search algorithm that runs on mainframe, mini, or

microcomputers. U.S. Pat. No. 4,270, 182).

case for a great many computerized industrial

processes, and the majority of programs written for personal computers.

The courts’ reluctance to uphold patent protection on programs in isolation from physical processes points to a very fundamental

problem with patent protection for programs.

Programs are expressions of algorithms, which

are rules or procedures for achieving particular results. Algorithms, like mathematical formulae and laws of nature, are not patentable,

Yet, the algorithms expressed in programs can

also be configured in a computer in hard-wired

form.

This equivalence between algorithms in

hardware and those in software raises an issue concerning the patent ‘doctrine of equivalents.” The doctrine states that a patent protects equivalent configurations, even though

they may neither be disclosed nor actually

claimed, unless the equivalent configuration

performs the function in a substantially different way.123 If, therefore, a program can be

described in terms of the functioning of digital logic circuitry in the computer hardware,

rather than in terms of algorithms embodied

in software, patents might be issued on machines which if they were software, would be

denied.124

The Practical Limitations of Patent. There are

administrative and practical problems connected with seeking patent protection for computer programs. Many observers consider time

and expense to be the greatest drawback. A

claim may be pending for 2 to 3 years and cost

an inventor upwards of $10,000 to prosecute. 125

Many innovators may find the time and expense involved in obtaining patents for computer programs prohibitive, depending on the

rate at which software designs become obsolete, and the amount of financial resources

available to a given software innovator. Even

‘“{Duncan Davidson, “Protecting Computer Software: A Comprehensive Analysis, ” 1983 Arizona State Law Journal 611,

643, citing 4 D. Chism, Patents, $18.04 (1982)

“’Ibid.

“’Larry Kahaner, “Patent Reform, Pending, ” Across the

Board, September 1984, p. 36; and conversations with Richard

Stern (see note 44) and Robert Shaw (see note 122). See ch. 9

on institutional issues.
Ch 3— The Accommodation of Intellectual Property Law to Technological Change ● 87

after a patent is successfully obtained, it is

often found invalid when challenged in court,126

making the value of a patent to investors highly uncertain. The scope of patent claims in programs, too, is uncertain, because of their symbolic nature. The actual code written by a

programmer is seldom the subject of patent

claims. Instead, what is claimed is the process that the code implements, and the program

is incidental to this process. The scope of the

patent claim may, therefore, be difficult to

delineate precisely, because it does not refer

to a specific embodiment or tangible item.

Computer Programs and Trade Secrets

A trade secret is a form of intellectual property that covers any confidential formula, pattern, device, or compilation of information used

in a business, which gives that business an opportunity to obtain an advantage over competitors who do not know or use the secret.]”

Trade secret law is a viable method of protecting computer programs, and in some cases,

seems better suited to programs than either

patent or copyright. Indeed, software developers rely on it heavily for protecting against

the unauthorized disclosure of competitively

valuable information.

Trade secret law differs substantially from

both patent and copyright law. The law of each

State, rather than Federal law, defines what

a trade secret is, and what rights the holder

of a trade secret has. Unlike copyright, trade

secret protection can extend to the ideas, algorithms, and procedures embodied in a program, as well as to the expression adopted by

the programmer. Unlike patent, a trade secret

generally requires no compliance with formalities, no waiting time to acquire, and no proof

of novelty or nonobviousness. Perhaps most

important, trade secret is not encumbered with

the problems of fitting computer programs into

subject matter schemes of patent and copy-

“Elstimates of holdings of in~’alidity range from 50 percent

(see Davidson, op. cit. ) to 70 percent (Richard Stern, “ROhl

in Search of a Remedy: Can They Find It? 1 Computer Law

Reporter 4, 1982).

“ Restatement of Torts, $75’7, comment B

right. ]28 In trade secret cases, a court is freer

to focus on the effects of disclosure on a plaintiff’s business, and the contractual or tortious

misdeeds of a defendant, rather than on strict

standards of infringement. 129

Trade secret protection, however, has drawbacks from both a public policy and a proprietary point of view. As a matter of public policy, an overreliance on trade secret protection

may hinder technological growth in the computer industry by “locking up” information

that can benefit whole sectors of the industry.

Unlike the patent and copyright systems, trade

secret does not further the goals of disclosure

and publication. Quite the reverse: trade secret

protection is lost by unrestricted or unprotected disclosure of the secret. 130 Trade secrets

are often enforced through contracts between

employers and employees that restrict the employees’ rights to enter into competitive ventures or to subsequently become employed by

competitor companies. Although intended to

protect employers from unscrupulous employees, abuses of these noncompetition agree-

. -.

““Rather than the uniqueness, novelty, or originality of the

program, a court ruling upon a trade secrets case will look to

the unique \’alue of the program to a compan~ competitive

ad~’antage, the company’s in~’estment in the program design,

or the ‘ ‘unique logic and coherence’ of the program. See, e.g.:

Corn-Share, Inc. }$. Computer Complex, Inc., 338 F, Supp. 1229

(E, D. Mich. 1971) and Computer Print S~”sterns, Znc. \’, Lewis,

422 A.2d 148 (Pa, Super. 1980), but see: Structural 11~’namics

Research Corp. L’. Engineering Afechanics Research Corp., 318

N. J4’.2d 691 (Minn. 1982) (“Mere \rariations in general processes

known in the field which embod~’ no superior advances are not

protected.”)

“qThe same can be said of man>’ other State law forms of intellectual property protection. Theories such as tortious interference with contract, interference with prospecti~’e ad~rantage,

misappropriation, and unfair competition law all focus on the

conduct of defendants, rather than on the subject matter of the

item that is allegedly infringed.

‘“’The factors that go into an assessment of whether certain

information is one’s trade secret include:

1. the extent to which the information is known outside of

his business;

2. the extent to which it is known by employees and others

involved in his business;

3. the extend of measures taken by him to guard the secrecy

of the information;

4. the value of the information to him and to his competitors;

5. the amount of effort or money expended by him in developing the information; and

6. the ease or difficult’ with which the information could be

properly acquired or duplicated by others.

Restatement of Torts, §757, comment B.
88 ● Intellectual Property Rights in an Age of Electronics and Information

ments may also hinder technological advance

by acting as a barrier to employee established

startup companies.131

Trade secret protection is of limited usefulness to many types of software developers and

vendors. Programs that are mass marketed are

not suitable candidates for trade secret protection, since the trade secret status of the software is lost through disclosure, and disclosure

is often the natural consequence of mass marketing. To avoid this problem, some vendors

have licensed, rather than sold, their programs,

and required the licensees to keep the program

secret .-Depending on the number of licensees,

however, these schemes may be neither legally

nor practically enforceable.132 The software —— — -. —. —.

“’’These (noncompetition) suits hit the startups at their

most vulnerable stage, when every available dollar and minute

has to be poured into the nascent company. The suits have become so common as to kindle suspicions that some established

companies are using the courts more to suppress competition

than to right legitimate wrongs. ” “In High-Tech Industry, New

Firms Often Get Fast Trip to Courtroom, ” Wall Street Journal, Aug. 14, 1984.

‘-Davidson, “Protecting Computer Software, ” op. cit.

vendor also faces a number of other problems

with trade secret protection, including a lack

of uniformity in trade secret laws from State

to State, and difficulties in attempting to obtain concurrent protection through patent or

copyright law. 133

“Secrecy may be lost through copyright registration and

deposit, or through a Freedom of Information Act request upon

the Copyright office, The Copyright Office has promulgated

‘‘secure deposit” regulations with respect to deposit of the Multistate Bar h~xam, 37 CFR $203.40, and see ,VationaJ Conference of Bar Examiners t’. .Mult,istate Legal $tu~ies, 692 F,2d

478 (7th Cir. 1982), and the Freedom of Information Act has

a trade secret exemption, 5 U.S, C. $552( b)(41, but neither of these

provisions has been construed with respect to computer programs. Section 301 of the Copyright Act preempts State law

that provides 4 ‘equivalent protection. Despite the fact that

the Supreme Court has found that patent law does not preempt

State trade secrets law, Kewanee OiJ Co. ~’. Bicron Corp., 416

U.S. 470 (1974), the situation is not entirely clear with respect

to preemption of State trade secrets law by Federzd copyright

law. See e.g., Videotronics, Inc. t’. l?end Electronics, 564 F. Supp.

1471 (D. Nev. 1983),

PART III: IMPLICATIONS FOR POLICY

The application of a uniform system of intellectual property principles, such as that embodied in copyright and patent law, to divergent types of information-based products may

no longer be possible. Modern technologies are

exaggerating dissimilarities between information products that were once protectable under a single system of law, and are, in some

cases, giving rise to new products that strain

the application of old legal principles.

There may be no one simple solution to the

problem of accommodating intellectual property law to technological change. Being different in kind, many of the problems require different types of solutions. Determining the

proper form of protection for computer programs, for example, is largely a question of

which aspects of programs the law should protect; whereas determining ownership in works

distributed on-line is one of finding a feasible

administrative mechanism.

Problems also require different degrees of

change. Copyrighting dynamic databases, for

example, may call for relatively minor changes

in copyright registration and deposit regulations, but the difficulties that computer and

communication technologies pose for protecting works of fact may necessitate sweeping

changes in the type of protection that the law

currently offers.

The timeframe in which problems are likely

to arise also hinders attempts to construct one

comprehensive solution. Protecting computer

programs is a problem that requires immediate attention, but other issues, such as interactive authorship, may not significantly affect

the intellectual property system until early in

the next century.

Given the complexities of formulating appropriate intellectual property law, it is convenient

to organize Congress’ policy options accord-
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 89

ing to the type of action that might be taken.

A choice of one option does not necessarily exclude others, and the policy maker may choose

to exercise several options at once, or in sequence over time. These options, and their

strengths and drawbacks, are described below.

Option #l: Rely on the Marketplace

Marketplace options accommodate technological change with little or no government intervention. Under this kind of option, private

entrepreneurs, acting individually or as groups,

address problems that exist in intellectual

property law. Solutions to particular problems

will often take the form of “technological fixes”

or private contractual agreements. For example, ‘‘identifiers” electronically embedded in

some works may help to solve some of the problems of integrity and identity associated with

works of art that are produced and distributed

on-line, and technological methods of monitoring use, although expensive, are available for

some database distributors of works of fact.

And, where current legal protection is inadequate for works of function, proprietors might

try to supplement intellectual property protection through the use of site licensing or

‘‘shrink wrap" licensing.134

The marketplace approach to resolving intellectual property issues is favored by a majority

of the public, 54 percent of whom feel that business should have the primary responsibility

for solving problems associated with intellectual property. (See table 3-l.) In response to

a survey conducted for OTA by Yankelovich,

Skelly & White, Inc., the public responded in

the following way when asked “Thinking about

this issue of intellectual or creative property,

who would you say should have primary responsibility for solving any problems created

by new technologies (like computers or

videocassette recorders)?” Manufacturers of

computer hardware and many established software developers, fearing that legislative efforts

“’Shrink wrap licenses, so called because they purport to

bind the purchasers of mass market software to a license agreement rather than an outright sale, are of unproven effectiveness and legality. See ch. 6, pp. 183-184 for further discussion

of shrink-wrap licenses.

Table 3-1 .—Who Should be Responsible for Solving

Intellectual Property Problems?

Familiar Not familiar

with with

Total issues issues

Business in the Information

and entertainment

industries . . . . . . . . . . . . . . . . . 54% 54% 53%

The government ., 34 33 35

Both 8 11 7

Neither . . . . . . . 1 1 1

Don’t Know 3 1 4

SOURCE Yankelovich, Skelly White, Inc. Public Perceptions of the Intellectual Propertyi Rights Issue contract prepared for OTA February

1985

to adapt intellectual property law may create

more uncertainty than it resolves, would also

prefer that Congress pursue marketplace options. In some cases, private industry has already taken a marketplace initiative by seeking to establish technical standards,135 or by

protecting their products through contractual

agreements with their customers. However,

not all representatives of the information industry believe that the marketplace alone can

provide adequate protection for their products.

Database vendors, in particular, are uncertain

about marketing their services without adequate and appropriate legal mechanisms.

The marketplace option has several advantages over others. The marketplace is more

likely to be able to respond rapidly and flexibly to rapid innovation. Contracts between

computer program sellers and buyers are likely

to address the specific needs of each party, and

can be tailored to take unique features of the

technology into account. Technological means

of protecting information or monitoring use

avoid costly enforcement and litigation. And,

marketplace solutions can evolve as rapidly

as the technology.

Marketplace solutions do not solve all of the

problems that vendors of information products

face, nor do they necessarily further the public interest. Unlike intellectual property law,

contracts do not ordinarily bind those not

—

“’The Association of Data Processing Service Organizations (ADAPSO) has recently proposed a standard method of

copy-protecting computer software, and the proposal has met

with some resistance from both software vendors and users.
90 ● Intellectual Property Rights in an Age of Electronics and Information

party to the agreement. This means that, lacking adequate intellectual property protection,

a creator or purveyor of information is often

without legal recourse against third parties.

Technology-based protections may also be

unworkable. Not only are they susceptible to

the diligent “hacker,’ they may also be impracticable to market or difficult to standardize.

Moreover, by protecting works that are publicly disseminated, copyright encourages dissemination. In lieu of copyright protection, information providers may be inclined to “lock

up’ access to information that they previously

had incentive to keep open. This would not

serve the public interest.

Option #2: Judicial Accommodation

Judical accommodation is an option that allows the Federal court system to treat intellectual property problems on a case-by-case basis, by fitting existing law to the particular

facts before the court. By interpreting the law

in specific circumstances, courts develop rules

that eventually have broader application.

Many judicially developed doctrines, such as

fair use and the idea/expression dichotomy,

were later codified by the legislature.

The individuals having the strongest opinions about judicial accommodation are attorneys. Those attorneys who view existing intellectual property law as adequate to deal with

technological issues also feel that the judicial

forum is the most appropriate method of dealing with technological advance. The great virtue of the judicial process, according to this

perspective, is its ability to adapt the broad

outlines and fundamental principles of statutory law to circumstances that are unforeseeable at the time law was written into statute.

They also stress that many uncertainties, such

as whether computer programs are copyrightable, have already been resolved by the courts,

and that a foundation therefore exists for further judicial development.

A growing minority of attorneys, many of

whom come from a background of engineering and patent law, strongly disagree. They

argue that not only are existing methods of

legal protection inadequate, but so too are

judges’ abilities to comprehend the subtleties

of the technology and the long-range impact

of their decisions. Given uncertainties in applying the law to new technologies, they often

counsel their clients to proceed conservatively

in order to avoid lawsuits. The clients, in turn,

may forego potentially profitable avenues of

research or application. Often, there is no way

of knowing how the law will apply to them until they are haled into court–a prospect that

many wish to avoid.

The legal profession’s opinions on judicial

accommodation reveal many of the strengths

and weaknesses of this option. Judicial accommodation may be advantageous in some cases,

where statutory law can be construed by the

courts so as to avoid the need for legislative

solutions. The judiciary may, for instance, be

able to clarify the meaning of the fair use and

idea/expression doctrines in the context of computer software. The courts’ role is to adapt general law to specific circumstances and, given

the idiosyncrasies of the situations that may

arise, the flexibility of judicial accommodation

gives it many advantages over attempting to

anticipate future problems through legislation.

In many cases, alternative causes of action—

such as trade secrets, misappropriation, and

unfair competition law—may also fill the gaps

left in copyright or patent law because of the

effects of technology.

Nevertheless, the courts, which are generalists par excellence, may be ill-equipped to

deal with many of the highly technical and multifaceted problems raised by some of the technologies. Moreover, as this chapter suggests,

many of the problems in intellectual property

law are fundamental, and may not lend themselves to resolution through a case-by-case application of the law. In order to obtain results

that seem to them just, courts have recently

begun to render decisions that are, in essence,

policy choices.

In light of the Supreme Court’s consistent

signals to Congress that the judiciary should

not serve as a policymaking forum for patent

and copyright law, resort to the courts to re-
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 91

solve many of these technological issues may

be tantamount to a delegation of Congress’ policymaking authority. Even if the judiciary acts

with restraint with respect to policymaking,

the application of obsolete law to novel circumstances may end up skewing the policy objectives that the statute seeks to promote.

Option #3: Amendment

Amendment is an option that allows Congress to modify portions of existing law in order to accommodate changes in the way the

law operates brought about by technology. In

1980, for example, the copyright law was

amended to include computer programs, and

in 1985, it was amended to deal with the rental

of sound recordings. A bill presently before

Congress would amend the copyright law to

include the ornamental designs of utilitarian

items, such as semiconductor chip masks.136

Industries and organizations that rely on,

or are affected by copyright protection, generally favor amendment, where necessary, as

an option for accommodating technology.

Among these groups are the recording and motion picture industries, the library and educational associations, the software and computer

industries, and a variety of authors’, publishers’, and artists organizations. Each of these

groups tends to have specific and unique concerns that are often best addressed by amendment. These organizations view amendment

as the best option for a number of reasons: marketplace options may not be viable for achieving many results, such as proposed royalties

on blank tapes; 137 litigation may produce results that are unfavorable, as with Sony Inc.

v. Universal studios,138 or not sufficiently comprehensive for the group’s particular ends; and

the groups’ interests are seldom broad enough

to favor more comprehensive legislative options, such as revision or sui generis legislation.

Amendment to patentor copyright law may

bean appropriate solution to some of the problems posed by technology, especially those

“ 1 I. R. 1900,” also known as “Th~’ Design Protection Act of

19~5. Introduced b~ Represent atit’e Nlooreh{’ad.

S. 31 and 1{. R. 1030

“LSOnJr Corp. I’, [ ‘ni\rersa) (’it~’ ,Studio.s< 464 (1. S. 417 { 1981).

amenable to relative}’ isolated legislative

treatment. For example, the problems of deposit and registration for dynamic computer

databases, the difficulties involved with thousands of contributors to a single database, and

the issue of the scope of protection for computer programs may be soluable through amendments to appropriate sections of the Copyright

Act. Accommodation by amendment offers the

advantage of relative timeliness in the face of

technological change. Next to judicially fashioned responses, amendment is perhaps most

flexible in meeting the rapid pace of technological change. Amendment also offers the advantage of fitting specific technological accommodation within a larger precedential context,

thus reducing uncertainties about whether existing legal principles would apply to new provisions.

However, insofar as problems affect the entire intellectual property system, accommodation by amendment may be but a temporary

solution. If, for example, computer databases

and net works become a principal means of storing and distributing information, copyright

law, both in principle and in practice, may fail

to protect what needs protection—algorithms

and information. Amendment may fail to address the fundamental difficulties posed by

technological advance, since the problems lie

at the conceptual core, rather than at the

periphery, of existing law. The failure of copyright law to account for the trifold nature of

information—works of art, fact, and function—is an example of a fundamental problem

that technology is exacerbating.

Option #4: Sui Generis Legislation

Sui generis is a latin phrase used to describe

any law that is ‘‘of its own kind or class. Sui

generis intellectual property law is legislation

that stands apart from existing patent, copyright, trademark, or unfair competition law.

The Semiconductor Chip Protection Act is an

example of sui generis law designed to protect

the architecture of semiconductor chips.’” The

sui generis option has also been suggested for

computer programs.

“The Semiconductor Chip Protection .Act comprises Chapter 9 of Title 17, L1. S. Code.
92 ● Intellectual Property Rights in an Age of Electronics and Information

The identity of the parties likely to favor or

oppose sui generis legislation will depend on

what the legislation seeks to protect, and on

how it proposes to protect it. In the case of

the Semiconductor Chip Protection Act, for example, the semiconductor industry generally

favored protecting chips through an amendment to the existing copyright system, rather

than sui generis law, because of the greater certainty that amendment offered. Other groups,

such as the publishing and computer software

business, favored the sui generis option because of possible adverse effects that amendment of the copyright law would have had on

protection of other types of copyrightable

works. In general, groups whose products sui

generis law is likely to affect prefer protection

under existing copyright or patent schemes because of the lag time involved in writing a

whole new system of protection, and because

of the uncertain way that courts will interpret

the new law.

The sui generis option offers the advantage

of accommodating intellectual property law to

the gradual introduction of new technologies.

Even with rapid technological change, many

of the traditional, print-based, methods of creation and distribution will continue to form a

great part of the commerce in the information

industry, and traditional concepts developed

for print culture may still work quite well. As

new forms of expression grow up alongside of

existing ones, Congress may want to consider

parallel forms of intellectual property protection. Indeed, the Semiconductor Chip Protection Act is a good example of this parallel, sui

generis approach. Sui generis legislation can

be specifically tailored to the idiosyncrasies of

the technologies and their markets, without

damaging the fabric of existing law. Where

doubt exists over the applicability of the intellectual property clause of the U.S. Constitution, alternative constitutional authority can

be found in the commerce clause.

A sui generis law for computer programs and

other works of function might be desirable for

many of the above reasons, Like the Semiconductor Chip Protection Act, a sui generis law

for programs and other works of function could

build in a balance between proprietary and public interests, by granting appropriate proprietary rights in those aspects of the work that

are valuable, by allowing for reverse engineering, and perhaps by limiting the term and scope

of protection to reflect actual markets for functional works.

Works of fact might also be protected under a sui generis scheme that recognizes the

importance of protecting information per se,

while at the same time balancing such protections against the rights and needs of the public to that information. Compulsory license arrangements and alternative remedies, such as

the imposition of “reasonable” royalties for

certain types of infringement, might also be

tailored to the specifics of the interests at

stake.

Sui generis schemes of protection are not,

however, a panacea. They are costly in terms

of the political investment necessary for their

creation. They may also require the creation

of new administrative agencies, with appropriate expertise. Lacking a history of judicial

precedent, uncertainties will also exist as to

the meaning of terms and the applicability of

the law to specific circumstances. Furthermore, sui generis laws may cause great difficulties for international legal, economic, and political arrangements. Computer programs, for

example, have only recently been incorporated

into the the body of many of the developed nations’ copyright law, and only after many years

of contention.

Option #5: Revision

Revision would entail rewriting all or a substantial part of the Copyright Act of 1976 to

conform to the policy goals that Congress

seeks to further in a new technological context.

A revision might retain the basic legal principles already developed in law, as the revision

of 1976 did, or it might adopt wholly new principles.

Although many observers have commented

from time to time on the obsolescence of copyright law, and although some have even envisioned the broad outlines of a future intellec-
Ch. 3— The Accommodation of Intellectual Property Law to Technological Change ● 93

tual property law,140 OTA found few advocates

of a general revision of copyright law. Indeed,

most parties with whom OTA spoke indicated

that they believed the Copyright Act of 1976

is adequate for the foreseeable future.

Nevertheless, Congress will have to give consideration to the general revision of the copyright laws in the course of the next decade. In

addition to substantial and worsening enforcement problems,141 copyright law is becoming

irrelevant to new technologies and more removed from the policy objectives for which it

was designed. Hence, many of the same pressures exerted by technology on the Copyright

Act of 1909, which required the 1976 revision,

have already begun to undermine the Copyright Act of 1976. Congress should therefore

begin now to gather the information necessary

for the eventual revision of the copyright law.

This chapter suggests a framework for an

eventual revision of the copyright law. The revision might be modeled on the trichotomy developed in this chapter for works of art, fact,

and function; and it could specify rules for the

protection of each. Under this system, works

of art, whose value is closely tied to expression, might be protected in a traditional copyright fashion. Protection for works of fact,

whose value lies in the accurate representation

of reality, might be tailored to reflect this value,

while at the same time assuring adequate public access to socially and politically important

information. Works of function, which rely on

algorithms as their source of value, might be

protected along lines of patent law, with some

threshold requirements of advance over prior

art and disclosure.

The copyright proprietor could register his

work under one of these three categories, com-

‘ SW. c’ ~ \l irhael 1)~’ndleton. ‘‘Intellectual I’roperty, I nf[)rmat]f)n- Il:iwd S{)cif,t?r. :ind a TJew I nternat ional F;con[)mic

( )rcier– The I’f)licy ( )ptions’?” 2 I+:uropean intellectual l’ropert.v

R(>[rieu. ;j 1 ( 19HF)); 1 larlan (’leyeland, “ King Canute and the Information R(’\ource, 7’echnolog~r Retiew’, Januw-}’ 19H-1, pp.

12-1 h; (;arJ’ Klueck, “The Coming ,Jurisprudence of the information Age, ‘‘ 21 San Djt’go Z.aw ftp~rit~w 1077-111 I { 19811, R.

(;rant I larnrnond, “Quantum I)h}’sics, Fjconometric \lo(iels, tind

I’rf)pert~ Rights to Information, ” 27 ,Ifc(iill 1,aw ,Journal 47

{ 19X1): I thiel de Sola I’(ml, ~’echnolo~n”e.~ of f“’reedonl ((’an~hridge,

h! A, 13elknap [ :ni~’ersity. [)ress, 19X:\l, especial]] pp 212-217.

‘ See ch. 4

ply with the relevant formalities of each, and

receive a type of protection more closely suited

to the value and social function of the work.

Traditional limitations on rights, such as fair

use, could be adapted to fit the particular nature of the type of work in question: for works

of art, fair use might resemble its present form;

fair use in works of fact might be limited according to the social utility of permitting nonproprietors to copy or publish the work;142 and

for works of function, fair use might be shaped

to meet the particular requirements of reverse

engineering. Durational provisions could also

be designed to reflect the economic “lifetime”

of the particular type of information product,

Such a proposal, of course, has many drawbacks. The 1976 revision of the copyright law

was a major political effort, requiring over 25

years of study and legislative bargaining. Like

sui generis laws, a revision that departed substantially from the existing copyright framework might cause substantial domestic and international uncertainty. In addition, a revision

would have to address concerns over enforcement, which would exist regardless of how carefully protection is tailored to subject matter.

Option #6: Alternatives to

Copyright and Patent

Congress may also wish to consider alternative options that dispense with traditionbound ideas of intellectual property, One

scheme would be essentially distributive in nature, Under the distributive approach, the law

might limit itself to prohibiting only the unauthorized duplication of works for a period

of time. Issues concerning the cumbersome and

increasingly obsolete definitions of intellectual

property, such as what constitutes the appropriation of an idea versus an expression, what

constitutes a derivative work, a performance,

display, and so on, would be jettisoned in fa-

‘“In Iiarper & ROW t’. ,Vation b:nterpri.s(, s, suprenlc~ (’ourt

No. 83-1632 (1985), for example, the Supreme (’ourt decided that

the First Amendment interests asserted b~’ iN”ation .kIagazine

were essential]~r spurious, since Time h! agazine would ha~e

shortl}r prol~ided the public with the (jm-ald Ford’s memoirs an?rwa~”. I n essencei the court was passing on the balance that a

works of fact pro~’ision Would strike bet wren ac(’ess an d

remuneration.
94 ● Intellectual Property Rights in an Age of Electronics and Information

vor of a law which looked to a desired outcome.

The outcome might be specified in terms of recovery of fixed costs associated with the production and distribution of, and value added

to, a particular work, plus rents limited to a

certain rate of return. After rate of return objectives were met, the work would enter the

public domain. The distributive scheme has the

virtues of simplicity and adaptability, making

it resistant to technological obsolescence.

Although it departs substantially from existing law, the distributive approach is not

without precedent. The regulation of public

utilities is conducted in a very similar fashion.

Moreover, many aspects of current copyright

law, such as royalties on cable television transmissions, are already moving in the direction

of a distributive approach. Bills presently before Congress, which would impose a‘ ‘compulsory license” on the sale of blank tapes and

recording equipment, are also essentially distributive in nature.143

The distributive approach would require information about information markets that is

presently unavailable (see ch. 6 on the Operation of Information Markets). Moreover, the

distributive approach might be politically untenable, since it would essentially impose a ceiling on returns for a creative work. The administrative mechanism necessary to make the

distributive scheme work, although presaged

in some ways by the Copyright Royalty Tribunal, is nonexistent and would have to be

carefully constructed by Congress.

Another alternative approach to the present

system of copyright might be called the minimal scheme. The minimal approach would remove all legal protections except those absolutely necessary for the production of works.

The problems of technological obsolescence

could be avoided by avoiding entirely the need

‘“iSpecifically, S. 31 and 11. R. 1030. Like the distributional

approach, these bills attempt to set ‘‘fair’ rates of taxation on

blank tapes, and distribute the taxes to the recording and motion picture industries.

for legal categorization of subject matter and

rights. Such an approach is described by Judge

Stephen Breyer in an article, “The Uneasy

Case for Copyright."144 The minimal approach

would be particularly well suited to a technological environment that is fast changing, and

where the economic viability of creative ventures relies on the pace of innovation, rather

than on legal protection for works that have

already been created. One result of the minimal approach might be to speed up the production and marketing of works such as computer programs, since those who are first to

the market with the best products are most

likely to recoup rewards. The minimal approach would also ostensibly lower prices and

eliminate the costs of copyright transactions.

The minimal approach, like all other solutions, suffers severe drawbacks. Notwithstanding its likely serious political impediments, the

minimal scheme relies heavily on publishers’

purported advantages in lead time and ability to retaliate in the marketplace-advantages

that may be offset by the speed and low cost

of modern communication technologies. A minimal approach would entail many risks to authorship and publishing as we know it, some

of which are detailed in chapter 2.

Finally, another alternative approach would

dispense with the notion of property, per se,

and instead concentrate on remuneration based

on access. Indeed, because of the advent of electronically disseminated works, many publishers are moving to an access-based system anyway. By removing concepts of property entirely, the conceptual and legal difficulties with

respect to the boundaries of intellectual property that are caused by technology can be

avoided entirely. The issues surrounding access-based systems are discussed in detail in

chapter 7, and will not be dealt with here.

“’Stephen Breyer, “The Uneasy Case for Copyright: A

Study of Copyright in Books, Photocopies, and Computer Programs, ” 84 Harvard Law Review 281 (1970).
Chapter 4

Impact of Technology on

Enforcement of Intellectual

Property Rights
Contents

Page

Major Findings .....,... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Trends in Storage Technologies: Impacts on the Right To Control

the Reproduction of Copy righted Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Copyright Enforcement in the Early Print Environment . . . . . . . . . . . . . . . . . . . . . . . 99

Impact of Reprography on Enforcement of Copyright . . . . . . . . . . . . . . . . . . . . . . . . . 99

Impact of Audio and Video Taping on the Enforcement of Copyright . . . . . . . . . . . . 100

Impact of Computers and Digital Information on the Enforcement of Copyright. . . 102

Trends in Communication Technology: Impacts on the Right To Control

Publication and Performance . .............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Print, Live Performance, and Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Impact of Radio and Television on the Enforcement of Copyright . . . . . . . . . . . . . . . 105

Cable Television. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Subscription Television. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Impact of Communication Satellites on the Enforcement of Copyright . . . . . . . . . . . 106

Impact of Facsimile on the Enforcement of Copyright . . . . . . . . . . . . . . . . . . . . . . . . . 107

Data Communications and the Enforcement of Copyright . . . . . . . . . . . . . . . . . . . . . . 107

Databases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Computer Bulletin Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Local Area Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Integrated Services Digital Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Trends in Processing Technology: Impacts on the Right To Control

the Making of Derivative Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Impact of Processing Technology on the Derivation of Text . . . . . . . . . . . . . . . . . . . . 112

Impact of Processing Technology on the Derivation of Music . . . . . . . . . . . . . . . . . . . 113

Impact of Processing Technology on the Derivation of Video . . . . . . . . . . . . . . . . . . . 113

Impact of Processing Technology on the Derivation of Computer Programs . . . . . . . 114

Adjuncts and Alternatives to Traditional Enforcement Mechanisms . . . . . . . . . . . . . . . 116

Technological Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Broadcast Signals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

Audio and Video Recordings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Advantages and Disadvantages of Technological Protection . . . . . . . . . . . . . . . . . . . . 119

Public Relations Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

Public Attitudes and the Legitimacy of Intellectual Property Law . . . . . . . . . . . . . . . 121

Table

Table No. Page

4-1. Motion Picture Association of America Film Security Office

Recent Criminal and Civil Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Figures

Figure No. Page

4-1. Audio Recorder Sales, 1958-80. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

4-2. Factory Sales of Videocassette Recorders, 1977-86. . . . . . . . . . . . . . . . . . . . . . . . . . . 101

4-3. The Sequence of Inventions in Telecommunications, 1840-2000 . . . . . . . . . . . . . . . . 104

4-4. Trends From 1960 to 1980: Volume and Costs of Communication

by Media: USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................,....108
——

Chapter 4

Impact of Technology on Enforcement of

Intellectual Property Rights

MAJOR

Technology is making it cheaper to copy,

transfer, and manipulate information and intellectual property. For example, devices such

as optical disk storage systems may allow the

average person to collect entire libraries of

copyrighted textual, musical, and visual works

in his home. Decreasing prices and increasing

capabilities of information systems will permit more people to make use of more works.

Consequently, enforcement efforts will have

to reckon with a much larger volume of potential infringements than exists today.

Technology is allowing the copy, transfer,

and manipulation of information and intellectual property to occur more quickly. For example, fiber optic technology is currently capable, under laboratory conditions, of transferring 100 average-length novels over a distance of 100 miles in 1 second. These capabilities may soon be available in offices and

homes. As a result of this and many similar

developments, owners of rights may have less

marketplace “cushion’ in which to realize a

return on their creative and financial investments. Thus, they may have less incentive to

produce works.

Technology is making the copying, transfer,

and manipulation of information and intellectual works more private. For example, personal

computers can store, process, and communicate the contents of large commercial databases without the knowledge or consent of the

compilers of such works. As a result, owners

of rights face greater difficulty detecting, proving, and stopping infringements. Thus, they

may have less incentive to make their works

generally available.

FINDINGS

Together, improvements in the cost, speed,

and capabilities of information technologies are making traditional proprietor-initiated (civil)

enforcement largely ineffective in securing reasonable control over public distribution of intellectual works. The effect might be to make

investors reluctant to fund the creation of intellectual works. More likely, proprietors of intellectual property will be more hesitant to distribute their works in forms over which they

have little physical control.

The technology itself is providing proprietors with ways to more tightly control the distribution of their works. Private, computerized,

electronic systems can provide them with the

means to enforce control by limiting and

monitoring access. Policy makers may have to

weigh the benefits of such control against the

potential social costs of restricting public access and monitoring private citizens information use.

As technology makes the enforcement of intellectual property rights more difficult, public support for these rights becomes all the

more critical. At present, however, the public

has little knowledge of intellectual property

rights as an issue. To the extent that citizens

are aware of this issue, they draw clear distinctions between proprietors’ rights to operate

in the marketplace and their own rights to use

information as they please in their own homes

and businesses. Therefore, so long as proprietors’ rights do not conflict with the public’s

sense of privacy and fairness, the public is

likely to lend support to the intellectual property system.

97
98 ● Intellectual Property Rights in an Age of Electronics and Information

INTRODUCTION

The granting of legal rights is based on the

assumption that those rights can be enforced.

Intellectual property law has been based on

the premise that, by and large, rightholders

will enforce their own rights by monitoring the

use of their works and suing infringers. To do

this, they must know of specific cases of infringement, and they must be able to collect

enough evidence to prove in court that a particular person or corporation violated their

rights.

Information technologies are impeding traditional enforcement mechanisms. They make

the copy, transfer, and transformation of works

cheaper, faster, and more private, and thus

more prevalent and harder to detect and prove.

Without effective enforcement of their rights,

intellectual property owners may have less incentive to produce and disseminate intellectual works. This, in turn, could jeopardize the

benefits society gains from the open dissemination of intellectual works. And, insofar as

there are widespread, unimpeded infringements, the legitimacy of intellectual property

law might itself be undermined.

The enforcement problem raises fundamental questions about the nature and efficacy of

the intellectual property system as a whole.

Many of these issues are covered elsewhere in

this

1.

2.

3.

report. This chapter focuses on:

how advances in technology are reducing

the effectiveness of the traditional means

of enforcement;

some of the private initiatives that proprietors are adopting to protect their interests; and

public attitudes that bear on the enforcement of intellectual property law.

To understand how technology affects the

enforcement of intellectual property rights, one

must begin with a central problem: As the technologies for creating, distributing, and using

information change, the very concepts and definitions that have traditionally defined intellectual property rights and their boundaries

become ambiguous. This ambiguity makes it

difficult to apply the law in a consistent fashion and in a way that is consonant with the

goal of promoting “science and the useful

arts. In particular, controversies arise about

which particular uses of new technology cause

damage to creators and copyright owners, and

whether such damage significantly reduces incentives to produce and disseminate works.

This chapter divides intellectual property

rights into three categories, which correspond

to the kinds of rights that have traditionally

attached to intellectual works: the right to

copy, the right to publish and perform, and the

right to make derivative works. These categories are used only to describe the new technologies in terms with which policy makers are familiar. Their use should not imply that these

rights should be extended or enforced. In fact,

one of the challenges that policy makers face

is understanding whether traditional concepts

can be employed in new technological contexts.

The impact of technological change is different for different intellectual property rights.

This chapter examines trends in three categories of technology, each corresponding to a particular kind of right traditionally granted by

copyright law. Changes in storage technologies, for example, affect the right of proprietors to control the copying of their works. Advances in communication technologies affect

their right to control publication and performance. And new information processing technologies affect the proprietors’ right to control the production of derivative works. Moreover, to demonstrate the effect of advancing

technology on enforcement, this chapter will

also look at how these technologies interact

with each other in integrated computer- and

telecommunications-based systems. In the long

run, it is the convergence and interaction of

these technologies that may prompt the most

significant enforcement problems for the intellectual property system as a whole.
. .

Ch. 4–Impact of Technology on Enforcement of Intellectual Property Rights . 99

TRENDS IN STORAGE TECHNOLOGIES: IMPACTS

ON THE RIGHT TO CONTROL THE REPRODUCTION

OF COPYRIGHTED MATERIAL

Information storage technologies are devices

and systems that fix and hold information in

a reusable form. Storage technologies include

paper and ink, photographs, vinyl disks for musical recordings, motion-picture film, audio and

videocassette tapes, semiconductor memory

chips, and optical disks, among others.

Two recent trends in storage technology are

likely to affect the enforcement of intellectual

property rights. First, as storage technologies

become cheaper and capable of holding more

information, it becomes harder to enforce proprietary rights; more people can use these technologies to copy works privately. Secondly,

storage technologies are becoming less specialized to specific forms of information. They are

often part of computerized systems that handle many forms of information-e. g., text,

graphics, music, and video. Information in

computerized, digital form is much harder to

control than information in traditional formats. Together, these two changes transform

copying into a problem of much greater scope

for proprietors than it has ever been before.

Copyright Enforcement in the

Early Print Environment

When first enacted, American copyright law

protected expressions of information in the

form of printed text and graphics: books, maps

and charts.1 Anyone seeking to fix or store

these expressions for dissemination had to

make a relatively large investment in capital

goods: movable type, volumes of paper and ink,

mechanical presses, and other equipment. They

had to obtain skilled labor: typesetters, printers, draftsmen, and others. These activities

were difficult to conceal. They also had to offer copies in the open marketplace. The public

quality of these operations meant that copyright owners could detect and stop large-scale,

economically damaging infringements, thus

‘Chapter 1 15. Section 1, Statute 124, Act of 1790.

controlling the reproduction of their work with

relative ease. Copying by hand for personal use

and scholarship was not a major problem. It

did not threaten proprietors because it was not

a viable means of competing with copyright

holders or of denying them sales revenues from

their work.

Although technology changed through the

19th and early 20th centuries and provided new

forms in which to fix expressions of information—photographs, lithographs, motion picture films—the capital and labor required for

reproduction remained fairly high, and competitive infringing activities were still hard to

conceal. Thus, these technologies posed only

minor problems in copyright enforcement.

Impact of Reprography on

Enforcement of Copyright

In the mid-20th century, photocopying, mimeograph, and xerography were developed,

making it much cheaper and easier to reproduce printed materials. More people began to

copy text and graphic images, making it harder

for copyright holders to monitor such activities. As these technologies became more common, it became too costly and impractical for

proprietors to try to authorize copying, collect

royalties, and enforce their rights on a caseby-case basis, even if users were inclined to

seek permission and pay for use.

It is difficult to estimate the economic impact of this unauthorized copying.2 In general,

while we know that xerographic reproduction

causes some lost sales for copyright holders,

it does not appear to be a serious threat to the

economic viability of general-interest book,

magazine, or newspaper publishing.3 Publish-

‘BJ- the term “unauthorized,” this chapter means those

uses of cop.~’righted works that have not been specificall.v permitted b-}’ the cop~’right holder. It does not seek to imply that

these uses are, or should be, illegal.

‘The number of titles published and the profits of publishers have remained high despite the introduction and spread of

(continued on next page)
100 ● Intellectual Property Rights in an Age of Electronics and Information

ers of very specialized periodicals with small

circulations, such as scientific and technical

journals, contend that disastrous losses of sales

could result if corporations and libraries replace multiple subscriptions with photocopies.

If such replacement were occurring on a large

scale, one might expect a decline in subscriptions and an eventual reduction in the range

of titles published. However, Copyright Office

data from publishers on trends in the numbers

of titles and subscriptions in this category of

copyrighted works are inconclusive. They do

not show that specialized scientific and technical publications are significantly more affected by photocopying than are general-interest periodicals.4

Impact of Audio and Video Taping

on the Enforcement of Copyright

Just as reprography has led to unauthorized

copying of text and graphics, the recent widespread availability of audio and video taping

technologies has brought about more unautho

rized reproduction of recorded music and motion pictures. Here, too, copyright holders are

faced with the difficult problem of controlling

copying while millions of people own machines

that can reproduce their works in private, at

fairly low cost and with little effort.

The level of use of audio and videotape technologies is high and rising. (See figures 4-1 and

4-2.) By 1982, 52 percent of Americans over

the age of 13 had used audio tape machines

within the previous 2 years to record phonograph records and other materials.5 By the end

of 1985, 37 percent of American homes had

——- . . —- . -

(continued from previous page )

xerograpluc bchnology, which was first commercially available

in 1960. See Michael Rogers Rubin and Mary Taylor Huber,

The Knowledge Industry in the ?Jrited Stated J960-1980

(Princeton, NJ: Princeton University Press, 1986 (in press)). Between 1960 and 1980, industry sales increased from $1 to $4

billion. Paul M. Hirsch, “U.S. Cultural Productions: The Impact of Ownership, ” Journal of Commuru”cation, vol. 35, no. 3,

Summer 1985, p. 117.

‘Dennis D. McDonald and Colleen G. Bush, Libraries, Publishers and Photocopying: Final Report of Surveys Conducted

for the United States Cop~ight offi”ce, May 1982, table 4-6,

p. 4-16.

‘Yankelovich, Skeily & White, Inc., Why Americans Tape:

A Survey of Home Audio Taping in the Um”ted States, September 1982, p. 28.

Figure 4-1.— Audio Recorder Sales, 1958-80

14

12

10

8

6

4

1

2

0 . 1 I 14 I t I a 1 s 1, I t I I I I

1958 1960 1962 19641966 19681970 19721974 197619781980

Year

SOURCE Data compiled from Merchandising Weekly by Michael Rogers Rubin

and Mary Taylor Huber, The Knowledge Industry in the United States,

1950-1980 (Princeton, NJ Princeton University Press, 1986), in press

videocassette recorders, up from 28 percent at

the end of 1984.6

Consumers use video recording machines for

‘‘time shifting" —that is, recording television

broadcasts to enjoy at a more convenient time.’

They often use audio tape machines to record

music to play in more than one location, for

instance, in a car. Some tape machine owners

use their machines to trade music or video programs with friends, and to build personal

libraries.

These machines are also used for less casual

purposes, such as the mass duplication of copyrighted works to sell in direct commercial competition with copyright holders. Many proprietors contend that commercial piracy of audio

and video materials is widespread.8

—-— — . . — 6Electronics, Jan, 6, 1986, p. 50. Some industry analysts

predict that 70 percent of U.S. households will have VCR equipment by the early 1990s. See Alex Ben Block, “Hard Dollars

in Video Software, ” Forbes, June 17, 1985, pp. 128-131.

‘The recording of commercially broadcast television for

time-shift viewing was specifically found to be fair use by the

Supreme Court. See Sony Corp. v. Universal City Studios, 464

U.S. 417 (1984).

“The movie industry, through its trade association, the Motion Picture Association of America (MPAA), established a Film

Security Office in 1975 to combat commercial piracy of films

distributed by the major Hollywood studios. See table 4-1 for

some of their recent enforcement statistics. The musical recording industry claims, on the basis of surveys conducted by the

International Federation of Phonogram and Videogram Producers, that one out of four musical recordings sold worldwide

is a pirate copy. In the United States, their data estimate 1 in

10 copies sold is illegitimate. (Reported in Variety, July 31,1985,

pp. 1, 92.)
Ch. 4—Impact of Technology on Enforcement of Intellectual Property Rights ● 101

Figure 4-2.— Factory Sales of

Videocassette Recorders, 1977-86

12

2

0

1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 a

Year

SOURCES 1977.79: U S Department of Commerce Bureau of the Census

Statistical Abstracts 1980. 1980-83. Statistical Abstracts 1985 1984-85:

Electronic Industry Association Electronic Market Trends March

1986 1986: Electronic Industry ASSOC iation estimate.

Some owners of copyright in musical recordings and motion pictures have presented figures to support their claims of substantial economic losses from consumers use of audio and

video taping technologies. In testimony before

the Senate Judiciary Committee on October

25, 1983, Alan Greenspan presented evidence

collected for the Recording Industry Association of America suggesting that in 1982 the

industry sustained sales losses of more than

$1.4 billion that were attributable to home taping of borrowed recordings and radio broadcasts.9 Battelle Pacific Northwest Laboratories,

in a study performed for the Motion Picture

Association of America, estimated that, in

1982, motion picture copyright owners had lost

more than $57 million in royalties because

videocassette sales were displaced by home

tape copying and off-air taping.10

These figures, however, are not definitive.

As detailed in chapter 7, the question of whether

a particular instance of copying actually displaced a sale of a copy is often impossible to

answer definitively. Moreover, to the extent

that the data are inadequate, or that the analyses are inappropriate, these studies may either grossly overestimate or underestimate the

actual harm suffered by musical recording and

motion picture copyright proprietors.11 Some

analysts have suggested that there are better

methodologies for determining the economic

losses from home taping. In deciding intellectual property policy, policy makers will most

—————

‘%tatement of Alan Greenspan Re. S.31 Before the Subcommittee on Patents, Copyrights and Trademarks, Senate Committee on the Judiciary, Oct. 25, 1983, p. 7.

“’F.J. Cronin, R.J. Ness, A.R. Wusterbarth, and J. I,. Eisenhauer, An Analysis of the Economic Benefits and Harm From

Videocassette Recorders and Related Products, August 1983,

as cited in Economic Issues Relating to New Technoio~”es and

Intellectual Property, by Stanley M. Besen (contract prepared

for OTA, December 19841, p. 44,

“See Besen, op. cit., pp. 47-48.

Table 4-1. —Motion Picture Association of America Film Security Office

Recent Criminal and Civil Cases

Pending casesa Cases where sentence passed

.

‘Through –

Through

— — 1984 June 1985 1984 June 1985. —

Criminal actions: -

- —

Seizure incidents . . . . . . . . . . . . . . 28 39 24 1

Videocassettes seized ., ... . . . . 1,990 24,591 6,286 647

Films seized ., ... . . . . . . . . . . . 500 210 100 0

Guilty pleas/convictions . . . . . . . . . . . 2 9 38 11

indict merits/arrests/information . . 10 12 30 4

Civil actions:

Cases recommended . . . . . . . . . . . . 34 24

Seizures ... ... ... . . ... 7 9

Videocassettes seized ., . . . . . . . . 534 2,601

Films seized . . . . . . . . . . . . . . . . . . . . 0 0

a — Cases pending at end of the indicated time

SOURCE: Motion Picture Association of America
102 . Intellectual Property Rights in an Age of Electronics and Information

likely want to take these alternative analytical approaches into account.12

Impact of Computers and Digital

Information on the Enforcement

of Copyright

The growing use of computers to handle and

store information could make it even harder

for copyright holders to enforce their rights.

In the case of the right to control reproduction, the computer poses three major problems

for copyright proprietors that are distinct in

kind as well as in degree from other technologies used to store or copy information.

First, copying digital information can be

done at a fraction of the cost and in a fraction

of the time that it takes with photocopying or

analog audio or video taping. Second, the digit al nature of computer-mediated information

means that an infinite number of perfect copies of material can be made. Possession of an

original is not required to obtain subsequent

copies of original quality. Thus, the information content of a work can be completely separated (or unbundled) from the medium that carries it.13 Third, in the normal course of operations, a computer makes many copies of parts

of works. Some copies exist for only a few millionths of a second. Other copies may be held

until the machine is turned off or the material

is written over. Some copies may be held in

permanent form on magnetic disk or tape. 14

—

“See Besen, op. cit., pp. 39-40. See also Stanley M. Besen,

Private Copying, Reproduction Costs, and the Suppl+y of Intellectual Propert-v (prepared for the NationaJ Science Foundation,

December 1984); and I.E. Novos and M. Waldman, “The Effects

of I ncreaseci Copyright Protection: An Analytical Approach, ’

92 Journal of Political Economy 236 ( 1984),

‘ ‘Users’ ability to unbundle information may have a significant impact on the alternatives that proprietors pursue to protect their economic interests in intellectual property. See ch.

6, for further discussion on this point.

“In the case of computer programs, “a user is at least

somewhat negligent if he does not make copies of his programs.

[There are] two reasons [for this]: 1) one cannot see by visual

inspection if a program is intact; and 2) operator error or program “glitches” can quickly destroy a program. Thus good programming practice and copyright regulations [may be] mutually exclusive. ” Personal communication from Edward Conklin,

FORTH, Inc., July 23, 1985.

Because of these characteristics, computers

pose novel questions for enforcement. For example, how, aside from appeals to ethics, can

proprietors convince consumers to buy originals when perfect copies are probably much

cheaper? How can consumers tell whether they

are purchasing originals or counterfeits? At

what point is the proprietor’s right to control

copying violated within a user’s computer system? 15 Similarly, how much of the material that

resides in a computer can or should be recognized as part of the copyrighted work?

These problems are emerging at a time when

monitoring and stopping the copying of works

is becoming harder. The proprietors’ right to

control copying may thus be severely challenged by the growing scale and private nature of infringement made possible by increasingly powerful and widely used personal

computers. Also, as discussed below, computers’ processing capabilities may pose special

problems with respect to proving infringement.

Currently, users receive a relatively small

amount of copyrighted material in digital, computer-readable form–computer programs and

a small but rapidly growing amount of material made available through on-line databases.

But this is changing with other technological

advances that simplify the conversion of printed

text and graphics into machine-readable, digital format. Optical character readers for text

input are growing in popularity in offices as

prices fall and capabilities rise. Some analysts

expect that these machines will be widely used

by the end of the decade. And if price and capability trends continue in their current direction, the automatic conversion of printed or

written text and graphics into computer-readable form may become a routine practice by

the turn of the century.16

Once in a computer in digital form, text can

be reproduced with a growing array of computer-driven printers. These range in price and

. . —

“section 117 of Title 17 addresses this problem, but the language has yet to be widely tested by the courts.

“Outlook for Office Automation Technologies 1985-2000,

report prepared for OTA by the Georgia Institute of Technology, J.D. Roessner, principal investigator, March 1985.
Ch. 4—Impact of Technology on Enforcement of Intellectual Property Rights • 103

capability from the cheap, fairly slow, and lowquality dot-matrix and thermal transfer devices, to very fast and high-quality laser and

ink-jet devices. As these technologies mature,

as manufacturing techniques improve, and as

economies of scale are realized, consumers will

most likely be able to get faster, better printers

for lower cost.17

Record companies are beginning to offer music to consumers in digital form by way of compact disk players and laser-scan disks. In their

present form, compact disks are read only,

which means that users cannot record on them,

although one can record analog tapes from

them with cassette or reel-to-reel tape machines. But manufacturers of laser disks are

developing erasable and rerecordable media

similar in storage capacity and durability to

compact disks. With these, consumers may be

able to reproduce the full, master recording

quality of compact disks on home equipment.

Copying video in digital form is now limited

by the fact that current television transmitters, receivers, and video recorders supply the

material in analog form. International standards-making committees are discussing the

establishment of digital television and video

tape standards, so this situation could change

very quickly.

The digital optical disk, a technology that

uses lasers to record and read information off

a disk that rotates at a high rate of speed, offers

great. potential for storing very large volumes

of digitized information. A single read-only op-

————-—.

Paper will continue to be an important temporary storage

medium because people tend to prefer the higher contrast, portability, and other characteristics of print that video screens lack,

But electronic and optical media are becoming more attractive

for permanent storage of information in many applications because storage volume is vastly reduced and cost and convenience of access can be superior to paper storage. Thus the trend,

at least in repeated-use and interactive applications, is toward

mass electronic and optical storage and on-demand printing.

E.C. McIrvine at the OTA Workshop on Display, Printing, and

Reprography, Mar, 13, 1985,

tical disk, currently on the market, can easily

store several hundred thousand pages of printed

text, 6 hours of master recording quality music, or 2 hours of full-motion, television quality video. In some applications, many disks

are collected in an automatic playback machine

much like a jukebox. This is being done for the

optical disk project at the Library of Congress

in which old books, photographs, and etchings

are being digitized and stored on optical disks.

Thus, a very large volume of information can

be made available on-line (by computer terminal) at very low cost for storage and access.

In their present form, optical disks can be

written on only once, and then only using a

relatively expensive high-power laser device

to impress digital data on the disk. But several companies, both in the United States and

abroad, are working intensively to develop optical media and supporting hardware that allow a disk to be recorded, erased, and rerecorded

many times. 18 Their goal is to manufacture a

device that the average consumer can use with

his personal computer, stereo, and television

equipment. This technical advance would make

it even cheaper and easier to copy information,

while increasing the speed at which a computer

could access the large volume of information

storable on optical disks.

In summary, advances in information storage technology have made the process of copying information cheaper, easier, and available

to more people. These trends show every indication of continuing. The technologies are making the old definitions of “rights, ‘‘infringemerits, ” and “fair use” ambiguous and largely

obsolete. Because of technical advances and

the blurring of definitions, the traditional copyright enforcement mechanism, whereby proprietors sue violators in civil proceedings, may

no longer be effective in protecting the creative and economic interests of copyright owners,

‘“B, Dumaine, “Here Comes the Erasable I.aser Disk, ’ Fortune, Mar. 5, 1985, p. 100,
104 ● Intellectual Property Rights in an Age of Electronics and Information

TRENDS IN COMMUNICATION TECHNOLOGY: IMPACTS ON

THE RIGHT TO CONTROL PUBLICATION AND PERFORMANCE

Communication technology is the term that

encompasses the many devices and systems

used to move information from place to place.

These technologies evolved very slowly until

the 1840s, when, after electronic telegraphy

was developed, they rapidly grew in capability. Since then, innovations in telecommunication technology have quickly advanced the

speed, distance covered, and scope of interconnection of people and places, all of which are

still growing exponentially (see figure 4-3).

These technologies are now part of the basic

infrastructure of society. We have come to rely,

for example, on the telephone system, broadcast radio, and television to supply us with vital information about our family, friends, businesses, and government.

Increasingly, we also receive information

products and services through telecommunication links that entertain, educate, and help

us make decisions. Since many of these goods

and services are protected by intellectual property law, advances in communication technologies will have a major impact on enforcement

of intellectual property owners’ right to control the publication and performance of their

works over telecommunication facilities.

Print, Live Performance, and

Copyright

Before the 1920s, communication technologies had very little affect on the enforcement

of copyright, simply because copyrighted

Figure 4-3.—The Sequence of Inventions in Telecommunications, 1840-2000

100 billion

10 billion

1 billion

100 million

10 million

1 million

100,000

10,000

1,000

100

10

1

Switched Satellites /

/

Satellites. 0 ’ T-4 fiber

L5 coaxial cable

,... .:, :,.

,. ...::. 0 ., :’,....;.

,,. , .’

.,. , .,. ,: :,.:..,,:.. / ... , ..: : Cable television . .

/

Carrier telephone

■ T-1 digital carrier

/

‘ =Baudot multiplex telegraph 9 TWX

I 1 1 1 1 I 1 I 1 I I 1 1 1 1 1 I

1830 1860 1890 1920 1950 1980 2000

Year

SOURCE Richard J Solomon and John Ward, Massachusetts Institute of Technology Adapted from James Martin, Future Developments In Telecommunications, 1976

1980 Annenberg School of Communications Used with permission.
Ch. 4—Irnpact of Technology on Enforcement of Intellectual Property Rights “ 105

works were communicated by physically moving printed copies or by expressing the works

in live stage performances. As the country expanded, there were undoubtedly many unauthorized performances of copyrighted dramatic

and musical works, but the important markets

for such uses were in large cities, so composers

and dramatists found it possible to monitor

enough of the uses of their work to protect their

economic rights.

Impact of Radio and Television on

the Enforcement of Copyright

Broadcasting changed this. Commercial radio broadcasting, initiated at KDKA radio in

Pittsburgh in 1920, complicated copyright enforcement by dispersing a “performance” over

a wide area. When the networks such as NBC

were formed soon after, performances could be

heard over virtually the entire nation. Thus,

broadcast technology made “collecting at the

door” from users of a performance of copyrighted music virtually impossible. To continue

profiting from the use of their work, the owners

of copyright in music and the broadcasters developed the system of advertiser support for

the actual broadcast, and established contracts

with collecting societies to monitor the use of

copyrighted work and to pay composers’ royalties. (See ch. 9 for details on collecting societies. )

The advent of broadcast television presented

similar enforcement problems for copyright

holders. To solve them, networks made similar arrangements to finance the cost of presenting “free” television to the public. This system of advertiser support and contracting with

copyright proprietors for use of their work provided a viable and lucrative means of presenting and paying to broadcast musical entertainment.

Cable Television

Cable television originated as a means of providing television to remote areas by the reception of broadcasts with a tall antenna and retransmission of them by wire to subscribers.

Subsequently, because of the way the courts

and Congress have intervened in the relationship between copyright holders and cable broadcasters, it has become a technology with significant implications for copyright enforcement.

Cable television itself does not present intractable problems of detecting or proving infringement because most existing cable systems are public. ” But cable television systems

have had to contend with two other enforcement problems. One is theft of service, which

is the deliberate unauthorized connection to

a cable service. The other is the high transactions costs that multiple-channel cable companies face in identifying and negotiating royalty

payments with the many copyright holders in

television. Congress acknowledged the magnitude of the second problem by establishing

the Copyright Royalty Tribunal to set cable

retransmission royalty rates and to disperse

funds collected by the Copyright Office.20

Subscription Television21

Some over-the-air television stations scramble their signals to prevent access unless the

consumer has rented a décoder box and paid

a subscription. The direct enforcement problem with subscription television (STV) is theft

of service. Some users and commercial companies build illegal decoding equipment that

allows users to receive subscription television

signals without paying the station. In this

event, the copyright holder may be undercompensated because his royalty payments are

based on the size of the paying audience for

a subscription television broadcast.

Television is also relayed to paying subscribers by microwave radio. This is called Mul-

‘

+ There are a growing number of private cable television

operations, generally called Sat-ellite Master .Antenna Tele\’ision

(SMATV) that ma~’ present difficult enforcement problems.

These systems will be discussed below,

“’U.S. House of Representatives, 94th (’ong., Report 94-

1476, p. 88.

- Subscription television was originally ( 19641 a term applied to cable television in California, Erik 13arnouw, Tube of

f)lent~’ (New York: Oxford University’ I]ress, 19821, p. 350. Now

it is usually applied to transmissions o\’er L’ 11 F and \J 11 F channels that are scrambled.
106 . Intellectual Property Rights in an Age of Electronics and Information

tipoint Distribution Service (MDS). In some

areas, companies have set up several microwave channels for television delivery; these

systems are called Multichannel Multipoint

Distribution Service (MMDS). To receive these

signals, consumers need a special device called

a down converter and also a special antenna.

Together, the converter and the antenna make

the higher frequency microwave signal compatible with a standard television set. MDS

companies rent these devices and charge a

monthly fee for the program service. But the

devices are widely available from sources other

than MDS companies. Thus, like STV, the

MDS enforcement problem generally involves

theft of service. MDS is treated by the FCC

as a common-carrier system; channel time is

leased to program suppliers on a tariff basis.

Copyright holders contract with MDS companies for transmission services and revenues are

based on the size of the paying audience. Thus,

program suppliers and transmitters are undercompensated to the extent that there are ‘free

riders.

Impact of Communication Satellites

on the Enforcement of Copyright

Geosynchronous communication relay satellites affect the enforcement of copyright law

because an increasing amount of copyrighted

material is being transmitted by these systems. Currently, anyone who has a proper antenna ‘dish’ and a down converter can receive

the material. Much of the copyrighted material transmitted by these satellites is intended

for cable television “head-ends, or transmission facilities, or for broadcast stations affiliated with television networks. Many of the unauthorized users are home consumers who live

far from VHF and UHF stations, have poor

reception, and no cable service. For these people, satellite signals offer a wide selection of

programming (more than 100 channels) with

high signal quality for the one-time cost of the

dish and the down converter. These systems

are currently priced as low as $1,000, depending on dish size and its ability to aim the receiver at more than one satellite.22

Some hotels and other commercial establishments also use satellite-derived programming,

capturing it with roof-top dish antennas and

cabling it to their customers. Some apartment

complexes install satellite reception gear and

small, private cable distribution systems that

compete directly with municipal cable operations. These are the SMATV systems mentioned earlier. Many of these uses of copyrighted programs are authorized by contract,

but others may not be.

Other unauthorized users are in foreign countries that fortuitously fall within the “footprint” of one or more satellite signals. These

foreign users often retransmit satellite-derived

material over government or privately owned

cable or over-the-air broadcast facilities without seeking the permission of, or making payment to, the copyright holders. As with other

types of subscription-based television (STV,

MDS, MMDS), if copyright royalty contracts

are based on the size of the paying audience,

these unauthorized uses deprive copyright

holders of rightful compensation.

When revising the Communications Act in

1984, Congress, recognizing the already widespread use of satellite signals by home consumers, put the onus of enforcing property rights

in these transmissions on the program providers and the satellite system operators. The revisions encouraged them to establish market

mechanisms for payment, and to encrypt their

signals. Congress struck a compromise between the interests of copyright holders and

those of owners of satellite dishes, making it

illegal for unauthorized users to intercept certain satellite signals. However, interception of

satellite signals is not a violation if:

“’Michael Doan, “A Scramble To Break the Satellite Dish, ’

U.S. News and World Report, Sept. 30, 1985, pp. 52-53. In 1985,

over 1.4 million homes had satellite dishes, and some believe

that this number could double in 1986. Sales are quite brisk,

approaching 50,000 units per month. New York Times, July

8, 1985, pp. 1,C16.
Ch. 4–Impact of Technology on Enforcement of Intellectual Property Rights ● 107

(1) the programming involved is not encrypted: and

(2)(A) a marketing system is not established. . . 23

At least one company, Home Box Office ,

Inc., has begun to encrypt its satellite transmissions to some cable companies .

24 At pres -

ent, such encryption is expensive because all

receivers must be provided with decodin g

equipment. It is not yet clear to what extent

other program providers will see an advantage

in employing encryption to protect satellit e

television transmissions .

A new use of satellite transmission to deliver

copyrighted works could further complicate enforcement. A number of companies are trying

to find a way to develop a profitable market

to satisfy the growing demand for distribution

of television programming by satellite. One

possibility, direct broadcast satellite (DBS)

technology, could provide consumers with a

service that offers as many channels as cable

television. The service would sell or rent satellite dishes and down converters to home video consumers, and transmit television signals

directly to them.

DBS could complicate enforcement of current theft-of-service and illegal signal interception laws if some DBS program providers offer free services, or if program providers cannot

agree to encrypt all satellite television signals.

In either case, the mere possession of a backyard dish and special microwave reception

equipment would not be sufficient evidence to

prove unauthorized use. ” Indeed, unauthorized

use could be very difficult to stop.

To demand payment from a user, program

owners must prove that the user actually

snatched and watched a program. Short of

staking out the farmhouse with electronic

eavesdropping equipment and then storming

“47 U, S,~.. Section 705, 318 ( 1984).

L4LJ.S. News and M’orld Report, Sept. 30, 1985, p. 52.

“ In the case of MDS receiving equipment, the courts have

found that the manufacture and sale of down converters and

antennas without authorization from program providers is a

violation of the Communications Act and FCC regulations. See

United States v. Stone, U. S. D, C., Southern District of Texas,

IIouston Division, Aug. 11, 1982; and Movie Systems, Inc. v.

Heller, U.S. Court of Appeals, Eight Circuit, decided June 30,

1983.

.— .

it with a search warrant, how can program

owners prove a farmer ripped them off?26

Impact of Facsimile on the

Enforcement of Copyright

Facsimile is a communication technology

with potentially significant implications for

copyright enforcement. Facsimile machines

work by scanning a document and digitizing

its image. This is distinct from optical character recognition (OCR), which scans a document

and digitizes the individual characters so that

the text can be manipulated in a computer system. OCR can be thought of as a further processing step beyond that employed in facsimile.

Because the present cost of facsimile is high

compared to mail delivery, for which it substitutes, its current impact on copyright is

probably small. But as seen in figure 4-4, the

volume of information communicated by facsimile has risen sharply over the past two decades, and it is becoming more and more attractive as a means of moving documents.

Normally, a facsimile document is transmitted over telephone lines to a facsimile decoder and a xerographic copier. The document

is communicated in digital form. Therefore,

copyright problems could arise if the cost of

transmitting information this way drops significantly for, as with data communications,

the transmission of information by facsimile

technology is highly covert.

Data Communications and the

Enforcement of Copyright

Data communications is the term used to describe computer-to-computer transfer of digital information. The copyright enforcement

problems associated with data communications result from their growing scope, scale,

and speed combined with the covertness with

which people can take advantage of these advances. In practical terms, this means that,

as more and more copyrighted material is avail-

“Alex Ben Block, “An Eye in the Sky, ” Forbes, November

1984, p. 196,
708 ● Intellectual Property Rights in an Age of Electronics and /formation

able in

be able

Figure 4-4.–Trends From 1960 to 1980: Volume and Costs of Communication by Media: USA

(plotted on log by log scales)

1000.000 I

10 -

1 .

01 -

.01 -

001 -

0001 t

TV

Newspapers

CATV

fl;rect mai l

Education

~ Books =

t

Phone

Movies

Mail

Data

communlcation

I 1 1 1 I 1 1 1 1

0 0.001¢ 0.01¢ 0.1¢ 1¢ 10¢ $1 $10 $100

Cost of transmitting 1,000 words (1972)

While the cost trends for print media remain steady, electronic media costs have dropped dramatically in the past two decades,

SOURCE Ithiel de Sola Pool, Hiroshi Inose, Nozomu Takasaki, and Roger Hurwitz, Communication Flows (Tokyo University of Tokyo Press

or New York: Elsevier, 1984) Reprinted with permission

computer-mediated form, people will

to transfer it widely and quickly without the knowledge or consent of copyright

holders.

Scope, in this context, refers to the number

of terminal points that are connected by communication networks. For instance, the scope

of mail delivery and telephone networks are

both very high. Data communication techniques use devices called modems, which convert digital computer information into analog

form compatible with telephone voice transmission lines, to take advantage of the scope

of the telephone network for computer-to-computer transmissions. The development of an

Integrated Services Digital Network (see below) will eliminate the need for these devices

and will further increase the scope of data communications.

The use of data communications is expanding rapidly for several reasons. First, scientists

and engineers have made great technical advances in moving information electronically.

Satellite communications and fiber optic technology are both fruits of this progress. Second, costs of manufacturing, installing, operating, and maintaining the transmitters,

receivers, switching equipment, and other components are falling as economies of scale affect microelectronics technology. Third, the use

of computers is increasing people’s ability to

receive and handle information automatically.

For instance, on-line database systems can

watch for information that is of particular interest to an individual, and alert that person

when new information pertaining to the subject enters the database.

The scale of communications, the second factor in enforcement problems, refers to the volume of information that is moved. There is no

precise measure of information volume that

can be applied across all forms of information.27

“The measure of information volume is complicated by the

multiplicity of forms in which information exists (words, numbers, mathematical formulae, graphics, moving pictures, etc.),

as well as by the range of media that communicate information

(e.g., printed pages, -television broadcasts, motion picture film).

(continued on next page )
Ch. 4—Impact of Technology on Enforcement of Intellectual Property Rights ● 109

Nevertheless, it is clear that electronic media

in general, and data communications in particular, are fostering an enormous increase in

the volume of information transported. This

increase is due to the same factors that account

for increasing scope. But the scale of data communications is also growing because information is a highly efficient means of affecting the

control of processes from a distance. Thus, data

communications can substitute for human observation and action.

The volume of information that passes through

data communication networks is still small

compared with the amount of printed material distributed through traditional channels.

But, as seen in figure 4-4, data communication

volume increased approximately 1,000-fold between 1960 and 1980. The personal computer

and the modem will undoubtedly increase this

further, and technological advances such as optical character recognition, voice recognition,

and optical disks will make data communications an even more attractive way to transfer

many kinds of information, some of it in copyrighted form.

The speed of electronic communications is

the third factor that affects copyright enforcement, and it too is increasing at a dizzying pace.

(See figure 4-3.) Not only have new inventions

allowed faster communications, but R&D laboratories are continually advancing the speed

of established communication devices and media. For example, the achievable speed of data

communications over standard copper wire

pairs, such as the wires that run to home telephones, have increased 100-fold since 1970. The

channel capacity of coaxial cable, the stand-

/ ( f )[1 / I II ( , f ,(1 / I f I 1)1 J){ ( \ II 1{1 . )I<t<t

This protean quality has so far defied the development of a uni-

\’ersally applicable unit of measurement. As more and more information is transmitted by data communications, the digital

bit–electronic ones and zeros–may become a gross measure.

But the relationship between the number of bits in a communication and the quantity of useful information or knowledge contained in them is very complex. “One longs, indeed, for a unit

of knowledge, which perhaps might be called a ‘‘wit analogous

to the ‘‘hit’ as used in information theory; but up to now no

practical unit has emerged. ” Kenneth 130ulding, ‘‘The Economics

of Knowledge and the Knowledge of Economics, Econom”cs

of Information and Knowledge, D.M. I.amberton (cd. ) (Baltimore: Penguin Woks, 1971 ).

ard cable television medium, has increased

from 12 to 54 channels since 1975, and the

newer systems have potential for transmitting

72 simultaneous full-motion television channels over one coaxial cable. Geosynchronous

communication satellites have increased in capacity since the 240 voice channel (or one TV

channel) “Early Bird” Intelsat I was launched

in 1965. The Intelsat V series, first launched

in 1980, averages 12,000 voice circuits and two

TV channels. The capacity of fiber optics technology has improved more than 100-fold since

its commercial introduction in 1977. Recent

laboratory tests of new fiber optic systems

demonstrate the ability to transmit 300,000

telephone conversations, or the contents of 100

average-length novels, a distance of nearly 100

miles in 1 second. 28

A characteristic of data communications

with important implications for intellectual

property enforcement is that digital transmission can usually be conducted with a high degree of secrecy. Thus, unless significant changes

are made in the operation of public telecommunication networks, the increasing volume

of data communications will make it essentially

impossible for proprietors to trace the subsequent movements of their works once they are

captured by users’ computer and data communication systems. This raises the issue of

whether proprietors should, and in practical

terms can, control the transfer of their works

after users first receive them,

Databases

Computer databases are collections of facts,

statistics, bibliographic citations, and other information, including complete texts of some

copyrighted works. Many of these collections

are offered over telephone lines to users who

have data communication terminals or personal computers. The user pays a fee to search

through the database for the particular information that he needs. The database proprietor can obtain a copyright on the database.

Thus certain uses of the information that a user

obtains will be illegal.

‘“Telephony, Oct. 21, 1985, p. 24.
110 . Intellectual Property Rights in an Age of Electronics and Information

One unauthorized use about which proprietors are particularly concerned is when competitors employ large storage capacity computers to download large portions of their

databases.” This permits unscrupulous information service entrepreneurs to avoid risking

much of the investment that is required to compile a database.

Advancing technology could make the practice more common. The large-scale downloading of database information is becoming cheaper and easier with improvements in cost and

capacity of computer storage media, faster telecommunication networks, and wider access to

computer power. Infringers may increasingly

use computer power to reprocess information

and make it appear original. Thus, proprietors

may find it increasingly difficult to know when

a competitor is using their downloaded material.

Computer Bulletin Boards

A growing number of personal-computer enthusiasts are keeping in touch with each other

and exchanging information using computer

bulletin boards.30 As the name implies, a computer bulletin board is a computerized storage

space offered by a computer owner that serves

as a place to post messages. There are two important differences between a computer bulletin board and the more familiar variety. First,

a computer can offer a very large space in which

to post messages. Thus, many computer users

can post copies of their favorite software programs, such as computer games. Some of these

programs are in the public domain; others are

copyrighted. Second, the telephone network

can be employed by users of computer bulletin boards to build a community that is not

confined to a physical neighborhood. Thus,

some computer enthusiasts use bulletin boards

to keep each other informed about the latest

software releases and maintain a sense of community of interests among widely dispersed

colleagues and friends. Bulletin boards are also

—

used illegally to trade credit card numbers,

long-distance access codes, and the instructions to disable the copy protection of computer software packages. In this way, the

unscrupulous help others steal goods and

services .31

Bulletin boards are an especially thorny intellectual property enforcement problem because they can be used to very quickly spread

copyrighted works throughout the community

of computer hobbyists. Bulletin boards are an

informal publication mechanism. Because

access is generally not restricted, proprietors

may monitor the contents of bulletin boards

to detect unauthorized trading of their works.

But, as their numbers proliferate, these informal community communications media may

defy systematic surveillance and control. Moreover, it is not clear whether a bulletin board

operator can be held liable for messages posted

anonymously on his system.32

Local Area Networks

Local area networks (LANs) are data communication facilities that connect computers

in a geographically restricted area, such as an

office suite, a building, or an industrial park.

These networks range in size from the very

small to ones that have thousands of users.

The expanding market for office automation

technology, particularly personal computers

and professional work stations for word processing, document management, and data analysis, is encouraging the development and deployment of network facilities that allow

workers to communicate with one another.

LANs allow users to transfer large files of information very quickly among personal computers, work stations, and large mainframe

computers that can store and process corporate

or institutional databases. LANs can also give

many users access to computer software programs from a central repository.

“Interview with Eugene Garfield, Institute for Scientific

Information, Mar. 11, 1985.

30There are thousands of computer bulletin boards now in

use, A. Pollack, “Free-Speech Issues Surround Computer Bulletin Board Use, ” New York Times, Nov. 12, 1984, p. 1,D4.

J1 Ric M arming, “Policing the Boards, ” Popular Computing,

July 1985, pp. 37-39.

“New York Times, Nov. 12, 1984, op. cit.
Ch. 4 —Impact of Technology on Enforcement of Intellectual Property Rights ● 1 1 1

Copyright infringements can occur in these

circumstances when computer programs, in -

formation downloaded from commercial databases, or other copyrighted materials are made

available and shared in these systems. Many

software license agreements and database subscription contracts specifically prohibit the use

of licensed material in multiuser settings .

Other contracts provide for “site licenses” to

allow multiple uses of software. Enforcement

of such contract provisions can be difficult because of the private nature of local area networks. Often, evidence of contract abrogation

or copyright infringement must be obtaine d

from disgruntled employees of the infringing

institution or from paid infiltrators .

Integrated Services Digital Network

In its present structure, much of the national

and international telecommunication network

uses equipment that transmits analog signals.

This is particularly true for local “final-mile”

connections. Voice communication, still the

largest category of telephone usage, is efficiently handled by analog transmission. But the volume of data transmitted by telephone is growing. This growth is encouraging local and

long-distance companies to convert more and

more of the telephone network plant to digital

transmission. If efforts to set standards are

successful, the end stage of this conversion

process will bean Integrated Services Digital

Network or ISDN– "an integrated national

net work that can connect any information provider with all its potential customers and any

user with all the range of information resources

available." 33 Planners envision that users will

access such a network through a standard con-

‘I{ .M’. Nlc( ;raw, ,Jr,, ‘ ‘The I nforrnation 1ndustrJ: ‘1’he I’rinciples That f+; ndure, (’ompufer.s and }’eople, hla}-tJune 1983,

p. 10

nection resembling an electric power plug-in

receptical, available in virtually every building.

As more and more of the telecommunications

infrastructure is converted to digital transmission facilities, the issue of copyright enforcement will be contested on a much larger scale.

On the one hand, digital transmission can be

a significant threat to enforcement because

scope, scale, speed, and decentralization may

make it very difficult to detect transfers of

copyrighted works among private users. But

because of the recordkeeping and processing

power of digital communications switching

technology, there may be opportunity for proprietors to monitor contact between data terminals. Telephone transaction records could

provide evidence that a particular terminal accessed a particular store of copyrighted material at a particular time, and so aid enforcement. Alternatively, proprietors might embed

digital “signatures” in their works to aid in

their monitoring efforts.

The development of an Integrated Digital

Services Network raises a basic question for

intellectual property: To what extent will the

enforcement of intellectual property law be a

factor in the design, construction, and operation of future telecommunication facilities?

This raises several corollary questions: Who,

in our newly deregulated telecommunication

environment, will decide to what extent and

in what ways intellectual property enforcement

will be implemented in telecommunication systems? What criteria will be used to decide

which information will be collected about users

of networks and who and under what circumstances access to that information can be

obtained? 34

“The policy implications of new electronic sur~eillance technologies ha~’e been re~’iewed in a recent OTA publication, Electronic Sur~’eil]ance and Ci\ril Liberties, OTA-CIT-293 (Washington, DC: U.S. Government Printing office, october 1985).

TRENDS IN PROCESSING TECHNOLOGY: IMPACTS ON THE

RIGHT TO CONTROL THE MAKING OF DERIVATIVE WORKS

Information processing is the physical trans- computing machines. Information processing

formation and logical manipulation of symbols. technology-computer hardware and software—

It is an activity carried out by both people and has advanced rapidly since the initial devel-
112 ● lntellectual Property Rights in an Age of Electronics and Information

opment of electronic computers in the late

1940s and early 1950s. It has been used to automate many tasks, improving the efficiency

and speed of much of the information processing work that people formerly accomplished

mentally or with the aid of mechanical devices

such as paper and pencil. In the last 10 years,

computing resources have become increasingly

available to people in private homes and offices. They use this technology to transform

and manipulate many kinds of information, including some types of copyrighted works.

Increasingly, people use information processing technology to prepare derivatives of protected works—to selectively modify them or

take them apart and to reassemble the pieces

into new, or apparently new, works. To a large

extent, the intellectual property enforcement

problems stemming from the use of processing technology are nascent, but current uses

offer clues to the potential impact of these

problems. A discussion of the current and potential effects of this technology on several

different types of intellectual property illustrates the implications of information processing technology for enforcement. Integrated

with storage and communication technologies

into computerized, digital information systems, processing technologies promise some

truly formidable problems for the enforcement

of intellectual property rights,

Impact of Processing Technology

on the Derivation of Text

Affecting the way that people prepare text,

information processing technology is beginning to be used to make derivations of copyrighted textual works. Word-processing hardware and software are becoming commonplace

technologies in offices. Integrated word-processing, database-management, and on-line information retrieval capabilities are also offered

in personal computer software packages. These

capabilities make it possible to build personal

databases derived from the copyrighted works

of CompuServ, The Source, and other on-line

information retrieval companies. In fact, these

companies design their databases with the

intention of making it easy for users to make

derivations. Users construct search statements

that select a part of the database relevant to

their needs.

Some people use these processing capabilities to extract portions of commercial databases and resell access to the information. In

many cases, it is unclear whether infringements have occurred. Although containing the

original information in some form, the derivation may look quite different, either because

the format or other features have been changed

to add value, or because of a deliberate attempt

to disguise the source of the information. In

other cases it is obvious that the derivative

database stems from the original and may be

in clear competition with it. The volume of

both of these kinds of database derivation can

be expected to rise as the amount of textual

material available in computer-processible

form increases, and as processing capability

becomes better, cheaper, and more widespread.

Hence, the enforcement of copyright in databases will become a larger problem, one described by some observers as insurmountable.

There are some text processing capabilities

on the technological horizon that may have important, long-term impacts on the enforcement

of copyright. Some of these are still experimental and others are merely speculative. Automatic indexing, abstracting, and document

preparation systems that combine optical disk

storage, high-speed digital communications,

and perhaps novel computer architectures and

intelligent text processing software may be

common by the end of the decade. Such systems will be able to search a large body of machine-readable text, including many articles

and books, select particular elements that are

relevant to a given research question (much

as current database systems do), prepare customized indexes and abstracts of relevant documents, and, most speculatively, prepare a report in proper English of specified length that

summarizes the findings of the query. Should

these capabilities be realized, they may require

policymakers to rethink the question of what

information processing activities are acceptable in relation to copyrighted materials. They
— — .——

Ch. 4–Impact of Technology on Enforcement of Intellectual Property Rights “ 113

may also demand new approaches to monitoring and enjoining infringements of copyright

in textual works.

Impact of Processing Technology

on the Derivation of Music

Information processing technology is affecting the way people create music, and it is beginning to affect the ways in which they can

prepare derivatives of copyrighted musical

works. In the last 15 years, the decreasing cost

of digital electronic processing technologies—

logic and memory-have brought music synthesizing, audio editing, and dubbing technology out of the academic laboratories and sophisticated professional studios where systems

were often custom designed and expensive to

build and maintain. Now available off the shelf,

these technologies are in the hands of disk

jockeys, sound engineers in small studios, and

aspiring professional and even amateur musicians. At the same time, the actual capabilities

of these technologies have improved significantly. According to one OTA advisor, ‘‘There

has been a quantum leap in terms of the sophistication of the kinds of information that

you can produce on an off-the-shelf synthesizer."35 Now, for the price of a grand piano,

musicians can buy machines capable of analyzing and synthesizing sound wave forms and

custom-designing sounds that have never been

heard before.

Because these technologies are widely available, people are becoming accustomed to the

freedom of using them to create, use, and reuse music. The groundwork is being laid for

digital sound editing capability in the home.

As mentioned earlier, compact disks already

supply consumers with music in digital form.

Within 3 years, digital audio tape may also be

available. 36 A standard digital communication

connection for music synthesizers and personal

—. — —

“ Michael Kowalski at the OTA Workshop on Technologies

for Information Creation, Dec. 6, 1984.

“Interview with Stan Cornyn, Apr. 4, 1985. For about

$1,000, one can now buy an adapter device that allows a videocassette recorder to be used to record music digitally. Barry Fox,

“optical Memories for Home Computers, ” New Scientist, Apr.

11, 1985, pp. 17-20.

computers, the Musical Instrument Digital Interface (MIDI), is growing in popularity. And

personal computers are now beginning to appear that have digital sound recording capability. 37

Copyright enforcement problems are arising

from digital music processing technologies because people can “disassemble” music when

it is in digital form. This disassembly can occur vertically-that is snippets’ of sound can

easily be cut from a copyrighted work and incorporated in a derivation that may be nothing more than a collage of pieces of copyrighted

works. Although it is more expensive, difficult

to accomplish, and limited in application, disassembly can also occur horizontally. For instance, the bass line of a song maybe stripped

off and used in a second work, creating what

is, to some extent, a derivative work.38

Another intellectual property problem may

arise from the use of sound emulators that can

mimic complex sounds, including voices, with

great precision. A question may arise about

whether a singer can claim property rights in

the sound of his voice.

These capabilities pose two questions relevant to intellectual property rights enforcement. First, how is a proprietor to recognize

and prove infringement in this very dynamic

musical environment? Second, what rights

does or should an artist/copyright holder have

to maintain the integrity of his work, and how

can he enforce those rights?

Impact of Processing Technology

on the Derivation of Video

Information processing technology is also

affecting how people create visual works, and

how they can use copyrighted visual works as

raw material for other works. Digital, computer-assisted retouching of photographs has

. . . . . -.——.

‘-Scott Mace, ‘ ‘Electronic Orchestras in Your Living

Room, ” Infoworld, Mar. 25, 1985, pp. 29-33.

‘“Michael Kowalski, Dec. 6, 1985. Mr. Kowalski actually

played for the workshop two pieces of commercially recorded

and released music that demonstrated the stripping and reuse

of a bass line.
114 ● Intellectual Property Rights in an Age of Electronics and Information

reached a level of sophistication where the images of people can be added or subtracted from

pictures leaving little or no trace of tampering.” The pace of progress of video tape editing technology is such that a new generation

of equipment appears about every 4 years.40

The television technical community is studying the establishment of a worldwide digital

video tape standard. Such a standard would

allow all studio-based production work, including editing, to be done in digital format.41 Thus,

some early steps are being taken in the world

of video toward the kind of disassembling capability now possible with music. Combined

with communication technologies-UHF and

VHF broadcasting, direct broadcast satellite,

cable television—and storage technologies—

video tape, optical disk—video processing is

revolutionizing the way visual works are made,

disseminated, and reused. Thus, equally revolutionary questions may be posed regarding

the enforcement of intellectual property rights

in visual works.

Computer hardware and software are reaching a truly phenomenal level of sophistication

in the generation of graphics. Some experts

suggest that, within as few as 5 years, it will

be possible to use the filmed image of John

Wayne, for example, and produce a full-length

motion picture with a synthesized ‘‘Duke’ in

the starring role.42 Lucasfilm, Ltd., of San

Rafael, California, has developed and is now

marketing a machine, the EditDroid, that uses

optical disk storage and computer processing

to automate virtually the entire process of film

editing, making the actual cutting of film unnecessary, except perhaps at the very last

‘“Some people believe that, upon challenge, photographs

may no longer be held as admissible evidence in court, S. Brand,

K. Kelly, and J. Kenny, “Digital Retouching: The End of Photography as l:vidence of Anything, ” 14’hole Earth Reviewq JUIV

1985, pp. 42-49.

“’Interview with Humberto Rivera, Apr. 18, 1985.

“Richard Green at the OTA Workshop on Display, Printing, and Reprography, Mar. 13, 1985,

“Several states, including California, have recently passed

laws that would require commercial users to obtain permission

from the heirs of a deceased celebrity before they can use a likeness, thus treating the person’s name and likeness as the property of the heirs, D. B. Moskowitz, "Celebrities' Ghosts Are

Hanging Over Advertisers," Business Week, June 3, 1985, p.

108.

stage of producing a master print.43 The marriage of optical disk storage and video processing equipment suggests the possibility of

establishing “image banks’ consisting of digitized images and standard algorithms to manipulate, transform, and link together video

image frames, or even parts of frames, into new

visual works derived from older, perhaps copyrighted, works.44 The ownership management

of such image banks could be complex.

Standards for digital television broadcasting and reception are being discussed in international standards forums.45 Digital television

promises to lower the cost and improve the

quality of pictures produced by home television

receivers, and could also make it possible for

home users to store and reprocess television

programs. Again, the enforcement of the intellectual property right to control the production of derivative works would be complicated

by the private and potentially widespread technical capability to make new uses of copyrighted works.

Impact of Processing Technology on

the Derivation of Computer Programs

Part of the research and development effort

in computer technology goes into the creation

of hardware and software tools that can be

used to help create other computer programs.46

These tools aid people in developing new and

ever more sophisticated programs. Some tools

can also be used to adapt existing software to

new uses. Thus, if they are employed in the

unauthorized production of derivative works,

their use may violate intellectual property

rights.

4’S. Gannes, “Lights, Cameras . Computers, ” Discover,

August 1984, pp. 76-79.

“Jim St. Lawrence at the OTA Workshop on Technologies

for Information Creation, Dec. 6, 1984,

“Richard Green, Mar. 13, 1985.

“’Examples of such tools include workstations, program editors, code debuggers, program generators, programming environments (integrated sets of tools), and, in the future, perhaps

libraries of standard information processing modules that can

be assembled to perform more complex functions and tasks.

For a discussion of these technologies-the potential future and

the current problems of software engineering-the reader is referred to the OTA report, Information 7’echnology R&D: Critical Trends and Issues, OTA-CIT-268 (Washington, DC: U.S.

Government Printing Office, February 1985), pp. 75-87.
Ch. 4—Impact of Technology on Enforcement of Intellectual Property Rights ● 115

The adaptation of computer programs to

serve new or custom uses is, in many contexts,

a well-accepted and widespread activity. Some

computer languages and soft ware tools are

designed specifically to aid in modifying programs that they help create. In particular,

operating systems software is designed to help

users tailor their programs and computing systems to serve special needs. ” Some programmers and computer scientists believe that, because software is such a valuable resource,

their creations should be in the public domain

and under no circumstances restricted in their

use as tools.48

The number of American homes with personal computers rose from zero in 1975 to 8

million by the end of 1983.49 This technology

has spread even more rapidly into offices. As

personal computers become more widespread

and the demand for more specialized software

rises, the opportunity and the desire to manipulate copyrighted programs to serve particular

purposes may also increase.

An especially relevant example of such manipulation is the use of programs designed to

disable the copy-prevention schemes of many

personal-computer programs, thereby allowing users to make multiple copies of these

copyrighted works. Other currently available

software tools— ‘interpreters ‘— are used to

translate a program from one computer language to another. Other tools aid in the “reverse engineering’ of programs. Reverse engineering refers to the practice of analyzing a

program to determine how it is arranged to accomplish its functions. A major goal is understanding the underlying algorithms used by

the program designers. A very fuzzy line separates legitimate reverse engineering practices

and violation of the copyright owner’s right

to control the production of derivative works.

— ——.—- —

‘ Interview with Edward Conklin, FORTH, Inc., Apr. 19,

1985.

‘“Richard Stallman, “The GNU Manifesto,” Dr. Dobb's

Journal, March 1985, pp. 30-34.

‘

qWalter S. Baer, “Information Technologies in the Home, ”

Information Technologies and Social Transformation (Washington: National Academy of Engineering, 1985), p. 124. In 1984,

for the first time Americans spent more for machines in the

“personal computer” category—i.e., those costing less than

$10,000–than on mainframe computers or minicomputers,

Congress and the courts have not yet grappled with the question of what elements of computer programs copyright should protect. This

issue is examined in detail in chapter 3 of this

report. Here, it is important to note that much

of the derivative uses of computer programs

and their underlying processes and algorithms

occurs in private, and as such presents proprietors with major obstacles in detecting and

proving infringement of their rights, even

given clear policy on what those rights include.

There is a widespread and growing research

and development effort aimed at making computer software production easier. One goal of

this effort is to develop extensive libraries of

standardized functional modules of computer

code. Some software module libraries already

exist. These standard modules comprise computer program segments that represent the

most efficient known formulation of how to accomplish a particular task, such as sorting records alphabetically. Libraries of modules may

soon be organized so that they can be automatically selected and combined into programs

on the basis of functional specifications. The

use of standardized modules would help ameliorate the problem of low productivity in the

currently labor-intensive software industry.

The establishment of large libraries of reusable software modules raises questions about

ownership and the management of transactions in these resources. Difficulty is likely to

arise in determining whether the copyright

ownership of a module constitutes a restraint

on the use of a function or an idea.

The nature of the computer is at the core of

many copyright enforcement problems, including those that surround the unauthorized derivation of computer programs themselves. A

truly revolutionary machine, the computer was

recognized as such when the ideas governing

its operation were first conceived. In the 1930s,

Alan Turing suggested, by way of a mathematical model, that any computer can simulate the operation of any other computer, past,

present, or future.’” The real limit on the use-

“’Alan Kay, “Computer Software, ” Scientific American, September 1984, p. 53.
116 ● Intellectual Property Rights in an Age of Electronics and Information

fulness of this simulation capability is the

speed at which a given computer operates; and

the speed of computers is widely projected to

continue to rise at a breathtaking pace, at least

for the remainder of the century.” Thus, “It

is clear that in shaping software [tool] kits the

limitations on design are those of the creator

and the user, not those of the medium."52 The — 52See OTA, Information Technology R&D: Critical 7’rends

and Issues, op. cit., pp. 324-331.

‘Kay, “Computer Software, ’ p. 57

capabilities to manipulate and transform copyrighted computer programs into derivative

works, to do so privately and without leaving

a trace, are well within the limits of present

computer systems. These capabilities confront

legislators, courts, law enforcement agencies,

and intellectual property owners with the question of what should or can be done to control

the use of rapidly proliferating computer power

in manipulating and transforming cop-y-righted

works.

ADJUNCTS AND ALTERNATIVES TO TRADITIONAL

ENFORCEMENT

Faced with mounting difficulty in identifying, detecting, and prosecuting infringements

of their traditional rights, intellectual property

proprietors are pursuing three basic strategies

to protect their economic and artistic interests,

They are: implementing technological protections to prevent the unauthorized copy, publication, and use of their works; initiating public relations campaigns that appeal for citizens’

moral support and respect for property rights;

and lobbying for legislation that strengthens

government enforcement efforts, or establishes

alternative mechanisms for obtaining remuneration.

These strategies are not mutually exclusive,

and do not apply uniformly across all situations. Proprietors see different enforcement

problems arising from different technologies,

which affect particular types of works in different contexts of use. Thus, a mix of strategies

may be most appropriate to meet these differMECHANISMS

ent challenges. Although a given form of technological protection, for example, may effectively reduce copying of personal-computer

software distributed on floppy disks, it may

be totally ineffective if the software is distributed over telephone lines. Appeals to peoples

sense of “fair play’ may be quite useful in

educational or corporate environments, but ineffective, or even offensive and counterproductive, when applied in the context of home use.

The collection and distribution of royalties on

the sale of blank media may be a workable solution when applied to cassette tapes for music or movies; but such a solution may be an

administrative nightmare if applied to more

versatile media such as magnetic or optical

disks, where many more kinds of information

products, and thus many more and varied interests, would have to be accommodated in distributing royalties.

TECHNOLOGICAL PROTECTION

Several varieties of technological protection 1) security measures such as locks, scrambling,

are now used to prevent unauthorized use of and encryption; 2) technological methods to

intellectual works in the forms of computer monitor information flow; and 3) proprietary

software, broadcast video signals, and audio channels for the distribution of information.

and video recordings. These technological ap- Each of these methods has advantages and disproaches for securing intellectual property advantages that make it appropriate for varirights may be grouped into three categories: ous uses.
Ch. 4–Impacf of Technology on

Every technological approach to the protection of intellectual property requires a tradeoff between the security of the property and

its accessibility, marketability, cost, and quality. Furthermore, as was reiterated by every

technical expert with whom OTA spoke, while

any technological barrier may work in some

cases by acting as a‘ ‘stop sign warning against

unauthorized use, no form of technological protection is 100 percent effective against determined opponents.

Software

Many present and proposed methods of using

technology to protect intellectual property center on software, in part because it is the newest

and most technologically sophisticated information-based product today. Further, software

copying has three distinctive qualities that set

it apart from the copying of other expressions

of intellectual property, making protection a

particularly critical issue, First, it is easier to

copy software than other products, such as audio records or books, because the physical effort is minimal—as simple as pressing a single key. Second, a computer can copy software

extremely fast compared to the length of time

required to copy other materials. Finally, unlike a taped copy of an audio recording, the

duplicate is typically an exact, perfect copy

of the original software with no distortion of

quality, Thus, the same technological qualities

that make software useful also make it vulnerable to copying.

Software protection for mass-market, personal computer programs generally falls in the

first category of technological approaches

listed above: locks and encryption. Another alternative is the use of proprietary channels for

the distribution of software.

Software embodied in disks maybe protected

from copying in two basic ways. Either the protection mechanism can be built into the software, or it may be divided and coordinated between software and hardware. The essential

distinction between the two methods is that

the hardware-plus-software protection mechanisms are able to limit software to one computer

Enforcement of

or one user.

Intellectual Property Rights ● 1 1 7

In contrast, the softwareonly protection mechanisms cannot control use

of the software, only the number of copies that

exist. Software-only protection methods are

currently in use, and implementation of more

advanced and secure hardware-plus-software

methods is being discussed. Some chip manufacturers are designing computer chips with

machine-readable serial numbers and decryption circuits to help software makers more effectively control their products.’) But, in general, hardware companies have little incentive

to help prevent copying because the availability of “free” software makes their products

more attractive and less expensive for the individual to use.

There are numerous other mechanisms that

could prevent unauthorized copying, some requiring substantial changes in hardware, and

others based on modified systems of distribution. One of the former involves providing software in read-only memory (ROM) and redesigning computers so they accept ROM modules

or cartridges.54 Taking the concept of software

cartridges a step further, one can imagine computers being sold with many software programs built into the machine, residing in internal ROM chips. ” A developer of especially

useful software, fearing lost profits due to illegal copying, could market his software only

in this form—inside a computer. Such a policy

has many drawbacks. It would severely limit

users of computers, who would be forced to buy

an entire computer to get a useful piece of software. Even if computers were inexpensive, the

waste would be great and the computer’s util-

“For example, ‘

i Software Protection Llevices, Inc., is attempting to incorporate its Copyrighta- software protection s~’stem into a microcomputer chip under joint development with

The Western Design Center, ” a Mesa, AR, microprocessor design firm. Edward Warner, “Few Takers for Embedded Protection, ” Computerworhi, Mar. 12, 1984, p. 109.

“Computers that accept software in ROM have thus far

met with mixed success. For example, the Texas Instruments

99 and the IBM PCjr accept software in ROM cartridges.

“The trend toward building software into computers is, by

and large, currently motivated by the desire for small, lightweight computers, not to prevent copying. For example, the

Hewlett Packard Portable computer has its operating system

software and two applications programs, Lotus l-2-3Thf, and

a text editor, provided by internal ROM to eliminate the size

and weight of disk drives.
118 ● Intellectual Property Rights in an Age of Electronics and Information

ity as a ‘‘universal machine, or a device that

can imitate any other device, would be lost.

Such computers would be special-purpose machines only.

Another form of technological protection

permits developers of programs (as distinct

from suppliers of data) to keep their programs

in their own computers, rather than distributing their software on the market. People who

want to use the program are required to connect to the developer’s computer, upload the

data they want processed, and pay an on-line

use fee. The disadvantages of this scheme are

losses in flexibility-users are not able to link

their programs to remote, protected ones easily—and communication costs for the on-line

link.

One still-theoretical solution would be to link

software access to a unique personal identifier.

A computer terminal would be equipped with

a hardware device that accepted sensory input, such as a person’s appearance, fingerprints, hand geometry, voiceprint, or retinal

pattern. Software could be designed to permit

only the person whose appearance or prints

matched to log onto the computer or to use

a piece of software.56

Broadcast Signals

Because broadcast signals-television and

radio transmissions—are not contained in a

tangible medium or transmitted over wires,

they cannot be locked like software or distributed through proprietary channels. They may

be protected in only two ways: directly by

scrambling or encryption, or indirectly by monitoring techniques.

Scrambling or encryption techniques alter

the signals so that they are unintelligible unless the proper decoding device is used at the

reception end of the transmission. Typically,

the signal for a network television show has

a long route to the viewer—e.g., from the network to a satellite to the affiliate station and

finally to the home viewer—and so is vulner-

‘<John Koehring, “Automatic Identity Verification, ” Information Age, April 1984, pp. 103-110.

able to unauthorized pickup at many different

points, Broadcasters need to ensure that these

transmissions are not accessed until the end

of the process, after the local affiliate station

has added local advertisements. Thus, the networks may scramble the signals so that only

the affiliate station, using a decoder, has access to the satellite transmissions.57

Monitoring techniques to verify unauthorized viewing or listening have been applied

in some cases, particularly by some subscription television and MDS companies. So far, the

courts have upheld this form of electronic surveillance, but privacy concerns remain. In any

case, monitoring individual residences for theft

of service is very expensive and therefore of

limited value to proprietors, except perhaps

as a deterrent.

Audio and Video Recordings

In ways similar to those used for computer

software, audio and video recordings may be

copy protected by a mechanism built into the

recording itself, or by a scheme coordinated

between the recording and the playback/copying machine.

Musical recordings have traditionally included no mechanism to prevent copying. All

known copy-preventer systems tend to degrade

the quality of sound reproduction. Recently,

there is renewed interest in protecting musical recordings because digital CD/ROM records are potentially infinitely copyable in high

quality. Manufacturers of compact disk recordings are, therefore, embedding a unique “signature’ in their products to serve as evidence

of unauthorized copying or manipulation.58

One company now offers protection for videocassette tapes in a system that “confuses the

automatic gain control of VCRs, causing them

to make copies that have dim, weak pictures

that are marred by video ‘noise.’ "59 This sys-

“’interview with David Poltrack, CBS, Inc., June 10, 1985.

58Interview with Al McPherson, Warner Records, Inc.,

Apr. 19, 1985.

59’’ Homevid ‘Club’ Has Surprise for Pirates, ” Variety, Apr.

24, 1985. Consumer electronics catalogs feature devices that

claim to defeat these automatic-gain-control-based protection

schemes.
. —

Ch. 4—Impact of Technology on Enforcement of Intellectual Property Rights ● 119

tern could also be used for broadcast signals,

so that a work taped from an on-air performance and protected in this fashion would yield

a very poor copy.

CBS Inc. recently announced a system to

prevent copying of records, tapes, and com -

pact disks that will be coordinated between a

device in consumers’ home-recording equip -

ment and a coded signal on the purchased recordings.”’ Record distributors would likely offer two versions of recordings, one cop y

protected and the other not, and charge different prices for them. Industry spokesmen a c -

knowledge that it will probably take decade s

for this scheme to significantly affect consumer

copying, because people will be able to copy

protected recordings with their existing equipment. Also, equipment manufacturers are likely to continue to offer equipment that does n o t

include the copy-protection device, unless the

law requires such devices .

Effectiveness

The ability of technological protection to prevent illegal copying or access depends on the

medium and the type of protection, but a few

absolutes can be stated. Any form of technological protection will prevent some unautho -

rized use; no form of technological protection

will stop all unauthorized use. Some systems

are relatively easy to defeat, others more difficult. And it is conceivable that new forms of

technology will alter the effectiveness of these

devices .

Another factor is the level of technological

literacy in society. Today, many children have

early and frequent exposure to the new computer technologies, and so will be better

equipped to use—or misuse—technology. The

higher the level of society’s computing skill,

the more difficult the job of technological protection becomes-at least for computer-based

intellectual property.

For technological protection to work on a

large scale, the challenge is to find a level high

“ Martha N1. Ilamilton, “Record Industry Un\eils L)e\’ice to

Block Copying,” The Washington Post, Mar. 26, 1986, p. G3.

enough to reduce unauthorized use to a manageable level, but low enough so that consumers would not find the protection mechanism

so distasteful that they would refuse to purchase and use protected materials.61 The marketplace will tend to set an equilibrium of

acceptable protection. But given the uncertainties of technological change and shifting consumer preferences, industry will have to monitor the market carefully to assess the effectiveness of protection and to gauge consumer

reaction to protection mechanisms.

Advantages and Disadvantages of

Technological Protection

Some analysts believe that proprietors’ reliance on technological protection is a natural

and reasonable process. They argue that using

such protection is like building fences to protect real estate. Thus, improvements in technologies for copying and manipulating intellectual property will probably result in better

technologies to prevent these activities, just

as the opening of western lands was followed

by the invention of barbed wire.62

However, from the point of view of public

policy, technological protection may be a poor

way to protect intellectual property rights because it ignores part of the constitutional compromise between the public welfare and the

profit-making of intellectual creators. Technological bars may block dissemination of and

access to intellectual property.

One result of this loss of access could be redundancy in spending for research and development. Since technological protection bypasses intellectual property law, software

producers, for example, might decide not to

disclose the contents of their software, depriving competitors, experimenters, and researchers of the benefits of their work. Thus, some

software research and development would repeat previous, but undisclosed, work. This

duplication and waste of resources is precisely

+ Christopher Weaver, OTA Workshop on Storage and

Database Technologies, Jan. 11, 1985.

‘Personal communication from Fred Smith, (’competitive

Enterprise Institute, January 1986.
120 . Intellectual Property Rights in an Age of Electronics and Intormation

-.

what patent law strives to avoid. Moreover,

technological protection of software does not

expire after a set period of time, as other intellectual property rights do. The creator of software could, in effect, have a perpetual monopoly on his work.

Technological protection in and of itself does

not necessitate changes in intellectual property law, but it could precipitate changes by

weakening the distinctions between different

types of intellectual property—patents, trade

secrets, trademarks, and copyrights. If technological protection were effective, intellectual

creators would not have to observe the formalities required for legal protection, e.g., submitting to the lengthy and expensive patent process, or disclosing works to the Copyright Office.

They might still choose to do so for additional

protection if technological protection fails, but

there would be less reason. Technological protection, if applied indiscriminately to any or

all kinds of intellectual property, could blur

the legal distinctions among these forms of protection. In reflecting what might become a

widely accepted public practice, the law itself

could likewise cloud the differences.63

Widespread technological protection could

make intellectual property law more effective

in one important way: it would alert consumers

who attempt to copy that they are breaking

the law. This would not necessarily stop them,

but by forcing them to take elaborate steps

to make copies, it would at least make the act

less convenient and emphasize its illegality.

Widespread use of technological protection

could generate a need for new, related laws or

regulations. In addition to the potential need

for standards legislation, laws that proscribe

the manufacture, sale, distribution, or use of

be necessary to ensure effectiveness. This type

of legislation has two drawbacks. The first is

that there are some legal uses of duplicated

materials, which would make it necessary to

outlaw devices with legitimate uses. The second drawback, closely related to the first, is

that it would be necessary to define and characterize devices and methods used for defeating technological protection. Those definitions

and characterizations would cover specific applications of technology, and would themselves

exist in a changing technological environment.

The law would require making the precise technological definitions necessary to prevent defeat of protection mechanisms, while at the

same time allowing the use of related technologies.

Another kind of legislation, similar to control of copying methods, could be enacted that

would outlaw the intentional defeat of, or tampering with, technological protection mechanisms, regardless of any violation of intellectual property rights. Or, perhaps, ordinary

violations of intellectual property law might

still be treated as they are now, but violations

that involved the intentional defeat of technological protection mechanisms could carry

additional penalties.

Public Relations Strategies

Even with safeguards against unauthorized

use, today’s information technologies provide

users greater potential access to intellectual

property, and the means to reproduce, store,

transfer, and manipulate works. Responding

to this probable increase in uses of technology,

many proprietors have tried to inform the public about intellectual property rights and persuade them to respect those rights.

devices or program software intended to de- To influence public attitudes, business leadfeat technological protection mechanisms may ers have followed three basic strategies. First,

63 they have tried to alert the public to the idea John Hersey, in the final report (1978) of the National

Commission on New Technological Uses of Copyrighted Works that copying is illegal and will be prosecuted.

(CONTU), worries about the “subtle dehumanizing danger” of Second, they have tried to convince users that

blurring the distinction between types of intellectual property. they have a stake in assuring the fair compenHe opposes extending copyright to computer programs at ‘the sation of artists, publishers, and distributors. moment at which the program ceases to communicate with human beinm and is made caDable of communicating with ma- Third, they have sought to educate the public

chines.” CONTU, p. 33. ‘ about copyright, appealing to them as citizens
Ch. 4—Impact of Technology on Enforcement of Intellectual Property Riqhts ● 121

who will obey the law once they understand

it. These strategies have met with varying levels of success .

When the law clearly defines infringement,

it becomes easier to inform the public and build

awareness about the issue. For instance, the

Motion Picture Association of America (MPAA)

emphasizes the protections provided by law

in its posters, brochures, articles, and manuals

for enforcement officers. They tell the public

that video piracy is a Federal crime, and that

offenders will be prosecuted. Newspapers and

magazines are sent press releases about successful prosecutions to spread the word that

the film industry is enforcing its rights. Similarly, when the recording industry uncover s

large-scale piracy, the ensuing publicity alerts

the public to the problem. The industry hopes

that the public, aware of counterfeit tapes and

records, will be less likely to buy them.

Book publishers, too, launched a major public awareness campaign after Congress passed

the 1976 Copyright Act, seeking support for

new provisions that defined fair use. The target audience included librarians, educators ,

representatives of industries that use copy -

righted works, and the general public. Book

publishers distributed printed materials and

held sessions at professional meetings and public forums. Many publishers believe that these

efforts produced only very limited results .

Book publishers point to the inherent limitations of the copyright notices on books, articles, and copying machines.64 If the industry

is serious about reducing unauthorized pho -

tocopying, many believe that this intention

must be made clear through well-publicized litigation. As the President of the Association of

American Publishers, Townsend Hoopes, said

in announcing a lawsuit against Texaco for unauthorized photocopying :

Major businesses that either make no effort to obtain clearance for their photocopy64The 1982 King Research report on photocopying in libraries found that 85 percent of photocopy machines in all libraries,

93 percent of the coin-operated photocopy machines in all

libraries, and 100 percent of coin-operated photocopy machines

in academic libraries bear a copyright warning notice. I).

McDonald, Libraries, Publishers and Photocopying, pp. 2-16

ing . . . or like Texaco. make only token payments must under-stand that publishers will

not remain silent regarding violations of their

copyrights .

6 5

Similarly, the computer software industr y

has undertaken an aggressive public-relations

campaign. Because software copying is technically so difficult to prevent, many in the software industry argue that public relations i s

essential to an overall strategy of copyright

enforcement. Through its trade association ,

ADAPSO, the software industry has brought

some major legal cases 66 and has developed and

widely distributed a brochure that states :

People who would never walk into a store

and shoplift a software product think nothing of making several copies of the same software. The results are the same. The act is just

as wrong. 67

The industry has taken out advertisements in

computer magazines that make the same point.

Public Attitudes and the Legitimacy

of Intellectual Property Law

Neither the threat of legal action, nor the education of users about cop}’ right may be enough

to change public attitudes and behavior. Only

if the public perceives copyright rules as fair

and reasonable will they voluntarily respect

the law.

OTA commissioned a public opinion survey

to identify current public attitudes on intellectual property. The major findings were as

follows: 68

• At the present time, ‘‘ Intellectual Property Rights’ is not an issue the public feels

—— - — 65Press release from the Association of American Publishers, Inc., Washington, DC, May 6, 1985,

“(See, for example, “ADAPSO Suit Alleges Piracy, (’omputerworid, Jan. 21, 1985; ‘

( Micropro and ADA 1’S() Sue American Brands, Allege Software Piracy, I)owrnfmxf, Februar-}’

1985,

‘-Thou SAdt ,N’ot Dupe (Washington, DC: AI) A1)S(), 198.1)

This brochure was mailed to 5,000 colleges and universities,

22,000 school districts, and 17,000 corporate counsels in the

United States.

‘wFub)ic Perceptions of the Intellectual Propert~r Rights issue (prepared for OTA by The Policy Planning Cl roup, Yankelovich, Skelly & White, Inc., Februrary 1985).
122 - 

● Intellectual Property Rights In an Age of Elcctronics and Information

it knows a great deal about. It is also not

an issue they perceive effects them.

The vast majority of the public finds acceptable—such that they would be willing to do it—some form[s] of unauthorized

copying of copyrighted material.

Surprisingly, willingness on the part of the

public to engage in behaviors that infringe

on intellectual property rights is not affected by awareness of the issue or experience, in general, with home technologies.

Conversely, several specific attitude sets

appear to be related to the acceptance of

copying behaviors. Among them are:

—a tolerance of ‘‘gray area’ behaviors,

–belief in the benefits of sharing information, and

–pragmatic responses such as the acceptance of copying copyrighted material

while acknowledging that it is probably

wrong,

The public draws the line at behaviors that

infringe on intellectual property rights

when they involve the obvious or active

circumvention of payment, when they are

done for sale or profit, or on behalf of business or in a corporate setting.

At the moment, the public perceives the

intellectual property-rights-issue to be a

marketplace problem whose solution should

come from the industries and companies

affected.

OTA also commissioned a survey of the attitudes of small business executives toward intellectual property. The major findings were

as follows:69

●

●

Small business executives appear to be

more sensitive to the problem of intellectual property rights than the general

public.

They are more likely to agree with statements that emphasize the need to preserve

the proprietary nature of information. As

producers, many of their products are protected by copyright, patent, or trademark

‘The Intellectual l+opert~ Rights Issue: The Small 13usinessman Perspecti}’e (prepared for OTA by The Policy Planning Group, Yankelovich, Skelly & White, Inc., August 1985).

laws. Thus, these executives are supporters of the law.

Because of definitions used in the sample

selection, the small business executives

studied are owners of, or have access to,

computers. Their attitudes show that they

are technology oriented—believing that

more technology is better. They are strong

supporters of actions that will promote

and ensure the availability of future technologies.

Small business executives appear less

likely than the general public to find copying behaviors acceptable.

– While they find almost all copying behaviors unacceptable, they make an exception for the one behavior they would

be most likely to engage in: the making

of copies of computer programs.

–As is the case with the general public,

there is consensus that any sort of copying for sale is totally unacceptable,

whereas copying for personal use is

more acceptable.

Small business executives emphasize nongovernmental solutions to intellectual

property rights problems. When given a

choice, they prefer solutions that involve

technologies that physically prevent copying. Further, they believe that the clarification of ambiguities about which copying behaviors are or are not permissible

would be helpful.

–However, as is the case with the general public, the intellectual property issue is of low salience among small business executives, and there is little

demand for solutions at present.

Small business executives see themselves

as potentially part of the process of finding solutions to intellectual property problems. Within their own companies, they

are willing to set rules and guidelines

against conduct that violates intellectual

property rights. However, they will only

go as far as setting standards. They feel

that they cannot and will not accept responsibility for actual enforcement of

rules or laws designed to prevent behaviors such as copying.
—

Ch. 4–Impact of Technology on Enforcement of Intellectual Property Rights ● 123

From these surveys of the general public and the copyright holder and the users of the work.

executives of small businesses, and discussions Messages about unauthorized copying may be

with students and educators, OTA found that more effective if they emphasize the value of

public relations strategies are likely to be most an ongoing partnership between creators and

effective if they focus not on the rights of copy- users .

right holders, but on the relationship between
Chapter 5

Impact of Technology

on the Creative Environment
Contents

Page

Findings, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

The Creative Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

Impact of Technology on Creators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Self-Image and Motivations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Tools for Creativity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Expanding Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

New Ways of Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

Who Can Participate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Impact of Technology on Resources and Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Impact of Technology on Roles, Relationships, and Rewards . . . . . . . . . . . . . . . . . . . . . 149

Roles and Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

The System of Incentives and Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Implications for the Intellectual Property Rights System . . . . . . . . . . . . . . . . . . . . . . . . 153

Changing Players in the Creative Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

The Emergence of New Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Tables

Table No. Page

5-1. Electronic Networking: Academic and Research Uses . . . . . . . . . . . . . . . . . . . . . . . . 141

5-2. Libraries in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Figure s

Figure No. Page

5-1. Applications of Information Technologies to the Creation and

Processing of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

5-2. National Magnetic Fusion Energy Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

5-3. An Example of At-Home Publishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

5-4. Public and Private Institutions Providing Information Products and Services . . . 147

5-5. institutional Users of Computer Readable Databases . . . . . . . . . . . . . . . . . . . . . . . . 148
Chapter 5

Impact of Technology

on the Creative Environment

FINDINGS

The development and widespread use of the

new information and communication technologies are changing the creative environment in

a number of ways, many of which will have significant implications for the intellectual property system. These technologies, for example,

are redefining who creators are and what motivates them, the kinds of tools and materials

they use, and how they gain access to these

tools, the skills and knowledge they need to

pursue their work, and their roles and relationships to others in their environment.

In this new environment, the incentives and

rewards provided by the intellectual property

system may no longer achieve their intended policy goals, In many cases, they inadequately reflect the motivations, needs, and perceptions

of the members of the creative environment,

or the kinds of activities that they pursue.

Moreover, they may miscalculate the economics of creating, producing, and distributing

intellectual properties, Under these circumstances, new kinds of inducements may be required.

One of the most significant differences in today’s creative environment is the growth in

the number of participants and the transformation of traditional roles and relationships.

New participants have entered the scene as

new technological opportunities have emerged.

Not parties to previous intellectual property

agreements, many of the new players and even

some of the older ones who now operate in new

modes, have new and divergent attitudes about

who should have access to works and materials, and about what kinds of activities and pursuits should be rewarded. Under these circumstances, controversies are likely to develop

among players about the distribution of rewards.

Furthermore, in the future, there may be less

consensus about the basic aims of the intellectual

property system.

The new technologies will greatly enhance the

creative environment, providing new and powerful tools that can expand the boundaries of

creativity, changing the ways in which creators and inventors carry out their work, and

opening the way for more people to participate

in the creative process and to share the products of scholarly and scientific research. At the

same time, these technological capabilities also

pose new problems for the intellectual property

system. Allowing users to access and manipulate creative works with unprecedented ease

and speed, they make it more difficult for creators and inventors to identify or trace incidents of copyright infringement or plagiarism.

INTRODUCTION

The American system of intellectual prop- such incentives, in the form of exclusive rights,

erty rights was established to foster creativity would stimulate the development and dissemand learning by providing economic incentives ination of ideas, discoveries and inventions, into individual creators, 1 It was assumed that formation, and knowledge. As a result, artists,

writers, and scholars would have at their dis-

“1’hrfju~hout this chapter the t[’rm creators is used in a genposal the resources necessary to support their

erlc sense t o include all t hose p(’opl(” who art, i n ~rol~mi in art is- creative work. Most of what they needed was

tic {Jr Int(’llettual actl\rltles. available through printed materials,

127
128 ● Intellectual Property Rights in an Age of Electronics and Information

Today, however, we have moved far beyond

the print culture into an era where the new information and communication technologies are

rapidly altering the environment for creativity. This raises the question of whether incentives of intellectual property rights, established

in an era when the printing press dominated

communication technology, remain adequate

in an age of information and electronics.

This chapter analyzes the relationship between incentives and the creative environment

THE CREATIVE

Artists, writers, composers, and inventors

do not work in a vacuum. Nor, as the social

historian Elizabeth Eisenstein has pointed, “do

major innovations, discoveries, and artistic

works spring to life abruptly and full blown,

like Minerva from Jove’s brow."2 Rather, an

invention, discovery, or creative act is more

like a complex social process than an isolated

incidents The environment in which these processes occur is the ‘‘creative environment. ”

The creative environment consists of several

elements:

the creators themselves—the scholars,

poets, writers, artists, inventors, and

others who produce intellectual works;

the tools and materials that creators need

to perform their tasks;

the foundation of artistic and intellectual

material on which to build, which might

be as fundamental as an epic poem or as

sophisticated as an on-line, bibliographic

database;

a set of skills and procedures for carrying

our their work;

‘Elizabeth L. Eisenstein, The Printing Press as an Agent of

Change: Communications and Cultural Transformations in Early

Modern Europe, vol. I (Cambridge, England: Cambridge University Press, 1979), p. 31. For two other discussions of the interrelated activities and processes leading to invention and

creativity, see also, Arnold Pacey, The Maze of Igenuity, Ideas

and Idealism in the Development of Technology (Cambridge,

MA: MIT Press, 1980); and Daniel J. Boorstin, The Discovers:

A History of Man Search to Know His World and HimseJf

(New York: Vintage Books, 1985).

3Eisenstein, op. cit., p. 31.

by examining: 1) how technology relates to the

creative environment, and 2) how today’s new

technologies are affecting that environment.

Where possible it will distinguish between the

environments in which artists, scholars and

scientists, and information entrepreneurs operate to determine whether technology is affecting these areas in different ways in order to

identify where creators might require different kinds of incentives and rewards.

ENVIRONMENT

● a formal or informal system of education

and training;

Ž a network of relationships with others,

each constituting a set of roles; and

● a community of shared and supportive

values and a system of incentives and

rewards.

Together, these elements constitute a system in which each part affects all others. The

creative environment can also be influenced

by external factors, such as economic developments, politics, or social change. Technology is one external factor that is likely to have

a particular significant impact because just to

be able employ it generally requires the restructuring of the environment in which it is to be

used. 4

As the following discussion shows, the influence of technology on the creative environment is likely to take several forms. It will affect who the creators are and what motivates

them, what kinds of tools and materials creators use and how they get access to them; the

skills they need to carry our their work; and

their roles and relationships to others in their

environment.

4Langdon Winner, Autonomous Technology: Technics Out

of Control as a Theme in Political Thought (Cambridge, MA:

MIT Press, 1977), p. 100. See also Jacques Ellul, The Technologictd Societ.v (New York: Vintage Books, Alfred A. Knopf,

1964).
Societies are

Ch. 5—Irnpact of Technology on the Creative Environment ● 129

IMPACT OF TECHNOLOGY ON CREATORS

shaped and characterized by

the technology that predominates in them. one

can speak, for example, of Stone Age man or

of the basket weavers. Today, computer technology is becoming pervasive. While virtually

everyone encounters this technology daily in

one form or another, its power and scope ensure that it will have an especially pronounced

effect on those involved in creative, scientific,

and scholarly pursuits. In particular, it will affect how artists, inventors, and scholars see

themselves–their self-image, and what motivates them.

Self-Image and Motivations

The historical case of the printing press illustrates how technology can affect creators’

self-images and motivation. In fact, the concept of individual authorship, which definitively changed authors’ self images, emerged from

this new technology.5 Before the printing press

manuscripts were treated more or less as sacred texts whose authorship was as irrelevant

as it was difficult to ascertain. Daniel Boorstin captures how difficult it was to trace

authorship before the establishment of a

printed, title page:6

There were special problems of nomenclature when books were commonly composed

as well as transcribed by men in holy orders.

In each religious house it was customary for

generation after generation of monks to use

the same names. When a man took his vows,

he abandoned the name by which he had been

known in the secular world, and he took a

name of one of the monastic brothers who had

recently died. As a result, every Franciscan

house would always have its Bonaventura,

but the identity of 'Bonaventura’ at any time

5As Einsenstein has pointed out

F’rr)rn t h{, flrqt, authorship was closely Ilnked to t ht. new tech

nolt)~~, ,As F’eh\’re and kf artln sugge~t, It IS a ‘ neolc+p qm to u w,

the term “man of let ~erq’ I){’ fort> the advent of prlntlng [’art 1>

t)ecause copyists had, after all, rre; er paid thosr who~r works

they rop]ed, partly becauqe new hooks were a ~mall port Ion of

tht~ earl} t)(x)k trade, an{i partl~ because dl~l~rons of Ilterarv la

hor remained blurred, the author retained a quasi-ameteur st atus until the elght[wnth centur y

~:isenstein, op cit., pp 15;1- 154

‘ Boorstin, op. cit., p 530

could only be defined by considerable research.

All this, as we have seen, gave a tantalizing ambiguity to the name by which a medieval manuscript book might be known. A manuscript volume of sermons identified as

Sermones Bonaventurae might be so called

for any one of a dozen reasons . . . . Was the

original author the famous .Saint Bonaven -

tura of Fidanza? Or was there another author

called Bonaventura? Or was it copies by

someone of that name? Or by someone in a

monastery of that name? Or preached by

some Bonaventura, even though not composed by him. Or had the volume once been

owned by a Friar Bonaventura, or by a monastery called Bonaventury? Or was this a collection of sermons by different preachers, of

which the first was a Bonaventura? or were

these simply in honor of Saint Bonaventura?

The printing press not only gave rise to the

concept of the individual author, it also affected how creative people were motitated.

With the enhanced economic value of printed

books fostered by the new technology, creators encountered conflict concerning whether

they were—or should be— ‘serving the muses

or mechanic printers, [or were] engaged in a

‘divine art’ or a ‘mercenary metier. ’ "7 Just as

the printing press affected the self-image and

motivations of 17th and 18th century creators,

so too are the new information technologies

already changing contemporary creators’ attitudes and perceptions about themselves and

their work.

In many fields, the convergence of audio,

video, and computer technologies now allows

the creator to express his/her art in multiple

modes and media, changing the way he/she defines his role. Basing her art on a variety of

technologies, the entertainer, Laurie Anderson,

for example, defines herself at one and the same

time as a musician, a composer, a video maker,

a writer, an inventor, and a pop stars The same

technologies turn audio engineers into stage

F:isenstein, op. cit., p. 5~1.

‘tJ. IIoberman, “The New .Avant-(; arde I’rorn Anderson to

H?rne,” Dial hfagaine, ,Jul~’ 1985, pp. 5-6.
130 ● Intellectual Property Rights in an Age of Electronics and Information

performers, sound-mixers into composers and

performers on records,’ and computer scientists into film artists. Many artists are also

software designers, many composers are technicians, and many biologists are information

scientists. As technology becomes more integral to the arts, artists have to become technicians before they can create.

Beyond changing perceptions of their roles,

the new technologies may actually affect how

creators think, how they become aware of who

they are and what they do, and how they define their relationship to the rest of the world.

After analyzing people’s experiences with the

computer, Sherry Turkle observes:10

The computer becomes part of everyday

life. It is a constructive as well as a projective medium. When you create in a programmed world, you work in it, you experiment in it, you live in it. The computer’s

chameleon like quality, the fact that when you

program it, it becomes your creature, makes

it an ideal medium for the construction of a

wide variety of private worlds and, through

them, for self-exploration. Computers are

more than screens onto which personality is

projected. They have already become a part

of how a new generation is growing up.

By firing creators’ imaginations, the new

technologies are also widening the scope of

creative activity itself and opening new opportunities. The interactive fiction writer, Ann

Byrd-Platt, for example, was discouraged from

becoming a novelist, believing she could not

distinguish herself from “the hundreds and

hundreds of writers just like her.’’” She found

that an understanding of computers and technology gave her new areas in which to exercise

her creativity. In writing interactive fiction—

an art form impossible without computers—

—

‘.See for example Ken Emerson, “David Byrne: Thinking

Man’s Rock Star, ” 7’he New }’ork ~“mes Magazine, May 5, 1985,

pp. ~~-~~. In creating “once in a I,ifet,ime ” teams of technical

and artistic indi~’iduals create together, working out their sense

of structure, relying on intuition, improvisation, and technolOW’. Thus the creator maJ’ be both musician and engineer.

Sherrv Turkel, The Second Se~f: Computers and the ]lumtm Spi~it (New York: Simon & Schuster, 1984), p. 15.

‘Ann Byrd- Platt, OTA Workshop on the Impact of Technology on the Creative Environment, Apr. 24, 1985.

she succeeded in finding a niche for herself and

her creativity.

Technology, may also change how society

perceives creators and their work. For example, while most people have always recognized

that the stage director imparts a unique contribution to the performance of a play or musical, the director was unable to claim ‘authorship’ of his work, because his contribution

could not be written down or expressed unambiguously. Today, however, video-recording

technology, can ‘fix’ the unique way in which

actors, props, motion, and scenery are arrayed

in each director’s interpretation of a work. By

thus establishing his authorship, the stage director has greater credence in his claim to copyright. 12

Technology has also affected the motivations of artists and scientists. Changes in attitude seem to be most pronounced in those areas

where the new technologies have helped to enhance the market value of creative and scientific works. Again, as in the age of the printing press, many creators are wrestling with

choices about whether to focus on intrinsic or

monetary rewards.

Traditionally, artists have been inspired to

create and scientists driven to invent and discover for reasons that can be clearly set apart

from monetary rewards. The graphic artist Milton Glaser succinctly characterized these kinds

of motivations when he said:

I would suspect that a good many people

would say that the basic reason they do their

work is that it pleases them, because they love

it, because they are obsessed by it, and because they don’t feel that they have any

choice. 13

Underlying motivations and the sense of purpose for creators remains strong. Explains Theodore Bikel:

The arts are about risk taking. More often

than not [they are] about endangerment. You

endanger your soul each time you put some ————

‘James Hammerstein, OTA Workshop on the Impact of

Technology on the Creative Environment, Apr. 24, 1985.

‘Milton Glaser, OTA Workshop on the Impact of Technology on the Creative Environment, Apr. 24, 1985.
Ch. 5—Irnpact of Technology on the Creative Environment ● 131

pen to paper each time you try to interpret

somebody else’s words. We are about poetry-.

We are about the gossamer fabric of hopes,

of dreams. We finally in the last analysis hope

that what we do create will furnish the nation laughter, the nation’s tears, certainly

the nation’s memory of what today. was like

and what yesterday was like. 14

Scientists, too, have been fueled chiefly by

nonmonetary concerns. One major force driving them to pursue their work has been the desire to be the first to solve a problem, to be

the discoverer, or the inventor. It was, in fact,

the originality of a finding that served as “testimony that one had successfully lived up to

the most exacting requirements of one’s role

as a scientist."15 This desire to be first gave

rise to numerous battles over originality in the

scientific community during the 18th and 19th

centuries. 16

Equally important has been the scientist’s

desire to contribute to the advancement of

knowledge in his field. Traditionally, once a

scientist made an original contribution, he did

not try to maintain the right of exclusive access to it. Rather, scientists’ discoveries and

inventions became part of the public domain

available for all to use and build on.17

Benjamin Franklin exemplified this ethic.

Explaining why he had turned down an offer

from the Governor of Pennsylvania to patent

the Franklin stove. he wrote to a friend:

I declined from a Principle which has weighed

with me on such occasions, vis. That as we

enjoy great Advantages from the Invention

of others, we should be glad of an opportunity to serve others by an invention of ours,

and this we should do freely and generously.

Nor did scientists traditionally seek to market their discoveries. Louis Pasteur’s attitude

—

‘Theodore Bike], OTA W’orkshop on the Impact of TechnolOW’ on the (’reati\e ~~n~’ironment, Apr. 24, 1985.

Robert K, Merton, The .%ciolo~ of Science: Theoretical

and Empirica] ln~’(].~tig[]ticlz?.s [Chicago, 11.: The Uni~.ersit~ of

(’hicago I)r-ess, 1973)

‘ Ibid,

I bid.

“As quoted i n Ilruce M’illis Ilugbeel (;ene.si.s of ,4 merican

l’atent and (’op~’right l,a w (M’ashington. 1)(’, I)ublic Affairs

I)ress, 19761, p. 72.

was typical. Although he himself estimated

that the use of his method would save 100 million francs per year, he was not interested in

profiting financially from his discoveries. As

he explained to Napoleon III:

In France scientists would consider they

lowered themselves by doing s0.

19

While many of these traditional motives are

still in force, recent technological developments

have noticeably affected how scientists and creators feel about their work, the reasons they

pursue it, and the rewards they expect to gain

from it. In particular, the enhanced commercial value attributed to many information products and services has brought about both conflict and change.

Changing motivations are probably the greatest in fields of science where the commercialization of research results has proved highly

profitable. Industry representatives are now

actively courting the traditional scholar-scientist. As one professor of biological science at

Harvard University described it,

At this point, it’s mind boggling. I’m courted

every day. Yesterday, some guy offered me literally millions of dollars to go direct a research

outfit on the west coast . . . He said any price.’”

Such offers have placed many scholars in

conflict about their roles. While some respond

favorably to these developments–even to the

point of creating their own firms to exploit

their discoveries for profits—others have opposed them as unsuitable for academic science.

Trying to sort out what is appropriate behavior

for academics and academia, a number of major universities have themselves begun working together to develop policy guidelines for

university-industry relationships. z}

‘As quoted in J.D. Bernal, Science and lndustry in the

Nineteenth C~nt~r (Ixmdon: Routeledge and Kegan Paul, 1953),

p. 86.

‘ ‘As quoted in l~enry Etzkowitz, ‘‘kjntrepreneurial Scientists and Entrepreneurial IJniversities in American Academic

.Science, ” kfiner~w vol. XXI, Nos. 23, summerautumn 1985, p. 199.

“ “Academe and Industry Debate Partnership, ” Science.

vol. 219, No. 4481, January 1983, pp. 150-151, See also U.S.

Congress, Office of Technology Assessment, Information Technolo~’ Research and De~’elopment: Critical Trends and issues,

OTA-CIT-268 (Washington, DC: U.S. Govemrnent Printing Office, February 1985),
132 . Intellectual Property Rights in an Age of Electronics and Information

Creators in the arts and entertainment face

similar choices. With the development of a

mass media marketplace, these fields have become big businesses where intellectual works

are often treated purely as economic commodities. The development and proliferation of new

channels of distribution has promoted fierce

competition for entertainent products, which

has greatly increased its commerical value.22

Under these circumstances, authors, artists,

musicians and other creators may be faced with

difficult choices about whether to develop their

art in response to the market or to their own

internal forces. 23 As Milton Glaser described

this dilemma:

If you begin with the idea that the movie

business is a business that has an artistic ele22Tom Whiteside, “onward and Upward With the Arts,”

Cable I, II, and I I I [three-part article seriesl, The New l’orker,

May 1985,

‘ ‘Just such a phenomenon occurred, as has already been

noted, with the growth of the book market after the development and widespread deployment of the printing press. Such

an occurrence happened again in late 19th century America,

when the book market was expanded to meet the needs of an

increasingly literate population. To profit from this literate, although generally less educated audience, it was common for

publishers, for example, to press authors to lower their artistic

standard for the sake of increasing sales, See for example, Lewis

A. Coser, Charles Kadushin, and Walter Powell, Books: 7’he

(’u}ture and Commerce of Publishing [New York: Basic Books,

Inc, 1982), pp. 226-227.

ment to it, , . . [then you need to recognize

that] the control of the movie business essentially is in the hand of the people who think

of it as a business, invest the money, and are

in it to make money and do.24

The choice a creator makes depends on his

fundamental motives and on his relationship

to others within the creative environment. For

software developer David McCune, for example, there really is no choice. As he says:

I'm going to program computers no matter what. 1‘m concerned that I make enough

money to pay the rent and buy myself a computer, basically. Other than that I don’t really

care much.25

Some artists are supported by government

grants or endowments from private foundations. Few are successful enough to attain both

the desired economic independence and artistic freedom. Most, however, choose to work

within the existing system and, when they can,

to finds ways to express their creativity. In

effect, they work in both worlds, the world of

art and the world of business.

— 24Milton Glaser, OTA Workshop on the Impact of Technology on the Creative Environment, Apr. 24, 1985.

25David McCune, OTA Workshop on the Impact of Technology on the Creative Environment, Apr. 24, 1985.

TOOLS FOR CREATIVITY

Machine tools enhanced man’s ability to perform physical tasks. Similarly, the new information technology will enhance his ability to

carry out intellectual pursuits. 26

Because these technologies are primarily intellectual tools, they are likely to be used

extensively in science, scholarship, and the

creative and performing arts. In these areas,

technologies may:

.

26For a discussion of how information and communication

technology can extend man’s creative process of knowing, see

Marshall McLuhan, Understanding Media: The Extensions of

Man (New York: Signet, 1964). For a more recent and speculative discussion about the impact of the computer on the mind,

see Robert Jastrow, The Enchanted Loom: Mind in the Universe (New York: Simon & Schuster, 1981).

1. expand the boundaries of the fields as we

know them,

2. change the ways in which creators and inventors carry our their work, and

3. allow more people to participate in the

creative process and to share the products

of scholarly and scientific research.

Expanding Boundaries

History offers many instances in which new

technological tools have advanced the boundaries of science and scholarship, also expanded

the domains of art and entertainment. The invention of the clock and the lens, for example,

greatly facilitated the development of the
Ch. 5—Impact of Technology on the Creative Environment . 133

sciences of mechanics and astronomy.27 Similarly, technologies expanded the domains of

art and communication. With the substitution

of oil paint for egg tempera, the course of painting was dramatically changed, giving rise to

the Renaissance style of art. ” The development

of the camera, too, brought entirely new forms

of art and entertainment. As the art critic John

Berger notes in his analysis of the impact of

the camera on our perception of the visual arts:

The art oft he past no longer exists as it once

did. Its authority is lost. In its place there is

a language of images. What matters now is

who uses this language and for what purposes .’”

Like their earlier counterparts, the new communication technologies are exerting a wideranging influence on the arts and sciences and

on the development of other information products and services. They offer new tools. By taking advantage of computers’ high-speed dataprocessing abilities, computer graphics can

represent many types of information and art,

from mathematical formulae to cartoons. Computers facilitate the manipulation and rearrangement of anything that can be expressed

in computer-readable form—images, data files,

text. The new techniques for inexpensive reproduction–xerography, audio and video duplication, computer copying–also allow creators and other users to gain access more easily

to a much broader range of intellectual properties than ever before,

These technologies have varying effects on

the actual substance of creation. For some people, new technological capabilities enhance the

creative process by making it faster, cheaper,

or easier to produce a work. For others, they

actually change the boundaries of their art.

27John P. McKelvey, “Science and Technology: The Driven

and the Driver, ” Technology Review, January 1985, p. 42. As

McKelvey points out, the casual relationship works both ways,

with pure science often given rise to new technologies.

‘“Milton Glaser, OTA W’orkshop on the Impact of Technology on the Creative Environment, Apr. 24. 1985,

‘“John Berger, British Broadcasting Corp., U’a.vs of Seeing

(London: Penguin Books, 1972), p. 21, as cited in Edward M’.

Plowman and L. Clark Hamilton, Cop~’right: Intellectual Propert~’ in the Information Age (Imndon: Routledge & Kegan Paul,

1980).

A growing number of authors, for example,

write on word processors because the new devices make it easier to edit, store, and transmit their documents. For these authors, word

processing has not produced a new form of literary expression; it has simply facilitated the

mechanics of creating literary works. Similarly,

film makers use sophisticated and intelligent

tools to capture or create images and sounds

with greater ease and dazzling speed.

Beyond facilitating the creative process,

some technological advances have actually

opened new channels for the expression of

creativity, thereby expanding the very nature

of science and art, Using these new computerized channels to generate graphics and synthesize music, artists, film makers, and composers

are creating new kinds of images. These new

pictures and sounds are born of equations, algorithims, and mathematical models. Using

computer programs and mathematical values

to represent color, shape curvatures, shading,

and even randomness, teams of engineers, artists, and film makers “produce extraordinarily complex and lifelike graphic simulations

that rival and sometimes exceed those born

of traditional animation."30 Whether used to

“draw” a seaside landscape (see box 5-l), to

generate special effects, or make motion pictures, the power for creation lies in the software and the imagination of the team. For creators at Lucasfilms, today’s tools represent

only the beginning of what will later be possible: In the future, “the computer will allow

Hollywood to tell stories that could not have

been told any other way.’’”

Like their counterparts in the arts, scientists

use increasingly powerful computers to carry

out more and more complex calculations, and

to represent and to simulate experiments, processes, and phenomena. The use of supercomputers and color imaging techniques for numerical computation in fields such as physics

enables scientists to solve increasingly com-

“’Stuart Gannes, “1.ights, Cameras Computers. ” DISCOlrER,

August 1984, pp. 76-79,

“I+ld Catmull, Head of the Computer Development Group,

Lucasfilms, as quoted by Stuart Gannes, “Lights, Cameras

.,, Computers,” DISCOVER, August 1984, p. 79.
134 • Intellectual Property Rights in an Age of Electronics and Information

Box 5-1.-Using Computer Generated Imagery to “Draw” a Seaside Landscape

Photo credit: Lucasfilm, Ltd., © 1985

This composite image, titled “Road to Point Reyes” was produced by a team of creators working in the Computer Graphics Project at Lucasfilm. Under the direction of Robert Cook, the landscape was defined using patches, polygons, fractals, particle systems and a variety of procedural

models. Each of the elements of the landscape were rendered separately and later composite. Rob

Cook designed the picture and did the texturing and shading, including the road, hills, fence, rainbow, shadows, and reflections. Loren Carpenter used fractals for the mountains, rock, and lake,

and a special atmosphere program for the sky and haze. Tom Porter provided the procedurally drawn

texture for the hills and wrote the software by combining the elements. Bill Reeves defined the

grass by means of a moving particle system he developed. He also wrote the modeling software.

David Salesin put the ripples in the puddles. Alvy Ray Smith rendered the flowering forsythia plants

using a procedural model. The visible surface software was written by Loren Carpenter. Robert

Cook wrote the antialiasing software, a program to prevent unauthorized access.

The picture was rendered using an Ikonas graphics processor and frame buffers, and was scanned

on FIRE 240, courtesy of MacDonald Dettwiler & Associates Ltd. The resolution is 4K x 4K, 24

bits/pixel.

plex problems—problems with so many variables that the true visualization requires a numerical solution. For example, modeling gas

flowing in black holes, where the actual manifestations of the gas dynamics around them

are too small to be observed, requires numerical experiments of a new order of magnitude.

Explains Larry Smarr:

A typical experiment makes use of at least

10,000 time steps. Thus, the finite-difference

solution is a set of five variables on a space

time lattice of 250 million points, that is, the

solution of 1.25 billion numbers of nonlinear

partial differential equations.32

32Larry L. Smarr, “An Approach to Complexity: Numerical

Computations, ” Science, vol. 228, No. 4698, Apr. 26, 1985, pp.

403-405.
Ch. 5—Impact of Technology on the Creative Environment • 135

Participants at OTA workshops convened

for this study,” described the multiple ways

in which the new technologies are expanding

the boundaries of science, music, art, dance,

photography, film, and television:

In musical composition and performance,

new sounds and arrangements result from

computer synthesizers, digital sound analyzers, and electronic editors. Although musical notation can begin on paper, it may also

be “drawn” electronically. The technology

not only provides tools to generate sounds,

but also the means to store and manipulate

them as well. Thus composition and performance can result from revision, expansion, or

recombination of unending variety of chords,

melodies, rhythms, or pitch.

A dance sequence blends the performance

of a live dancer with that of computer-generated images and information. Intricate and

complex sequences of movement and dance

are developed by the choreographer and performed by the computer. While early computer representations of dance were rudimentary

representations, computer images are now

essential elements of the performance itself.

In some instances, the computer-generated

dance sets out new steps, followed in turn by

the live dancer. For some choreographers and

dancers, the boundaries between technology

and dance cross in the generation of new art

forms. (See box 5-2. )

The new technologies not only affect performance in dance directly, as adjunct art

forms; they also provide new ways to permanently record dance. In turn, once stored,

these computer records not only become

choreographical records, when broken down

into their elements, they can also become

sources for new steps and sequences.

Technological changes in cameras, film,

lighting equipment, laser separators, print

publishing, and computer processing of electronic images are all affecting photography.

Computing power display technologies enhance capacity that they expand science into

new horizons. (See box 5-3. ) This expanded

capacity allows for new ways of visualizing

and analyzing physical phenomena such as

the behavior of a molecule or the evolution

of a galaxy.

The power of the new technologies is not

limited to science and the arts, it cuts across

virtually all information-related fields. New information technologies have expanded the variety, scope, and sophistication of information

products and services. Described by some observers as being in the very process of ‘‘selfcreation," 34 the information industry—from

database businesses, software and hardware

providers, publishers, cable television, information analysis centers and clearinghouses—

continues to grow. In the U.S. software industry alone, there are an estimated 1,200 companies and thousands of individual free-lancers

creating and producing software and providing services worth $40 billion annually.

The new technologies can both enhance existing information products and services and

generate new ones. Figure 5- I lays out the multidimensional and multifaceted technological

capabilities that play a role in developing information products and services to meet a wide

range of information-related functions. At the

same time, the technologies enhance the value

of information products and services by making them more accurate, timely, and accessible.

New Ways of Proceeding

The development and use of new tools also

influences the way people perform creative

activities. Historically we can see, for example, that the technology of mass printing and

publishing changed the process of conducting

scientific research and scholarship by imposing precision and standards for publication.

Books were reviewed, examined, and marked

up in ways they had never been before. For

the first time, images could be printed with

text. A system for organizing books was developed; titles were systematically arranged

with bibliographies compiled, making it eas-

“OTA Workshops: Technologies for Information (Treat) on, “Charles W’. Nlor]tz, I’resident and Chief operating office,

I)ec 6, 1984, I)lsplay, 1+-inting, and Reprography}, Ma] 1 ~1, 1985. I)un & Hradstreet (’orp., Ke~’note Address, 15th Annual Con1 mpact {}f Technolo~ on the (’reati~e F;n\ironment, Apr 24, ven tion and 1’; xhihi t ion, The J nformat ion I ndust ~, A ssw,lati{)n,

1985). Nov. 7, 1983. New York City.
136 . Intellectual Property Rights in an Age of Electronics and Information

Box 5-2.-Dance and Computer Technology

“And who can tell the dancer from the dance?”

–William Bulter Yeats

Computer graphic images depicting dancers and dance sequences were created at the New York

Institute of Technology’s Computer Graphics Laboratory by Robert McDermott, Rebecca Allen,

Paul Heckbert, Lance Williams, and Jim St. Lawrence. The computer-generated figures are “rotoscoped” to mimic the steps of a videotaped human dancer’s performance. They can then be combined with live action film or video as in Twyla Tharpe’s “Catherine Wheel,” a co-production between Dance in America and the British Broadcasting Corp.

ier to use the growing volume of written works.

These changes, in turn, facilitated the development of the scientific method.35

Printing and the widespread distribution of

books also fostered new relationships among

scientists, artists, intellectuals, and their geographically distant counterparts. As Eisenstein has pointed out:

The fact that identical images, maps, and

diagrams could be viewed simultaneously by

35Eisenstein, op. cit., pp. 80-111.

scattered readers constituted a kind of communications revolution itself.36

Just as technology affects the tools used by

creators and enhances and expands the creative process, so too it will lead to new ways

of operating. With computers’ increased capacity to store, retrieve, and manipulate information and images, the process of creativity and

research is becoming more interactive. Two

phenomena illustrate this: electronic snipping

and pasting and computer networking.

“Ibid., p. 56.
—

Ch. 5—Impact of Technology on the Creative Environment ● 137

Box 5-3.-Using Computer Graphics as a Tool To Explore New Surface Structures

Photo credit: D. Hoffman and J.T. Hoffman. © 1985

Minimal surfaces are mathematical idealizations of membranes which are stretched in such a

way as to attempt to make their surface area as small as possible. They occur as soap films, as

interfaces in liquid crystals, and have been used theoretically in physics and general relativity.

In 1984, David Hoffman, a mathematician at the University of Massachusetts at Amherst and

William H. Meeks III, then at Rice University, were able to prove the existence of a new minimal

surface, the first of its type to be discovered in 200 years. By using numerical methods to approximate a possible example, and then computer graphics developed by James T. Hoffman to view portions of it, they were able to discern that the surface was highly symmetric. According to David

Hoffman, “This provided qualitative information and insight which led to a new general theory

and the construction of infinitely many examples.” Moreover, he notes, “The ability to process and

condense large amount of information by means of computer graphics is well known in other fields,

but has only recently been used in mathematics.”

Pictured below, is a computer-generated view of the new minimal surface.
138 ● Intellectual Property Rights in an Age of Electronics and Information

Figure 5-1 .—Applications of Information Technologies to the Creation and Processing of Information

Description & synthesis Logical access

Microcomputers

CAD/CAM

Synthesizers

Cataloging utilities

/

Circulation systems

Catalogs

Automatic indexing Online retrieval systems

Automatic synopsis

/

Database management lnstruComputer. generation systems mentation

‘aided

translation

Graphics systems

Management

information

systems

Computers

Decision

and terminals / Telephone lines support systems

Satellites

Cable networks \

Knowledge bases

Word processors

Photocomposition Microwave”

Local area Microcomputers

Computers

Television sets

Printers

Photocopiers

Printing

presses

Microform readers/printers Compact disk

\

/

Facsimile terminals Holographs \

Physical transformation Storage & preservation

SOURCE King Research, Inc., July 1985

Electronic Snipping and Pasting

Even when done with scissors and paste,

snipping and pasting consists of a process of

storing, retrieving, and manipulating information. The computer, with its unique capacity

to perform these tasks, is the ultimate editing

tool. With this technology readily available,

the creator is now as prone to re-create as to

create in the first place.

Computer and video technologies are having such an effect on film editing. With tools

such as EditDroid, developed by Lucasfilms,

the arduous task of editing thousands of feet

of film is simplified by electronic snipping and

pasting.

37 By computerizing the editing Proc-

—.— .

“Experts point out that film editing is a major component

in the making of a film. It can take as long as the shooting itself. A typical finished feature film consits of 10,000 feet of film,

on six reels, the result of as many as 2,000 splices from the original footage. See Gannes, op. cit.

0

3

Decision support

-0 systems

z

w—. CAD/CAM

C-I w— Graphics

ess, a film artist can rearrange footage in the

same way a writer rearranges words on his

word processor: inserting and deleting images

frame by frame; taking whole sequences from

one place and shifting them to another; and

scrolling through sequences again and again.

All this is done in a matter of seconds.38 As

in creating texts or developing on-line databases and information services, films can also

be edited, merged, and reformed. In the same

fashion, old films, stored tape footage, and

other archival material can all serve as the basis for new derivative products and creative

works.

Electronic snipping and pasting has also altered the world of the still image photographer.

Using laser and computer technologies to scan

original photographs and convert them into

38Ibid,
Ch. 5 Impact of Technology on the Creative Environment ● 139

digital data, one can manipulate the ‘no-longer

photographic’ image in very sophisticated

ways.39 Color, texture, figures, and so on can

be varied slightly or totally. (See box 5-4, “NOW

you see them, now you don’t. The same technologies can also transmit photographs electronically to printers in remote locations.

These capabilities can alter both the way a

photographer works and his control over his

work. Before digitized photography, for example, the photographer could control his images

by controlling the film negatives. Today, however, the commerical photographer must negotiate in advance, in exact detail, how the image will be used, for what length of time, and

under what circumstances. Explains Bill

Weems: “The human relationships of the whole

industry have changed dramatically now. . . .

You have a whole new world to deal with here.

Images are not only stored and retrieved, but

are digitized and re-created.”40 To work out

these relationships, additional time must be

spent dealing with administrative and transaction issues. And the photographer wonders

if it is only a matter of time before it will be

literally impossible to track all of the uses of

one’s images.

The production of music and sound is equally

amenable to electronic snipping and pasting.

Using the ability to store recorded sound digitally and gain increased digital control of that

sound, the musician can mix and match not

only sounds, but also rhythms and pitch. According to composer Michael Kowalski, these

new tools allow for:

. . . unprecedented access to reproducing,

copying and editing sound— an ability to take

tiny snippets of sound, anywhere from a twentythousandth of a second of a sound to the whole

piece of music, and manipulate it to your

heart’s content.”

These technological advances have the potential to damage creators’ interests as well.

—— —

‘Steward Brand, Kevin Kelly, and Jay Kinney. “Digital

Retouching,” Whole Earth Review, No. 47, July 1985, pp. 42-47.

‘ Hill W’eems, OTA Workshop on the Impact of Technology

on the Creative E:n\’ironment, Apr. 24, 1985,

4’ Michael Kowalski, OTA W’orkshop on Technologies for Information Creation, Dec. 6, 1984.

The same images and sounds that the artist,

photographer, or musician has stored to use,

manipulate, revise, and reproduce can also be

manipulated, revised, copied, and used in a

multitude of ways by others, with or without

permission. Some creators worry that a “cavalier attitude will develop toward taking whatever you want and doing whatever you want

with it. "42 This attitude has already surfaced

within the artistic community itself, as well

as in the worlds of advertising and publishing.” Although many of these innovative tools

for cutting and pasting are still relatively expensive and unavailable, they may be more accessible in the future. With wider deployment

of such techniques, artists, photographers, and

musicians may find it increasingly difficult to

track or trace the uses of their work. Notes

Joyce Hakansson:

Now, talent, creativity, works of art are also

in an intangible fashion being transmitted

and we are not aware of the fact that we are

stealing; that we are, in fact, impinging. We

are encroaching on somebody’s rights. That

has to be transmitted. The new technology

is now putting things in a new format and we

have to be taught to look at it in a new way.44

Thus one question for the creative community is: How do you proceed?

Computer Networking

Computer networking makes it possible to

use distant computing power to analyze data

or generate new images; to consult with one’s

colleagues and jointly write papers; and to exchange ideas or reports. However, such shifts

in the way information and knowledge are cre-

. — —

“Ibid.

“Interview with Lauretta Jones and Bonnie Sullivan,

graphic artists in New York City, March 1985, For example,

Jones worried about continued reuse of her images, done easily

without her permission, once her client has a copy of her disk,

on which the image was fixed. Sullivan found that using a very

sophisticated computer graphics system that required that she

store her images on hard disk, placed her image files in a computer system in which she had no control. Finding that other

users had access to her files without her knowledge or acquiescence, Sullivan chose not to work on the system until users could

agree to control and respect controlled access to one another’s

work.

44Jovce Hakansson, OTA Workshop on Technology and the

Creative Environment, Apr. 24, 1985.
140 ● Intellectual Property Rights in an Age of Electronics and Information

Box 5-4 Art of Digital Retouching

Photo credit: Pacific Lithograph Co., San Francisco, CA

This demonstration of digital retouching was put together by Pacific Lithograph Co. What appears to be two separate photographs is actually only one. By digitizing the photograph of the four

hikers, it becomes possible to capture and then manipulate information about color, patterns, and

texture.With a Chromacom machine, a computer-driven device, it becomes a simple matter to copy

the color texture at one point and slide it over to another. Distinctive patterns are copied exactly.

Thus the three people standing in the top-me were not remooved instead they were “washed over”

with sky and mountain bits, taken from the scene. Each mow of the cursors brings the seams of

the changes closer and closer together. While requiring skill, the digitizing process appears to be

almost a routine operation.
Ch. 5

ated and distributed can have a tremendous

impact on the worlds of scholarship and creativity. For just as the centralization of bookmaking and publishing led to the development

of authorship and standardized texts, so might

electronic networking speed the decentralization of information distribution, which, in turn,

may to lead changes in the processes by which

research is conducted and art is created.

These changes are already becoming visible

in the academic world, where scientists are

using computers and telecommunication links

to conduct research and communicate with one

another on networks supported by the Department of Defense (ARPANET), the National

Science Foundation (NSFNet), and the Department of Energy (MFENET).45 The number of

networks and users are growing rapidly, not

only for scientific communities, but also in

other academic disciplines.

BITNET, for example, used by scientists

and other scholars, provides linkages to more

than 175 institutions of research and higher

education in the United States and has direct

links to networks in Canada and Europe. Users

of BITNET and other networks send each

other messages, text files, and computer programs. ” Those who use computer networking

describe it as an essential tool in their work.

(See table 5-l.)

Some networks serve not only as mechanisms for exchange of data and information,

they also provide the means to access distant

computing power for conducting research. One

such example is the National Magnetic Fusion

Energy Network (see figure 5-2), which connects a total of 4,000 users in 100 separate loca-

—

‘“For a description of the operation and scope of those networks see, Dennis M. Jennings, I.awrence H. I.andweber, I ra

H. Fuchs, David ,J. Farber, and W. Richards Adrion, 1’Computer Networking for Scientists, Science, vol. 231, No. 4741, pp.

943-950.

~, Files, for example, can include any type of machine-readable document, such as memoranda, research proposals, manuscripts, and letters. Just as networks transmit messages from

one computer to another, networks also transmit information

from one computer to another, in the form of data or computer

programs. See Ira H. Fuchs and Daniel J. Obserst, Report orI

.Vetworking, OTA contractor report, June 1985.

—Impact of Technology on the Creative Environment “ 141

Table 5-1 .—Electronic Networking: Academic

and Research Uses

“1 have found the network to be extremely useful thus far

In furthering my collaborative efforts with researchers in other

cities The ability to transmit both raw and transformed

data and computer printouts of analyses rapidly between locations greatly facilitated the collaborative efforts. It was possible, indeed in cases easier than if we’d been in the same

city, to receive data, run an analysis, ship results, discuss

the results, and plot next strategies for analysis with colleagues in Boston and New York . Further, I am actively

collaborating in a research grant at --– with – -- –

and we both have found the ability to send copies of measures, initial data, and other forms rapidly to each other has

greatly facilitated our work

., “We use BITNET for electronic mail dialogues with

authors in all stages of publishing business, Including the

shipment of complete book manuscripts to our editors

Two encyclopedia projects are underway at remote locations.

We currently carry on conversations with the authors and editors of the projects, but when they move into the copy-editing

stage we plan to have a constant flow of articles, back and

forth project editors to our in-house manuscript editors, and

vice versa"

“Last summer,... I moved shop from – to

I was able to ship the majority of files from both

the CS/SOM DEC-20 and the IBM 4341 quickly and effortlessly t o ––– via BITNET “

... “I have used BITNET on several occasions to send data

to and receive data from users at [several different universities]. [It] has made the scientific interactions with researchers at these institutions much easier than it would be without

the network. Unfortunately several institutions with which I

regularly communicate are not on the network.”

Other faculty members used the network while they were

on academic leave to advise graduate students who were

working on their dissertations. “Using BITNET, question and

answer exchange or draft approval could take place within

the same day. ”

SOURCE BITNET Network lnformation Center. EDUCOM Princeton, NJ

tions, all of whom are involved in multi-institutional research efforts.47

Electronic networks can also provide access

to vast electronic libraries. Although few researchers today report using their time on electronic networks to search on-line bibliographic

and content databases, more are likely to do

so in the future. Eventually, researchers conceivably might acquire all they need—people,

research tools, current data and information,

‘

-Figures provided by the Office of Fusion Energy, U.S. Department of Energy, and the National Magnetic Fusion Energy

Computer Center, Lawrence Livermore National Laboratory,

University of California.
142 ● Intellectual Property Rights in an Age of Electronics and Information

Figure 5-2.— National Magnetic Fusion Energy Network

Hanford Engineering University of

Development Laboratory Wisconsin

1 \ Argonne Grumman Aerospace

University of I \

Nat, Lab

Washington University of Illinois \ New York I

Lawrence Berkeley

Laboratory

University of

California

Berkeley

NMFECC

LAWRENCE

LIVERMORE A

NATIONAL

LABORATORY

/

University of

California

Los Angeles

TRW Inc /

University Columbia University

\

Cornell

University Massachusetts

\

Institute of

/ / Technolog y

PLASMA

ORATORY

Y

GENERAL

ATOMIC

/ \

NATIONAL

LABORATORY

Fusion Engineering

Science LOS ALAMOS -

‘ University of Texas Auburn University

Applications SCIENTIFICInc. LABORATORY

SOURCE National Magnetic Fusion Energy Computing Center, Lawrence Livermore

and published literature-via these electronic

networks.

In such a fluid, interactive system, the possibility of discovery or invention on-line, once

a vision of the future, is now a reality. As scientists and researchers work in this environment,

intellectual property concerns are likely to arise

on such issues as determining originality and

assigning patents. International transmission

of data, software, and other information may

further complicate this situation.

It should be noted, however, the information

distributed on networks differs in one key way

from information published in technical and

scientific journals. Works transmitted electronically are likely to be still in progress, with

multiple authors, each at a different stage of

revising the work. Eventually, scientific research may actually be published on such networks instead of on paper. This practice would

have far-reaching consequences for scholar-

— Dual 56 kilobit satellite Iinks

— Medium speed land Iine

National Laboratory

ship. As Ithiel de Sola Pool has noted, “The

proliferation of texts in multiple forms, with

no clear line between early drafts and final

printed versions, will overwhelm any identification of what is the world’s literature. “48 As

in the days prior to the printing press, originality will be hard to verify and authorship

hard to establish.

Who Can Participate

The new information and communication

technologies and networks may determine, in

part, who can participate in the creative process. These tools, like their earlier counterparts,

can increase the need for some skills and reduce the need for others. In the past, for example, the invention of letters and the development of written language increased the need

48Ithiel de Sola Pool Technologies of Freedom (Cambridge,

MA, and London, England: The Belknap Press of Harvard

University, 1986), p. 212.
Ch.

for analytic skills and diminished the need for

some of the poetic skills that facilitated memorization. Similarly, the new information technologies are bringing about changes in the

skills required to participate in the creative

process, helping to determine in this way who

can take part in this process. The effect, however, differs depending on the product. Although these tools decentralize and democratize some kinds of activities, they might be

erecting barriers to entry for others.

Until recently, computer technology was the

exclusive province of a technological elite.

Use of computers required a special set of skills

and knowledge held by highly trained computer scientists and a select group of self-educated

computer hobbyists or hackers. Today, advances in hardware design and operation, as

well as improvements in software design and

applications, have brought computer technology to the public as well as to artists and scholars. Now everyone can use new technologies

to expand and enhance their creative powers

and vision.

Before the advent of computer synthesizers

or software tools such as MacPaint, innate ability and years of training were needed to play

a musical instrument, compose a tune, or create an illustration for printing, While today

tools substitute for neither artistic talent nor

training, they do open new avenues for creative expression and communication of the uninitiated. Using a personal computer, one can

generate melodies, explore harmonies, and play

an instrument, bypassing the study and practice that separated the musician from the nonmusician.49 Digital synthesizers, sound systems, and recording systems can further extend the reach of both amateurs and professionals, and at increasingly lower costs.50 Now

a musician can create highly sophisticated

sound in his basement or in a studio, using

tools that were once available only in a university music research Laboratory.51

‘” hlusic in the (’omputer Age, Compute, January 1985,

Scott M ace, ‘‘ F;lectronic orchestras in Your I.i\’ing

Roomi ” Infoworld, Mar, 25, 1985, pp. 29-33,

hlichael Kowalski, 01’.+4 Workshop on Technologies for Information (’reation, I)ec 6. 1984.

5—Impact of Technology on the Creative Environment c 143

The technologies that make such things possible are now more widely available, as the case

of computer graphics illustrates. A few years

ago, these technologies were only available to

computer scientists and engineers involved

with computer-aided design, data analysis, and

mathematical modeling. Now a wide range of

software applications are readily available for

use in diverse fields. This software does not

pose problems for novices since they provide

what has come to be called “a user-friendly

operator-machine interface."52 In this way, objects, ideas, and projects of study can be expressed and represented graphically for business, education, and personal use. For example,

using stylized, highly professional fonts and

figures that can be “called up” on a personal

computer, one father, as figure 5-3 illustrates,

composed a rather artistic letter to his son, off

at camp.

Advances in hardware and software are also

enhancing access to information itself, and to

resources that can provide information. Electronic networks such as the Source or CompuServe can put people in touch with vast information resources such as on-line information

services, electronic databases, and new forms

of information sources, such as community

bulletin boards.

Searching the literature with on-line computerized databases has, until recently, been done

principally by trained information specialists,

such as librarians or technical specialists employed by large companies. Such searches not

only required the use of highly specialized and

arcane computer commands but also highly

specialized knowledge of the databases themselves. More accessible software designed to

reach on-line databases makes it easier for

users of personal computers to retrieve information. Similarly, improvements in the design

interface of on-line systems themselves facilitate search and location of information. These

developments enable medical professionals,

market managers, or off-campus students to

turn on their personal computers, connect with

“Andries \’an Dam, “Computer Software for Graphics,

Scientific American, 101.251, September 1984, pp. 146-159,
144 . Intellectual Property Rights in an Age of Electronics and Information

SOURCE John Willis, Frederick, MD, 1985
Ch 5—Impact of Technology on the Creative Environment ● 145

on-line information providers, and obtain the

materials they need.53

Information can be acquired electronically

in other ways as well. Public bulletin boards

allow individuals of all ages, interests, and

levels of expertise to access information. Many

hundreds of such bulletin boards are now operating nationwide. These facilities provide a variety of information, from answers to a user

questions by other users, to digital information tidbits, opinions, articles, or even entire

magazines. Many also provide access to public domain soft ware. Use of the board requires

a phone line, a personal computer and disk

drive, a modem, and software that makes the

connection to the board. Most boards can be

reached without charge by dialing a local phone

number. 54 For many people, fellow bulletin

board users become more than a source of information; they comprise a community.’;

These new opportunities for both technical

and nontechnical users have not diminished

‘See for example, ‘‘A New Shortcut to Electronic Libraries, ” Business $Ireek, May 28, 1984, p. 106

‘See Steven I.evy, “Touring the Hulleting Boards, ’ Popufar (’omputing, February 1984.

A t the OTA W“orkshop on Students Perceptions of the Intellectual Property Rights Issue, May 20, 1985, one high school

student explained that he had two sets of friends: 1 ) friends

from school that he might call on the phone and talk about homework or other things; and 2) friends from the computer whose

real names might not be known but who are a constant source

of conversation and recreation on-line. Notes this student: ‘‘ Mjr

computer probably doesn ‘t stay off more than half an hour after I get home. and before 1 go to bed. So it’s on for essentially 6 hours ‘‘

the need for training and education in various

fields. Despite potentially broad and instantly

available access to information, users still must

learn to use these tools to their fullest capacity. Given this need, education and training

might best be used to help progress from developing routine skills to adopting more innovative processes, focusing less on the transfer of facts, and more on understanding how

to find and use information.56

As Ithiel de Sola Pool notes in Technologies

of Freedom:

The technologies used for self-expression,

human intercourse, and recording of knowledge are in unprecedented flux. A panoply of

electronic devices puts at everyone’s hand capacities far beyond anything that the printing press could offer. Machines that think,

that bring great libraries into anybody’s

study, that allow discourse among person’s

a half-world apart, are expanders of human

culture. They allow people to do anything that

could be done with communication tools of

the past, and many more things too.’”

“ For example, some companies provride corporate training

in on-line searching to give the end user. such as the research

chemist, the skills that would enable him to use highly technical on-line databases, such as Chemical Abstracts. I n learning

to use such search systems, researchers find they understand

more fully both the possibilities and limitations of the database, and are able to use information professionals even more

effecti~’ely for more complicated searches. See ‘‘on-I.ine I,iterature Searching Catches on Among Researchers, (’heroical &r

En@”neering News, May 7, 1984, pp. 29-31,

‘-Pool, op. cit., p. 226.

IMPACT OF TECHNOLOGY ON RESOURCES AND MATERIALS

In the process of creating, artists, scholars,

and others build on the works of the past and

draw on those of their contemporaries. In

preliterate societies, the poets, storytellers, and

artists drew their content from national lore.

The epic poem served, in effect, as a cultural

database. In more recent times, the university

and other institutions of learning have housed

a nation’s accumulated wisdom. Individuals

gained access to this knowledge either through

their own education and training or through

informal or self-initiated activities. Modern information technologies are greatly expanding

our capacity to store, input, search, and distribute any type of information that can be represented in digital form.

Traditionally, the library has been a key repository for information resources. Today, the

Nation’s approximately 110,802 libraries supported by universities, education, research, and

business institutions, and by local communi-
146 . Intellectual Property Rights in an Age of Electronics and Information

ties (see table 5-2), remain committed to organizing knowledge, supporting continuing scholarship and learning, and offering open-ended

access to the universe of knowledge.58

This universe of information has grown exponentially, doubling steadily every 15 years

or so.” Scientific journals now number 50,000

worldwide and 6,500 in the United States. Similarly, scientific books published in the United

States now number 20,000 annually. ’()

Works in other fields have grown as dramatically as those in science. For example, between

1900 and 1970, the libraries of major universities in the United States doubled their book

holdings every 17 years.61 The Library of Congress, the “Nation’s Library,” has more than

80 million items in its collection, including over

20 million books and pamphlets, Its collections

continue to grow at the rate of 7,000 items a

day.62

““see, for example, Scholarship. Research and .4cces.s to Information, A Statement from the Council on I.ibrary Resources,

Washington DC, January 1985,

“.See King Research Inc., Impact of Information Technt~logy’ on information Sertrice Pro\’iders and 7’heir (’lien te]e, OTA

contract report, July 1985,

“’Derek de Solla Price, Little Science, Big Science (New

York: Columbia University Press, 1963).

“ Isabel Cil]iers, 4’ Impact of the Information SOciet} on the

Information Profession, ” Information Age, vol. 7, No. 2, April

1985,

“% Peter T. Rohrback, FIND: Automation at the l.ibrar.}’

of Congress, The First Twent?,-five )’ears and lle-~’ond (\$’ashington, 1)(’: The I.ibrary of Congress, 1985).

Table 5-2.— Libraries in the United States

Libraries N umber

Public (Central ) 8,768’

Total public outlets = 70,956 which “Includes 6,056

branch Iibraries

Academi c 4,924

School, publi c 70,400

School, private 14,300

Special . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,410

Includes. Federal

Law

Medical

Religious

Corporate

Total . . . . . . . . . . . . . . .. . . . 110,802

SOURCE National Commission on Libraries and Information Science

As the amount and use of information increases in all sectors of society, other public

and private institutions have joined libraries

to provide information and services.63 These

new institutions describe and synthesize information, provide logical access to it, evaluate and analyze information, and store and preserve materials. (See figure 5-4. )

Dramatically affecting the ways information

is stored, organized, accessed, reprocessed, and

used, the new technologies may have a radical

impact on libraries and analogous institutions,

They permit libraries and information providers not only to enhance and expand the services they offer, but also to provide new services that were previously unavailable. 64 Using

electronic networks and databases, location or

size are no longer the sole determinants of the

services that such institutions can provide. 65

Computer databases, themselves, now constitute a new kind of library. Members of the

legal profession, for example, now rely extensively on on-line databases such as WESTLAW

and LEXIS (see figure 5-5). Users can access

many different kinds of information ranging

from bibliographic, full text, or abstracted materials to compendiums of processes on physical and chemical properties. These data may

be compiled separately or jointly by government agencies, academic institutions, libraries,

information analysis centers, clearinghouses,

publishers of books, journals, newspapers,

newsletters, and business and industry.

Databases have also been created by individuals, small groups, and communities of

users with shared interests. Developed to meet

particular needs, they have often come to life

spontaneously and informally. Some are accesb’$ee 1;.~, Brinberg, “Information in the U.S.–An Industry Service Industry, ” Information and the Transformation of

.%ciet~’, G.P, Sweeny (cd. ) (New York: Else\rier North- Ilolland

Publishing Co,, 1982),

“See for example, Patricia Battin, “The I;lectronic I.ibrary:

A Vision for the Future, ” EDUCOM Bulletin, summer 1984.

Ilattin describes the application of computer and communication technologies to library processing activities over the past

15 years. In addition see, Peter T, Rohrbach, FIND: A utomation at the Library of Congress, The First Twent~’-fi\’e Years

and Beyond (Washington, DC: I.ibrary of Congress, 1985).

“see Battin, op. cit.
Ch. 5—Impact of Technology on the Creative Environment ● 147

Figure 5-4.— Public and Private Institutions Providing Information Products and Services

—

Description & synthesis Logical access

Editing

units

Translating

units

Information

Speech Writing analysis centers

Units

Information brokers

Technical writing

units Financial

institutions

Engravers

Photoprocessing Libraries

units

Publishers

book stores

Word processing units Museums

Printers Document

Recording

companies

Film companies OCM units

Database / Records

producers management units

/

Word processing units Computer centers

Book stores

OCR units

Bibliographic

Clearinghouses utilities

Physical transformation Storage & preservation

SOURCE Kinq Research Inc June 1985

sible only to authorized individuals; others are

open to the public. Spurred by the desire to

share ideas or obtain needed information, users

create these new information resources on electronic bulletin boards or computer networks.66

Computer engineer and software designer Lee

Felsenstein envisions thousands of such user

communities providing information within and

across communities and serving as the com-

———.——

“’Take the example of database teaching ideas brought together by members of the math/science forum on CompuServe.

The database came about when one participant in the forum

asked others if they had examples of effective approaches to

teaching physics. Almost immediately, several members of the

forum responded. In turn, other suggestions and revisions or

expansions of the original set of ideas were shared. Thus the

entries in this database increase just as they do on databases

which compile information about published literature or laws

and legal decisions. In this instance information is upgraded

and revised, not by professional editors, librarians, or researchers, but by users themselves.

c

Su

5

3

munity memory" owned and shared by all participants. 67

Other kinds of technology-driven resources

are also emerging. Laser-read optical storage

systems are being used to store and retrieve

visual images, such as photographs, maps,

drawings and paintings. At the Smithsonian

National Air and Space Museum, for example,

videodisks derived from 1 million photographs

currently stored at the museum will be used

to capture the entire history of aviation.68 Ten

archival videodisks are planned, each containing color and black-and-white photographs of

U.S. and foreign aircraft, as well as the ar-

“Interview, Apr. 15, 1985.

‘“SW M. Woodbridge Williams, “ 100,000 Photos on a Platter,” Photo District News, July/August 1984.
148 ● Intellectual Property Rights in an Age of Electronics and Information

Figure 5-5.— Institutional Users of Computer Readable Databases

Legal

Industry

Public libraries

Not for profit

Government

Academia

Information brokers

SOURCE Martha Williams (ed), lnformation Market lndicators, September 1985

tifacts and people associated with the development of aviation and space flight.69

The use of videodisk for this and similar projects offers significant advantages over print

technology. Once they have been stored on

videodisk and indexed by location on the disk,

subject matter, and cross references, the photographs become database entries—interactive, and easily accessible. Searching becomes a dialog between the searcher and the

database or electronic library. In this dialog

the searcher is not limited by old structures

of knowledge that have been built into traditional library indexes; he can put together

whole new combinations of ideas.70

Electronic databases and libraries are powerful tools and important resources because they

. - .- ..- .

“It is interesting to note that most of the photographs are

in the public domain. Some, however, are still under copyright

and will require permission for use by the photographer. As a

research project, the developers hope that such permission will

be given. But there are some members of the photography community who view the “precedents” of this project with alarm.

(Interview with Philip Leonian, New York City, November 1984.)

“’James Ducker, “Electronic Information–Impact of the

Database, ” Futures, April 1985, vol. 17, No. 2, pp. 164-169.

provide greater access to more indices and

source material than single libraries contain.

Like computer databases, videodisks make resources such as photographs more accessible

to more people. Similarly, digital libraries of

software routines and tools, and optical disk

libraries of motion pictures, offer these materials to larger audiences. Eventually, libraries

of audio data may be compiled for musical composition.

In creating new ways to capture and handle

information, the use of information technologies may conflict with traditional methods

of scholarship, which require a clear record of

each contribution and a published work that

is fixed. A computer-readable database, for example, can archive information in permanent

form. But at the same time, this information

will be in constant flux if it is continuously updated, revised, and deleted. These capabilities

raise concerns for many in the research community. As the Council on Library Resources

recently described the problem:

Scholarship is personal, but its results are

not private. To judge the validity of scholar-
Ch.

ly work, the records of past and present research must be open to scrutiny. This is the

only way the intellectual audit trail that is

at the heart of discovery can be maintained.

Limitecl or conditional access to bibliographic

records (or information about information in

any form) is of particular concern .71

A second problem arises out of the increased

capacity to manipulate information in computer databases. Accuracy, reliability, and quality are concerns for both author and publisher

when they enter their works or products in a

database. Although in some instances, the

author may cooperate with the publisher in developing abstracts of technical works or books,

in others, the author does not play a role. Instead, teams of editors and research librarians,

or others who are developing or assembling the

database, may abstract the works. In all cases,

authors and publishers want to assure that the

abstracted or summarized work maintains its

integrity.

The issue of information presentation, integrity, and documentation of sources is also becoming a problem for artistic creators, such

as photographers and artists whose images

may become part of large electronic libraries. —.——

‘Scholarship, Research, and Access to Information, A

Statement from the Council on Library Resources, Washingt`on, D.C. January 1985.

5— Impact of Technology on fhe Creative Environment ● 149

Although most creators want others to learn

and benefit from their works, they also want

assurance that their personal contribution is

recognized and kept intact.

A final concern for all creators, be they scientists, scholars, artists, or individual learners,

is one relating to cost and access. As more databases and electronic libraries develop, information that was once available in journals or

other paper forms may now appear only in computer-processable forms. Now providing computer database services, academic and public

libraries face new and increasing costs. Some

have been able to pass on costs of on-line

searching to users rather than subsidizing

those costs within the library budget. But,

while grants and subsidies may fund the work

of many scholars and scientists and, therefore,

cover these additional costs, they will not fund

others, who will be disadvantaged. And those

who can pay, cannot only tap into electronic

resources, they can also take advantage of information brokers and information on demand

services now available at additional cost.72

‘See for example, Da\rid Streitfeld, “Ask and The3’ shall

Retrie\’e, ” The W’ashignton Post, Aug. 16, 1985, p. 1~5. A t}rpical information on demand research project may cost a client

about $300. Clients include businesses, foundations, hobb~’ists,

and ini’enters, even writers who are ‘‘reasonably successful’’–and can afford to pay, for these services,

IMPACT OF TECHNOLOGY ON ROLES,

RELATIONSHIPS AND REWARDS

Roles and Relationships pendent on the publisher who had a monopoly

The use of technology in society involves in- on the distribution of works.73

dividuals working in relation to one another. New information technologies, too, can make

The characteristics of the technology they use creators more or less dependent on others, alhelp to define the roles people play in these rela- tering the relationship between author and

tionships. Again, the case of printing illus- publisher, film maker and producer, database

trates how this might take place. Before pub- compiler and distributor, and inventor and

lishers became established, authors depended manufacturer. Whether this change in the relaon patrons to support their work. With the advent of publishers, this dependency ended, to

be replaced by another. The author became de- ‘Benjamin Kaplan, An Unhurried View of Copyright {New

York and London: Columbia University Press, 1967).
150 ● Intellectual Property Rights in an Age of Electronics and Information

tionship occurs depends on how technological

advances affect the costs of new tools, the location of tools and resources, the restructuring

of roles, and the control over the mechanisms

for distribution. The nature and scope of creative endeavors also help to shape the relationships among creators and others. Where creators must work in expensive, large-scale,

centralized operations, they will be more interdependent.

As tools based on new technology become

cheaper, more powerful, more available, and

easier to use, a greater number of creators can

use them to explore and manipulate images,

sounds, and information, The increasingly sophisticated tools also enable the artist to produce a more polished professional work. Musicians, for example, who once depended totally

on recording studios, now may have equipment

in their basements for performing, recording,

mixing, and producing musical works.74 This

technology can be used to produce tapes that,

on the basis of quality, are indistinguishable

from commercial studio tapes.

Such tools and technologies will also open

new avenues for distribution. As musician,

Richard Green, explains:

. . . musicians can for very small amounts of

money do their recording project, print unlimited cassettes and distribute them, totally

bypassing the larger aspects of the music business as we call it, Totally bypassing, among

other things. . . . copyright laws [and] government regulations. There are a lot of bad things

about this. The good point about this is that

it allows the individual to disseminate his

work. 75

In film making, too, highly sophisticated

cameras and audio equipment are no longer the

exclusive domain of major studios. Dropping

in price, this equipment is more widely available to a growing number of independent film

makers. These creators find they are able to

work cheaply and have the creative freedom

they say would not be possible in Hollywood,

‘Richard Green, OTA Workshop on the Impact of Technology on the Creative Environment, Apr. 24, 1985.

“’Ibid.

where the average film budget is $11 million.76

Just as audio technologies enable musicians

to create finished products, so too have the

tools to create and edit images allowed the film

maker to produce professional and appealing

products, on modest budgets, with funds

scavenged from foundations, government, individual investors, and even relatives. Moreover, with their greater sophistication and appeal, and their more extensive distribution

mechanisms, these films are being extended

beyond traditional audiences on college campuses and in art houses. Public and cable television, as well as local multiplex theaters, are

now showing independent films alongside firstrun Hollywood features.77

The world of publishing has similarly been

affected by the new technologies. Using a stateof-the-art printing system, a publisher such as

Westview Press can quickly produce books in

limited editions of between 100 to 2,000 copies.

This kind of production run allows the publisher to rapidly accommodate the needs of the

market and to produce highly specialized books

for limited markets.78 The number of small, independent publishing houses has increased

while the older, larger, commercial publishing

industry is becoming more centralized through

mergers and acquisitions. It is estimated that

as many as 200 new publishers start operations

every month. In the last decade, the number

of publishing houses has quadrupled and now

stands at about 20,000.

79

Whether creating and publishing computerreadable databases, monographs, or full manuscripts, both authors and publishers can use

computer-driven tools and resources. At the

same time, technology itself is changing the

“Kathleen Hulser, “Ten Cheap Movies and How They Got

That Way, ” American Film, May 1984, pp. 22-25, 53.

77See for example, Julie Salamon, “It’s Boomlet Time for

Moviedom’s Little Guys, ” Wall Street Journal, Mar. 28, 1985.

Notes Salamon, the number of such film makers is growing:

the Association of Independent Video and Filmmakers has

grown to more than 3,000 members from 700 in 1980.

‘“See for example, Lisa See, “Frederick Praeger: Portrait of

a Publisher, ” Publishers Weekly, June 14, 1985.

“see Marc Leepson, “The Book Business, Editorial Research Reports,” The Congressional Quarterly, Washington,

DC, June 28, 1985.
Ch. 5—Irnpact of Technology on the Creative Environment ● 151

relationship between the author, publisher, and

user of copyrighted works. Some observers see

this as a dramatic change, where products and

services can be tailored with increasing specificity to meet the needs and requirements of

users:

The user, in turn, becomes more than just

a buyer of titles. Through his selective use of

the databases, he signals to the publisher his

specific interests, and through user-driven

publishing he can become a publisher in his

own right. . . . In fact, one can say that there

is no true end product until the user tailors

the data into his unique set of ideas, for example, his own published product.80

With an estimated 20 million printers now

available, xerography has “made everybody

a printer, according to Paul A. Strassman,

former Xerox Vice President.81 Each improvement in reprographic technology, such as image clarity, color reproduction, speed, and compilation, makes it more feasible for creators

to publish and distribute their own work. In

particular, where traditional modes of publishing and distribution are either not accessible

or financially impractical, this mechanism can

make it much easier to disseminate information and images. Thus, for example, one can

easily publish a newsletter for a special-interest

group, a community association, or a group

of scholars. Moreover, the technology permits

more people to share their work—be it a collection of poems, a book of recipes, or a series

of drawings.

The development of electronic networks that

transmit text, numerical, or graphic images to

printers at remote locations can further expand

authors’ publishing and distribution capabilities. The result is that roles once held by several people are now all held by one person.

Starting with a single copy of a letter or article composed at a computer and transmitted

to readers at the other ends of the network,

one person can become author, printer, publisher, and distributor of a work.

*’Ilerbert R. 13rinberg, “The Brave New J$’orld of F;lectronic

Publishing, ” Publishers it’eekl}’, No\. 23, 19/+4, pp. 3z-05

“’See Michael Kernan, “The Deans of Duplication, ” 7’he

Jt’zx+ington Post, .Aug, 21, 1985.

While an increasing number of computerdriven tools are dropping in cost, some will always be prohibitively expensive for the individual artist, scientist, or inventor. Moreover,

hand-held calculators or portable computeraided design systems now exist that are more

powerful than the early mainframe computer

systems that occupied whole rooms, certain

classes of artistic work, or scientific problems

demand even more power and sophistication

than even these systems provide. Thus, some

creators find that to do their work, they must

be part of a well-equipped facility, such as a

computer graphics production studio. In other

instances, the writers, programmers, and artists who choose to work in a highly innovative and capital-intensive venture, such as

videotex, may need to join a corporate entity

to work in that field. And the scientist whose

research requires access to a multimillion dollar supercomputing facility has to be affiliated

with industry, government, or academic institutions.82

Other factors may also limit use of new tools

and mechanisms of distribution. Taking full

advantage of these technologies may require

technical expertise not normally held by authors,

artists, or dancers. Thus, technology can require the creator to interact with people with

whom he has never dealt with before.

The System of Incentives and Rewards

The granting of rewards requires that creators and inventors be given a special status

in society. Historically, this did not happen until the time of the Renaissance. Before then,

creativity was considered the prerogative of

God. Because the Renaissance notion of creativity deemed the work of any major poet, artist, or inventor as a product of a special creative genius, which most mortals lacked, it

became something to be rewarded. ”

“The capital costs of buying and maintaining a supercomputer facility requires sponsorship by large institutions. Once

established an individual user could simply buy time in small

amounts still supporting only a fraction of the true costs of maintaining the facility.

“’Pacey, op. cit, p. 87.
152 . Intellectual Property Rights in an Age of Electronics and Information

The technology of printing fostered this notion of the individual, as creator. With the invention of the printing press it was possible

for a single author to produce a work, no longer

dependent on communal efforts. Moreover,

conventions such as standardized texts and

a title page were developed, making individual attribution practical. Today, the new information technologies are affecting society’s

attitudes about creativity, regarding both how

it treats the creative genius and how it assigns

rewards.

The intellectual property system can be conceived of as a societal device to foster creativity. To be most effective, however, it requires

that an author’s particular contribution and

work can be clearly identified. The new technologies are undermining this assumption.

They foster multiple authorship and intangible works. Thus, instead of a situation in which

a single author, artist or scientist creates one

single product, such as a book or mechanical

device, now many authors work jointly and

their individual contributions are often difficult to distinguish from one another. Moreover,

to the extent that they are working in and on

electronic media, their materials may be constantly changing.

Examples of multiple authorship are found

in the world of arts and entertainment, as well

as in research and development. Whereas traditionally, a song was the work of a composer

and a lyricist, whose particular contribution

was easily discerned and rewarded by the intellectual property system, today the creation

of a song, the production of a film, the development of computer software or an electronic

database, and the design of a new hardware

system, may involve many different creative

inputs, connected in a myriad of ways. Creating a seaside landscape with computer-generated imagery, for example, may entail one artist creating the atmosphere, another texture,

and others rocks and beaches. In the final execution, a software program will “glue” it all

together.

When designers, artists, musicians, and programmers are parts of teams that receive joint

remuneration as teams, individual authorship

may not be an issue. To avoid problems of

dividing rewards, some creative teams have

formed their own companies or economic units,

jointly sharing their creative expertise, the development costs, and eventually, the profits.

Many computer software efforts have been

built by such creative entrepreneurial teams.

In other cases, teams of creators and scientists are salaried and supported by an institution such as a software development company,

an advertising agency, a hardware manufacturer, or a university or a government laboratory. In these circumstances, the creative contribution of the employed inventor or artist is

often treated as a work-for-hire. The work of

the individuals in the team might be recognized

in the process of applying for an institutional

patent or copyright. In scientific fields, technical papers are commonly authored jointly .84

Although there are many independent writers, artists, composers, and poets involved in

creative activities, most information products

and services are developed by employee working teams who rarely receive financial rewards

in direct proportion to their particular contributions. 85 Attribution is normally to the source

of publication, not to the writer. Profits flow

for the most part to the investors, not to those

who found the data, organized the presentation, or created an efficient expression.

Nevertheless, there are many creative efforts

that go unrewarded or unrecognized, and it is

these examples that free-lance creators often

cite when calling for changes in the present system. Some free-lance graphic artists and photographers believe, for example, that as creators, they should maintain control over their

images even when their materials have been

“’Like creators employed by businesses, scientists are paid

salaries, but the relationship between this compensation and

the incentives to create intellectual property is weak. Gaston

studied the reward system in British and American science and

affirmed what has generally been believed: that scientists are

rarely motivated by salary or other compensation. Rather, they

operate more under nonpecuniary incentives such as distinguished titles at universities, distinguished levels of membership professional associations, honors, prizes, and fellowships,

editorships of journals, and citation in journals. See Jerry

Gaston, The Reward System in British and American Science

(New York: John Wiley & Sons, Inc., 1978).

“’see Christopher Bums and Patricia A. Martin, The Economics of Information, OTA contractor report, 1985.
Ch. 5—impact of Technology on the Creative Environment . 153

commissioned as works-for-hire. This attitude

is becoming more pronounced as creative materials become easier to manipulate and reuse.”

While creators want their works to be widely

seen and distributed, they also want adequate

compensation for derivative uses, which bring

additional profits to publishers. They are concerned, moreover, that the images attributed

to them are, in fact, of their own creation.

The new information technologies can also

affect how society views the work of the creator and the values it attributes to his work.

The growing economic value of information in

the arts and entertainment industries fuel public perceptions of superstars, superbooks, computer millionaires and the like. In focus group

sessions conducted by Yankelovich, Skelly &

“See the Graphics Artists Guild and the American Society

of Magazine Photographers, Testimony Regarding M’ork-forHire Under the Cop~rright Act, before the Judiciary Committee, U.S. Senate, Oct. 1, 1982. See also additional testimon~’

presented by Robin E3rickman, Graphic Artists Guild Member.

White for OTA, participants pointed out that

rock stars, movie actors, and information industries were making a lot of money. They were

skeptical of the claim that such individuals or

companies would be seriously affected by personal copying. 87 And yet many book, film, and

computer companies are small, high-risk, lowprofit operations. Similarly, many free-lance

artists and performers barely make ends meet.

It should be noted that the intellectual property system is only one means by which society supports the creative environment. In addition, there still exists public and private

programs providing grants and patronage. To

the extent that alternative mechanisms will

affect public policy choices about intellectual

property rights, they are discussed in other

chapters of this report.

87Yankelovich, Skelly & White, Inc., Focus Group Sessions

in Philadelphia, PA, and Greenwich, CT, October 1984.

IMPLICATIONS FOR THE INTELLECTUAL

PROPERTY RIGHTS SYSTEM

As we have seen in this chapter as well as

in previous ones, the intellectual property systern governs the relationships among individuals involved in the creative environment. It

determines who are creators, what tools and

resources are available to them, and how and

under that circumstances their work will be

distributed to the public.

Technology is affecting the creative environment in a number of ways that are likely to

have implications for the intellectual property

system. These can be summarized under two

major headings: 1) changing players in the

creative environment, and 2) the emergence of

new opportunities.

Changing Players in the Creative

Environment

Traditionally, the intellectual property system was a simple one, involving only a few

players–the creator, publisher/distributor,

and user. New participants have come on the

scene as new technologies have emerged. Thus

in addition to the writer and artist, we now

have the composer, photographer, and the film

maker. In addition to the publisher, we now

have the record company, the television producer, and the cable operator. And added to

the reader, we have the radio and record listener, the television viewer, and the computer

user.

With the new information technologies, the

number and variety of players have increased

many fold. Moreover, now more than ever before, technology is affecting the roles that each

player plays and his relationship to others in

the system. Today the user, whether he is dealing with audio, visual, or computer-generated

materials is not just a passive receiver. He can

at the same time be a creator or a distributor

of his own or others’ materials. In this sense,

for example, the personal computer user who

make copies of software for several of his
154 ● Intellectual Property Rights in an Age of Electronics and Information — . —

friends while making one for himself, is, in fact,

acting as a distributor. And the university that

houses educators and researchers is increasingly claiming rights as the creator of their

works.

Above all, these changing roles and relationships may affect the consensus on which support for the system has traditionally rested.

Many of the new players, not a party to the

agreements of the past, may hold different values about who should have access to what materials and who should be provided rewards.

One such newcomer on the scene is the computer hobbyist who finds the thrill of creating

something useful and successful more important than either owning the copyright or being recognized as the author.88

Given the trend identified in this chapter

towards joint authorship and the increasingly

fluid creative process, controversies may also

emerge among players about the distribution

of rewards. Describing the culmination of the

development of the Data General Eclipse MV/

8000, Tracy Kidder depicts the dilemmas

around the distribution of rewards:

Long before it disbanded formally, the

Eclipse Group, in order to assist the company

in applying for patents on the new machine,

had gathered and had tried to figure out

which engineers had contributed to Eagle’s

patentable features. Some who attended

found those meetings painful. There was bickering. Harsh words were occasionally exchanged. Alsing, who during the project had

set aside the shield of technical command,

came in for some abuse—Why should his

name go on any patents, what had he done?

Someone even asked that question regarding

West. Ironically, perhaps, those meetings illustrated that the building of Eagle really did

constitute a collective effort, for now that

they had finished, they themselves were having a hard time agreeing on what each individual had contributed. But, clearly, the team

was losing its glue. ‘It has no function anymore. It’s like an afterbirth, ’ said one old hand

after the last of the patent meetings.89

88Stephen Levy, Hackers: Heroes of the Computer Revolution (Garden City, NY: Anchor Press/Doubleday, 1984), pp.

43-44.

“’Tracy Kidder, The Soul of a New Machine (Boston, MA:

Little, Brown & Co.), p. 288.

As the economic value of information-based

products and services increases, disagreements

such as these may become more intense.

The technology will also affect the expectations of the user, making him more or less

willing to comply with the rules of the system.

As the Yankelovich study suggests, the more

technology to which people have access, the

more they expect of technology. Youth have

particularly high expectations. Often they take

the new technologies for granted. As one young

user recounted at a recent OTA workshop, he

was willing to pay for work only if “it was really

awesome. ’90

The Emergence of New Opportunities

As this chapter points out, the new technologies greatly enhance the creative environment, providing new and powerful tools and

new opportunities for artistic expression, societal advancement, and financial gain. As in

the past, the intellectual property system will

establish the rules by which these opportunities will be taken advantage of and who will

get to benefit from them. Because of the enhanced social and economic value of creative

and scientific works, intellectual property law

becomes an important public policy tool in an

information age. It will determine, for example, whether new technologies are used to increase access to the Nation’s information resources and if so, by whom, and at what cost.

By virtue of their ability to increase access,

these technologies may pose problems for the

intellectual property system and for the integrity of the creator’s work. As noted in the

chapter, they allow users to access and manipulate creative works with ease and speed previously unheard of. While this may enhance their

ability to work jointly and create new products and services, it will also make it more difficult to identify or trace cases of copyright

infringement or plagiarism that may occur.

This is significant for the creator’s motivation.

For, as we have seen, the creator is as often

concerned about the integrity of his works as

he is about his own financial gain.

—— —

“OTA Workshop on High School Students Perceptions of

Intellectual Property Issues, May 20, 1985.
Chapter 6

Technology, Intellectual Property,

and the Operation of

Information Markets
Contents

Page

Major Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

Technology and the Emerging Economic Characteristics of Information. . . . . . . . . . . . 158

Information Distribution and Economies of Scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

Information Production and Economies of Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

Private Investment and Information Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Government Policy and the Diversity of Information-Based Goods . . . . . . . . . . . . . . . . 170

Problems in Framing Policy To Promote Information Diversity . . . . . . . . . . . . . . . . . 171

Proprietor Concerns, Government Policy Tools, and the Diversity of Information . . 171

Problems in Selected Markets for Intellectual Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

Print Technology and the Functioning of Copyright in Book Markets . . . . . . . . . . . . 174

Motion Pictures, Videocassettes, and the First Sale Doctrine . . . . . . . . . . . . . . . . . . . 176

Information Services, Electronic Databases, and Derivative Works . . . . . . . . . . . . . . 180

Computer Software, Market Size, and the Cost of Contract Administration . . . . . . . 182

Tables

Table No. Page

6-1. Production Costs for PBS Television Programs . .............................159

6-2. Selected Information Markets: Costs, Profits, Revenues, and

Economies of Scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....................160

6-3. Representative Charges for On-Line Database Access . . . . . . . . . . . . . . . . . . . . . . ...168

6-4. Primary Activities of Information Industry Association Members . .............180

Figures

Figure No. Page

6-1. Decision Tree for Communications Regulation Under Computer Inquiry III. ... .. 166

6-2. Representative Release Sequence for a Major Theatrical Feature . ..............177

6-3. Feature Motion Picture Releases. . . . . . . . . . . . . . . . . . . . . . .....................179

6-4. A Shrink-Wrap License Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...184
Chapter 6

Technology, Intellectual Property, and

the Operation of Information Markets

MAJOR FINDINGS

New technologies are causing information to

assume economic characteristics that make it significantly different from other commodities in

the way markets develop and operate. These economic characteristics-economies of scale and

scope in production and distribution, and reusability and expandability as a resource—

are further complicated by information’s social and political significance. Therefore, government intervention, through intellectual

property laws or other government policy

mechanisms, is a particularly critical factor in

the operation of information markets.

Policymakers currently have little objective,

quantitative data with which to make policy

judgments about information markets. The data

problem stems, in part, from the rapid changes

in information markets attributable to technological change. As well, data collection in

this area of the economy is not yet institutionalized in government. Often, the available

data are fragmentary and are supplied by

stakeholders in the policy debates. As a result,

policymakers face a high level of uncertainty

about the impact of decisions on the cost and

availability y of specific varieties of information.

The effects of policies designed to govern

transactions between sellers and buyers of information are becoming more complicated. It is

likely that a decision made to affect one variety of information may be ineffective or inappropriate if applied more generally. Moreover,

more people are making a living by creating,

distributing, and using information, so these

policies are becoming more important in regulating the economy as a whole. The marketplace rules that intellectual property policy

establishes will need to evolve, and perhaps

become more subtle and complex, as information markets change.

Intellectual property law is increasingly outdated in providing appropriate incentives for the

production and distribution of many information-based goods. Because of this, markets may

increasingly fail to provide economically and

socially efficient varieties of information. In

trying to remedy information-market failures,

policymakers face trade-offs among interests

with high stakes in intellectual property debates. When they enact changes in intellectual

property law they may be required to make

some explicit decisions about the actual nature, content, and distribution of goods based

on information.

It is clear that changes in intellectual property policy alone will not remedy all the market

failures to which information-based goods are

subject. Communication, antitrust, public

information, education, tax, and government

R&D policies, and perhaps others, can be expected to interact more and more with intellectual property policy in their impact on the

operation of information markets.

Although the information industry is relatively unconcentrated today, this may change in the

future: economies of scale and scope, the requirements for large capital investments, and market power and high profits that may come

through control of communications and content

resources are potentially strong incentives to

ownership concentration. Considering the social and political importance of information in

a democracy, Congress may consider it important that the information industry remain less

concentrated than other industries. Intellectual property rules affect the distribution of

wealth and opportunities in society; therefore,

they must be carefully crafted to maintain a

balance between private and public interests

in information.

157
158 ● Intellectual Property Rights in an Age of Electronics and Information

INTRODUCTION

Intellectual property law is based on the

premise that intellectual works differ from

other commodities traded in free markets. The

U.S. Constitution authorizes Congress to enact

intellectual property law, recognizing that

“writings and inventions” require special

treatment.

Intellectual works are taking on greater significance for society. Information’s value as

a commodity and as a source of productivity

and wealth is rising; the range of available

information-based products and services is expanding; the technologies through which these

products and services are created and distributed are changing; and the number of people

whose livelihood depends on information production, trade, and use is increasing. Because

of these changes, the markets that determine

the supply, variety, price, and availability of

different kinds of information are in flux.

The operation of markets for intellectual

works is of particular interest because all

citizens require many kinds of information to

make political choices and to become productive members of society. Because an informed

and free citizenry is essential to democracy,

the first amendment requires that the Federal Government value and defend freedom of

expression: the exchange of information unencumbered by government. The government

has intervened in information activities where

policy makers concluded that private enterprise, acting on its own, would not provide

citizens with the full range of information that

they deemed necessary for society.

The Federal Government has along history

of involvement in the production and dissemination of information. The government has

TECHNOLOGY AND THE

CHARACTERISTICS

An information-based good is a package that

consists of an intangible content portion—the

information itself—and a medium in which the

produced information when private enterprise

saw no advantage in doing so or when the information was vital to government operations.

The government has also used a variety of

strategies, including intellectual property law,

to encourage private investment and markets

in intellectual works.

The mechanisms of intellectual property law

were originally designed to counteract a basic

economic characteristic of information: It is

much more costly to originate valuable information than to reproduce it. Thus, the law gave

producers limited control over reproduction

and dissemination in the form of copyrights,

patents, and trademarks. The grant of such

marketplace control was intended to induce

producers to continue producing and disseminating works by allowing them to gain enough

income to cover their costs and earn a profit.

In this way, the public interest in learning was

made to coincide with the economic interests

of creators and publishers. In the marketplace

for printed works, governed by copyright, the

incentive to produce was linked to the incentive to disseminate printed copies as widely

as possible; for selling copies was how producers generated income.

As technologies for creating and marketing

information change, as new uses for information are developed, and as information takes

a more central place in the economic and social life of the Nation, information is beginning

to display a number of characteristics that

alter the incentive structure for production and

dissemination. This chapter examines some of

these characteristics and explores how they affect the interests and the marketplace activities of producers, distributors, and users of

different kinds of intellectual works.

EMERGING ECONOMIC

OF INFORMATION

content is embodied and through which it is

communicated. Information content is changing as people find new ways to use informa-
Ch. 6—Technology, Intellectual Property, and the operation of Information Markets . 159

tion to entertain, educate, make decisions, and

produce other goods and services. The media

that make information available are also in the

midst of rapid and profound change. In particular, technology is increasing the economies

of scale and scope under which information

packages are produced and disseminated; and

information-based goods are emerging as basic

and essential resources for the economy, the

polity, and culture. These changes in the media, the content, and the uses of information

are altering the operation of markets for information-based goods, and thereby stressing

the intellectual property system.

Information Distribution and

Economies of Scale

At the outset, intellectual property protection was a response to an economic characteristic of information-based goods in the print

medium: origination costs are high in comparison to reproduction and distribution costs.

Economists describe goods with this characteristic as having economies of scale. Modern

media allow even greater economies of scale

in information distribution, so that in some

cases an information-provider marginal costs

approach zero.1 For example, radio and television broadcast stations incur no additional

costs when additional people tune in; a computer database company can serve additional

‘Economies of scale exist when the initial investment

needed to begin production of a good (fixed cost) is high relative to the cost of producing additional units of the good (marginal cost), and when marginal costs decline with increased production. In the case of electronic information-based goods, in

contrast to other products, a distributor’s marginal cost may

involve only the cost of serving an additional customer, rather

than the cost of producing an additional, tangible unit. In this

way, information-based goods resemble services. With electronic

distribution, one “performance” may serve all customers, as

is the case in radio and television broadcasting. Thus, in contrast to other services, the marginal cost of providing information can be essentially zero. Electronic information is often mediated by a system. Part of the cost of establishing the system

is paid by the provider (e. g., broadcast transmitters or database computers) and part by the customer (e.g., radio or TV

receivers or personal computers). Thus, a significant portion

of the cost of distributing electronic information must be “sunk”

before any information is sent or received. See A. AlIan Schmid,

A Conceptual Framework for organizing Observations About

Parties Interested in Intellectual Property, contract report prepared for OTA, February 1985,

users, within the limits set by their equipment,

at very low incremental cost. This is so because

many information-based goods that are embodied in and distributed through electronic

media assume a basic characteristic of intangible information content: They are not necessarily depleted with use.2

However, with time, much information does

become obsolete, or at least less interesting.

Although information technology promises to

improve the productivity of many aspects of

information production, it is still expensive to

originate movies, television programs, electronic databases, computer programs, and

other valuable information because these activities are labor intensive, requiring human

knowledge, creativity, and skill. Hence, the

cost of originating information relative to the

cost of distributing it is high and is likely to

remain so. (See tables 6-1 and 6-2. )

The increase in distributional economies of

scale achieved with modern information technologies affects the incentives for producing

and disseminating information-based goods,

and so influences the operation of information

markets in three direct ways.

— .-—--—

‘How marvelous it is that, once recorded, an intellectual

work can potentially be reproduced and communicated an infinite number of times. The value of a given piece of information, as for example a weather report, may change or diminish

over time. But the information itself can be used simultaneously or successively by many people without being consumed

in the process. The value of information is a result of the context in which it is received and used. (Gregory Bateson defines

information as “the difference that makes a difference. See

Mind and Nature (New York: Bantam Books, 1979).) Context

is essentially the knowledge possessed by the receiver of information that shapes its meaning. Thus, information actually expands and takes on new meaning as it is received and used by

more people. See Harlan Cleveland, “Information as a Resource,

The Futurist, December 1982, p. 36.

Table 6-1 .—Production Costs for

PBS Television Programs

Cost of producing

Program 1 hour episode

The Brain . . . . . . . . . . . . . . . . ... ., $556,000

The Constitution:

That Delicate Balance . . . . 169,000

Mystery . ... ... ... ... ... . . . 76,000

Frontline ... . . . . . . . 145,000

Nova ... . . . ... ... 230,000

SOURCE Paul I Bortz

-—
160 . Intellectual Property Rights in an Age of Electronics and Information

Table 6-2.—Selected Information Markets: Costs, Profits, Revenues, and Economies of Scale

Televisiona . . . . . .

Recordings b

Movies c . . . . . . . . .

Online service . . .

Radio a 

. . . . . . . . . .

Print servicea 

. . .

Newspapers . . . . .

Magazines . . . . . .

Documents a 

. . . . .

Books ... . . . . . .

Creation

(percent)

17

22

26

17

24

30

16

17

12

15

Conversion

(percent)

2 4

34

18

33

26

10

16

12

15

11

Fixed costs

(percent)

41 -

56

44

50

50

40

32

29

27

26

Economies

Variable costs of scale

(percent) (percent)

23

34

31

39

45

46

52

62

70

69

64

62

62

56

56

47

38

32

28

27

Profit and taxes

(percent)

35

10

25

11

6

15

16

9

4

5

Revenues

(billion$)

13.8

6.1

4.1

3.1

5.1

11,0

29.4

13.5

0.7

12.0

aError in total percent due to rounding

b

These numbers are based on revenue from the sale of both audio records and tapes.

c

These numbers are based on revenue from theatrical showings only

NOTE Creation: Percentage of revenue that goes to Initial production of a work, including royalties, artwork, and editing. Conversion: Percentage of revenue that goes

to embodying work in reproducible form, i.e., typesetting, entering data into computer, film negative cost, master recording cost, etc.. Fixed costs: Creation

costs plus conversion costs as a percentage of revenue Variable costs: Percentage of revenue that goes to reproducing individual units and getting those units

to end users, including reproduction, shipping, advertising and promotion and discount for retail houses Does not include users’ costs Incurred in purchase

and operation of equipment necessary to use a good, such as television sets, radios, VCRs, and computer equipment Economies of scale: Fixed costs divided

by the sum of fixed costs and variable costs Profit and taxes: Percentage of revenue that goes to profit and taxes Revenue: Estimated 1984 Industry revenue

SOURCE Off Ice of Technology Assessment, data from C Burns and P A Martin, The Economics of Information, prepared for the Off Ice of Technology Assessment

by Christopher Burns, Inc., contract *433.9520 01 1985. tables Ii-l. II-2, 11.3, II-4, 11-5, 11-6, 11-7, 11-8, 11-10, and 11-11

First, assuming he can charge each customer

for access, and assuming that the cost of collecting payment from a customer, the transaction cost, is not higher than the price he can

charge, 3 a seller has an incentive to increase

the number of customers for an information

package. Of course, some kinds of information,

such as stock-market tips, secret formulas, and

entertain ment with current “snob appeal” may

be more valuable if only a small number of people have access. But for a wide range of information, proprietors find that even a small marginal profit can yield large returns when many

customers are served. Conversely, originators

may have less incentive to create or to publish valuable information if they do not share

‘Transaction costs are those expenditures that a proprietor

must make to negotiate and execute a transaction agreement.

They include the cost of price setting and billing. In selling information-based goods proprietors may also incur marginal costs

in monitoring and enforcing special transaction conditions, such

as the exclusion of nonpayers and the prohibition of subsequent

copy and transfer of the information. Thus, transaction costs

serve as a check on providers’ ability to exploit distributional

economies of scale. Broadcast radio and television are two media with high economies of scale where it has been difficult to

charge the consumers of information because the transaction

costs would be so high. In these circumstances, advertisers have

found it profitable to pay broadcasters for the opportunity to

influence the purchasing behavior of the vast numbers of consumers of broadcast information.

in the profits being made through large-scale

distribution.’

Second, rising economies of scale give information sellers a greater incentive to deny access unless they strictly control the conditions

under which they offer it. In the world in which

the printing press was the only mass medium

for reproducing and distributing information,

proprietors of intellectual works saw uncompensated use, such as in libraries or through

users trading books, as possibly troubling but

generally unthreatening. But since electronic

information can be reproduced and disseminated so cheaply, the modern proprietor is

much more interested in maintaining physical control over works, and in selling access

only if users agree not to reproduce and distribute identical or similar works. Because electronic media make it costly and possibly

ineffective to exclude nonpayers and compet-

—

‘This suggests that, in general, the increase in economies of

scale reinforces the rationale for intellectual property protection: The profits made from the wide distribution of information should contribute to the cost of originating it. On the other

hand, because the cost of disseminating information declines

with increased economies of scale, the benefits given up by society through the grant of exclusive copyrights increases. See

Competitive Enterprise Institute, “Intellectual Property and

Copyright Laws, ” issue brief, 1985.
. .

Ch. 6—Technology, Intellectual Property, and the Operation ot Intormation Markets ● 161

itors, proprietors may, more than ever, favor

government intervention to help them enforce

exclusion or collect payment. Alternatively,

they may invest in more efficient ‘‘ fences,” or

private means to exclude unwanted users. This

alternative is explored in detail in chapter 4.5

A third effect of increasing economies of

scale on information markets is that ownership of distribution facilities tends to concentrate in fewer hands.6 Since the per-user cost

of distribution declines as the number of users

rises, a large network can price information

lower than a small network and may eventually buy out or drive out the smaller business.7

This tendency is enhanced where the fixed

costs of developing a network infrastructure

are very high, as they are for launching communication satellites, laying cables, or securing broadcast licenses or other government regulatory approval.”

The potential of economies of scale to cause

media concentration in electronic distribution

is currently checked by the number and variety of distribution technologies.’ Newspapers

compete with television in providing news and

advertising; videocassettes compete wit h theaters and cable television to supply feature movies; newsletters and magazines compete with

on-line computer database services to provide

specialized information on a wide range of

subjects.

—.—

Anothe;alternative, adopted by tele~’ision and radio broadcasters and also newspaper and magazine publishers, is to bundle the entertainment or news information with advertising.

The advertiser ma~’ associate his message to bu~ with desirable aspects of the information-based good—e. g,, the integrity

of the news, or the pleasures of the entertainment.

‘ J?’, Curtiss Priest, The Character of Information: Characteristics and Properties of Information Related to issues Concerning intellectual Propert~’, contract report prepared for OTA,

~’ebruar~ 1985, p. 27.

See Geral(i Brock, The Telecommunications Industr~’: The

Dynamics of .Ifarket Structure (Cambridge, MA: I{arxrard

Universit~ Press, 1981).

‘NICI spent $10 miilion in regulator~ and iegal costs o~.er

an %lear period to obtain approval for its first microwave longdistance teiephone service. Brock, The Telecommunications Industr~r, p. 213. The facilities of Lele;’ision station KTI.A in I,os

Angeles, and its F(’C broadcast iicense. sold for $510 million

in 1985.

“See Benjamin hl. Compaine, Christopher H. Steriing,

Thomas Guback, and ,J. Kendrick Noble, tJr., Ii”ho Owns the

%fedia? (M’hite Plains, NY: Knowledge Industr3. Publications,

1982),

There will probably be uncertainty for some

time over the most profitable ways to provide

different types of information. Companies and

research institutions are experimenting widely

with new media forms, exploring whether one

medium may have a competitive advantage

over others.10 People consider a complex set

of factors in choosing one medium over another

for receiving a particular type of information. 11

Cost is a major consideration; it may drop slowly for a new medium as people adopt it and

economies of scale come into play. While uncertainties rule, the ownership of media can

be expected to fluctuate.

Fiber optic systems are being rapidly added

to the mix of information-distribution technologies. ]2 The single-mode fibers now being installed in the country’s telephone plants have

communication capacities significantly greater than copper wire or coaxial cable. One fiber

can carry the entire Encyclopedia Britanica

from Washington to Baltimore in a second or

300 simultaneous television channels within

a city, Laboratory results suggest that this capacity may rise 1,000-fold or more with improvements in signal transmission and detection equipment that can be used with existing

fiber lines.

The economies of scale offered by fiber optics are certain to affect communication companies’ strategies as they learn to employ this

technology profitably. Many other distribution

technologies may prove much less economical.

For a time, large businesses with great data

communication needs will benefit the most

from these economies. ” Small businesses will

“’Although technological innovations may cause cost

changes that move slowly at first, their longer term effects ‘can

change cost ratios by orders of magnitude rather than by the

few percentage points that constitute common static barriers

to entry, ” Brock, The Telecommunications industr~, p, 301.

“J. Dimmick and E. Rothenbuhier. “The ‘i’heor?’ of the

Niche: Quantifying Competition Among Media Industries, ”

Journal of Communication, vol. 34, No. 1, 1984, pp. 103-120.

“See the OTA report Information Technolomr R&D: Critical Trends and Issues, OTA-CIT-268 (Washington. DC: U.S.

Government Printing Office, February 1985). for a case study

on fiber-optic technology.

‘ ‘Many large companies that rely heaviiy on data communications, in particular, banks such as Citicorp, are installing their

own fiber lines in buildings that house their offices and computers and between their facilities and long-distance telephone

(Continued on next page)
162 . Intellectual Property Rights in an Age of Electronics and Information

also benefit as they begin to use data communications for such things as credit-card verification and remote bookkeeping services.14

An unresolved question is whether peoples’

needs to communicate to and from the home

can support the high cost of running fiber-optic

cable the expensive ‘‘final mile’ to American

residences. If this occurs, people at home will

be able to receive and transmit everything from

television shows to computer software to electronic mail over switched telephone lines, and

be billed, and conceivably bill others, directly

for use.15

One of the major advantages society gains

from public communication media, such as the

post office, is the ability to connect every citizen and organization with every other. Modern communication media and their inherent

economies of scale can be made available to

every citizen, as the post office and public roads

have been, if efficient and equitable rules can

be established for the development and use of

these societal resources. To establish rules for

information commerce in a public electronic

communication system of the capacity of digital fiber-optic technology, policy makers will

need to balance many interests: public and private, individual and corporate, economic and

social. In the electronic information environment supported by technologies such as fiber

optics, intellectual property rules will work

hand-in-glove with rules that govern, for example, the operation of the local public telephone central-office switch.16

access points. (See Michael A. Laviola, ‘‘The Citibank FiberOptic Network, ” Telecommunications, February 1984, pp. 86-

94.)

“See, for example, “Bell Companies Race To Offer Local

Data Services,” Data Communications, April 1985, pp. 46-50.

‘

r

’Some believe that even rural users and others on thin

routes that cannot support the cost of fiber-optic lines may still

be served by broadband telecommunication links with cellular

radio and low-cost satellite earth-station gear. See Ithiel de Sola

Pool, “User Interfaces, ” The Information Societ.v, vol. 2, Nos.

:1 4, p. 439.

“’(liven a broadband, public-switched telecommunication

network available to all, Pool suggested that opportunities would

abound for small, diverse information businesses to flourish in

an electronic environment. Ibid., pp. 433 and 441.

Information Production and

Economies of Scope

Economies of scope are present when a producer, because he makes one product, has a

cost advantage in making other products. 17 The

production of information-based goods clearly

involves economies of scope.18 In writing a

book, for example, the an author builds skills,

experience, and a reputation that afford him

an advantage in producing and selling subsequent writings.

Electronic media establish an entirely new

dimension for economies of scope in information production. Information content may be

packaged in many forms to serve the particular preferences or requirements of different

users. For example, a book may be produced

with paper and ink, on audiocassette, or on

optical disk; its content may be adapted into

a television ‘‘mini-series’ or an interactive

game that can be distributed in a variety of

forms. Users of information can gather content from many sources, analyze it, and rearrange it to produce new information. For example, daily stock market statistics may be

processed very quickly to help investors adjust to changing conditions. Information may

be extracted from a larger bundle and used in

a new context. An artist, for example, can electronically pluck the image of an eye from a motion picture film frame and use it to create a

magazine advertisement or a T-shirt logo.

Intellectual property concepts are fundamental in determining who may take advantage of the economies of scope inherent in information production. Serving as marketplace

rules that govern the conditions under which

information-based goods are traded, intellectual property laws specify what rights attach

to a work, what rights are retained by the original proprietor, and what rights accrue to the

purchaser when he buys the work. The rules

that govern how purchasers may use a work

in producing their own works are particularly

--—-.——-—--——

‘“For example, a steelmaker may have an advantage in producing coke, pig iron, specialty steels, or perhaps knives, cookware, or other finished products.

“Priest, The Character of Information, p. 27.
Ch. 6—Technology, Intellectual Property, and the Operation of Information Markets ● 163

important. These rules strike a balance between the benefits of exclusive control as an

incentive to innovate, and the cost of limiting

others’ ability to compete with a rights holder.

Until recently policy makers could allocate

the right to exploit economies of scope fairly

easily using relatively simple rules. Some rules

have been passed down from antiquity in the

customs of scholarship, which demand that

users cite and credit originators for their contributions. The legal concept of derivative use

was first formalized as a rule by the courts in

giving authors exclusive rights to make and

sell foreign translations. In response to technological change, this concept was later extended by the judiciary to give fiction writers

a say in the making of movies based on their

books. In 1976, rules based on derivative use

rights were defined by Congress to govern a

broad range of situations. Copyright now confers to a proprietor exclusive rights over all

goods substantially based on an original work.

In parallel to the evolution of rules for derivative use, the concept of fair use has grown and

evolved. Originally developed by the courts as

an exception to exclusive copyright, it was designed to promote the scholarly use of intellectual works by suspending, under certain

conditions, the rule that users obtain permission to use portions of protected works in

building new works. Fair use was codified by

Congress, also in the 1976 act, to apply to educational use of photocopying technologies.

Today, however, technology is complicating

the allocation of rights in information. Modern information technologies force a fundamental confrontation between the two concepts of

derivative use and fair use. With new electronic

technologies, people have a host of new opportunities to create new information packages

based on existing works; to serve new customers by manipulating and transforming works;

to add value by placing existing information

in new contexts; and, generally, to participate

in intellectual work. These technologies have

given scholarship—the building of human

knowledge—a new set of tools and a broader

field of operations. And as a result, the economic, legal, and social questions involved in

determining proper and efficient rules for controlling derivative use have become much more

complex.

From the legal perspective, modern information technologies make it harder to define

which commercial uses are merely derivative

(that is, copies) and thus unfairly competitive.

These technologies make it more difficult and

costly to detect infringements and enforce derivative use rights. Furthermore, detection of

infringement and enforcement are potentially

more intrusive of personal privacy. These subjects are covered in chapters 3 and 4.

From the economic perspective, it is unclear

whether, as a general rule, the right to control

derivative uses encourages or inhibits the

growth of knowledge. Because derivative

works may substitute for and undercut markets for originals, they might diminish incentives to create or disseminate works. On the

other hand, the threat of competition from derivations might spur the originator to make his

own derivations or to create new works. When

proprietors seek to inhibit derivative uses, as

they might, for example, by building technical or contractual ‘‘fences’ and suing infringers, they increase the transaction costs associated with distributing information. Such

efforts reduce the benefits that society gains

from the high economies of scale offered by

electronic media, Moreover, if a user is not allowed to make his own derivations, society may

be deprived of the unique contribution he alone

could make. Thus, society could lose some of

the benefit, in the form of economies of scope,

that electronic information offers.19 Marketplace rules based on the right of derivative use

clearly affect the competition that proprietors

of information-based goods face and the profitmaking strategies that information providers

pursue.

“’There are two ways in which a person ma} be pre~rented

from making dw-i~ations: 1 ) enforceable rules prohibiting derivation: 2) secrecy or technical protection schemes that physically prevent deri~ations. Both of these prei’entions ma~’ result in the costly and inefficient duplication of effort, which the

intellec~ual property system seeks to minimize.
164 ● Intellectual Property Rights in an Age of Electronics and Information

—

Operating under conditions of economies of

scope, information providers often construct

a variety of packages to tap markets for different combinations of media and information

content. For instance, the movie industry

offers the same content in a variety of media

forms, including movie houses, free broadcast

television, monthly subscription television,

“pay-per-view” and “premium-channel” cable

television, and videocassettes and disks. This

repackaging of movies is designed to implement price discrimination, the setting of prices

according to assumptions about how much

users value the information package and their

ability to pay, rather than on the basis of the

marginal cost of providing the information.

Another set of information-providers operate in markets that cater to users’ needs for

very specific information content. For example, financial analysts, engineering consultants, market research specialists, and a growing array of information brokers use their

expertise to select relevant content from masses

of available information and construct highly

customized packages .20 These providers price

discriminate on the basis of users’ different

content requirements, rather than on the basis of users’ preferences for different media

forms, as is the case, for instance, with movie

distributors.

The effectiveness of price discrimination

hinges on proprietors’ ability to exclude competitors from offering similar packages. Providers must also know what information users

need and what they are willing to pay for it.

The feedback that information providers receive from their customers’ purchasing behavior allows them to tailor both the goods they

offer and the prices they charge.21

—.—————

‘

(

’One may consider many traditional “professions,” such as

law, medicine, and engineering, as being in the business of providing highly customized information.

“A crude form of price discrimination, which requires relatively little control of derivative use or detailed knowledge about

customers’ preferences and requirements, is employed by other

information providers. Publishers of newspapers and magazines,

for example, “bundle” information and take advantage of the

fact that some people value one feature or article enough to pay

a price that exceeds the cost of the article and thus contributes

to the provision of other items in the bundle.

Computer database technology promises

information providers new opportunities to

amass comprehensive collections of information, offer data processing services, constantly

updated information content on a broad range

of subjects, and precisely tailored packages in

a wide variety of forms. They can do all these

things through a self-service system for “onestop” information shopping.2223 These computerized delivery systems also offer proprietors

greater potential to collect and analyze feedback, in the form of transaction information,

on customers’ information-use habits so they

can implement price discrimination more effectively. 24

Computerized information-retrieval systems

also make proprietors more vulnerable to uncontrolled derivative use of their resources.

.— - -— ..—

“Theoretically, any kind of information can be embodied in

a computerized database. Currently, most information that is

offered through publicly available databases is factual in nature--economic and financial statistics, bibliographic citations,

etc. (See Martha E. Williams, “Electronic Databases, ” Science,

Apr. 26, 1985, pp. 445-455. ) More and more access to functional

information is being offered, such as remote data processing

for bookkeeping or statistical analysis. A number of ventures

offering computer software transmitted to the user from a centralized collection have been tried, with mixed success. (See

Download, January 1986, pp. 1-4.) Potentially, art can also be

offered on a user-selectable basis, for example, full text of novels

and other books, music in a form some have termed the “celestial jukebox, and "imagebanks" that contain content and software for making and manipulating pictoral works.

“Electronic technologies also make the cruder form of price

discrimination that relies on bundling less effective. Photocopy

machines, videocassette recorders, and especially computers allow users to quickly and conveniently “unbundle’ information,

taking only those pieces that are valuable to them. Christopher

Burns and Patricia Martin, The Economics of Information, contract report prepared for OTA, April 1985, p. I-7. This same

unbundling capability threatens advertising revenues.

2

’This transaction information has growing economic value

as a marketing tool and a commodity in its own right. There

is a potential conflict between the development of highly efficient computerized information markets and the right of citizens

to privacy in their personal affairs. The Cable Communications

Policy Act of 1984 places specific limits on the collection and

use of personally identifiable data on subscribers of cable systems (section 631). The Videotex Industry Association has developed voluntary privacy guidelines for the use of transaction

data collected in their operations. A spokesman for the on-line

computer database industry says that, at present, it is too expensi}’e to collect and use detailed transaction data from their

operations. It may be possible to have computerized, electronic

transaction systems that technically limit the collection and

use of personally identifiable transaction information. See, for

example, David Chaum, “Security Without Identification:

Transiiction Systems To Make Big Brother Obsolete, ” Communications of the ACM, October 1985.
Ch. 6— Technology, Intellectual Property, and the Operation of Information Markets ● 165

Their competitors can employ these technologies to offer the same or similar information

packages and compete for customers. Consequently, information providers may support

strong intellectual property laws to protect

their investments in originating, purchasing,

and customizing information, and to achieve

and retain market share. Although they now

have legal rights over derivative uses, proprietors still have an incentive to strictly control

access because legal enforcement is so difficult

and expensive.

Economies of scope, like economies of scale

provide incentives for ownership concentration.25 Users of information want to go to the

most comprehensive source. Suppliers of content have an incentive either to deal through

large distributors with popular recognition and

prestige (who may require contract provisions

that exclude dealing through competitors) or

to become employees of a large company and

‘‘work for hire. And proprietors of information resources have greater freedom to price

discriminate if ownership is concentrated and

competition is checked.

Proprietors of electronic information also

have an incentive to integrate vertically-to

combine ownership of content resources and

distribution facilities. In the current deregulatory climate they are freer than in the past to

do so. Policy makers are particularly concerned

about vertical integration among communication and information providers in situations

where competition in distribution facilities is

weak.26 In these instances, a vertically integrated information provider has an incentive

to favor its content over that of competitors

by cross-subsidy, “predatory” rate discrimination, or outright refusal to deal. Commoncarriage regulation, and the more recent efforts

at structural separation, leased or equal access,

and “Computer III” regulations are govern-

.——

“ Priest, The Character of Information, p. 27.

““A firm with monopoly power over part of the system has

an incentive to restrict access to its part in order to extend control over other parts. . . W’ith public systems, such actions can

lead to a total monopoly. To have competition in a public system with some parts monopolized, it is necessary that nondiscriminator~’ access be maintained. Brock, The Telecommunications Industry, p. 301.

.

ment attempts to check the market power potential of vertically integrated communication

entities.27 (See figure 6-l.)

Private Investment and

Information Resources

For individuals and for society, information

is the raw material of knowledge and learning.28

New information technologies are providing

tools and techniques for capturing, creating,

using, and sharing information in unprecedented forms and quantities. These technologies make possible a vast expansion of knowledge about the world, and they allow the

establishment of information resources that

people can draw on for many purposes As detailed in chapter 5, by automating many of the

tasks that artisans, scholars, and managers

have traditionally had to master, they promise to raise productivity in creative and intellectual work. We also expect these technologies

to enhance learning and amplify the social and

economic benefits that come from knowledgeable people and an educated society.29 Chief

among these benefits, as seen in chapter 2, are

opportunities for citizens to more fully participate in society-to develop and contribute their

unique talents and insights to the economy and

to the community.

Information-based products and the technologies that support them are also important as

factors in the production of an expanding range

——-—— —-—

‘“For overviews of the issues being addressed by the Computer 11 I inquiry see Andrew D. I,ipman, “Taking the Competitive Plunge: The FCC Dives Into Computer I I 1, Telephon?~,

Oct. 7, 1985, pp. 48-49; and Edwin E. Mier, “Computer Inquiry

III: The Emerging Monolith, ” Data Communications, March

1986, pp. 51-58.

‘“Information has been characterized as a nondepletable resource. For example, see Karen Levitan. ‘ ‘Needed Research in

the Economics of Information Resources, proceedings of the

American Society for Information Science, vol. 17, p. 334; and

“Information Resources as ‘(Goods” in the Life Cycle of Information Products, ” Journal of the American Societ}’ for Information Science, January 1982, pp. 44-54; see also, Cleveland,

“Information as a Resource. ”

‘<’In 1776, economist Adam Smith identified the skill, dexterity, and judgment of the labor force as primary determinants

of economic and social well-being. See Adam Smith, The Vt’eal.th

of Nations (New York: The Modern Library, 1937).
166 ● Intellectual Property Rights in an Age of Electronics and information

Figure 6-1 .—Decision Tree for Communications Regulation

Under Computer Inquiry Ill

No Is it a common

carrier? v

Is it a dominant No

carrier? v

.

I Yes

What is the

nature of service?

Basic communications Noncommunications

Ancillary to

communications

Is there a competitive

environment?

No Yes

Bottleneck

facilities?

Yes No

I Accounting

Minimal FCC

regulation

(forbearance)

v 7

controls

. 1

Regulated Regulated Accounting Accounting UnreguIated

as before together and tariff -

oversight -

with “basic” controls only

communications

Maximum Degree of FCC regulation Minimum

SOURCE” From presentation by Pacific Bell to FCC Commtssloner Dennis Patrick, September 1985

of goods and services.30 Information technology increases productivity and contributes to

the material wealth and well-being of society;31

and information itself imparts competitive advantages to those that possess it and can make

good use of it.32

————

‘OSee ch. 2 for a discussion of the importance of information

to the economy.

‘

iCharles Jonscher, “Information Resources and Economic

Productivity, “ Information Econorm”cs and Policy 1, 1983, pp.

13-35.

“Michael E. Porter and Victor E. Millar, “How Information

Gives You Competitive Advantage, ” Eh-vard Business Rew”ew,

July/August 1985, pp. 149-160.

Although information is essential to material production and social welfare, economists

generally believe that private enterprise invests less in its production and distribution

than is socially desirable or efficient.33 The root

cause of this inadequate private investment

is uncertainty. Motivated by profit, individ-

—— ———.—

%ee Yale Braunstein, “Information as a Factor of Production, ” The Information Society, vol. 3, No. 3, pp. 261-273. An

increased amount of valuable goods and services could be produced with a given amount of land, labor, and capital resources

if more were invested in information that is applicable to productive activities.
Ch. 6—Technology, Intellectual Property, and the Operation of Information Markets Ž 167 —

uals and corporations are uncertain whether

they may benefit by investing in the development of information resources.

The producers, distributors, managers, and

users of information, and the people that invest in these activities, all operate in an environment characterized by uncertainy.34 Many

originators of information, whether they are

artists, scientists, or computer programmers,

are working at the frontier of knowledge, so

the outcome of their work is inherently uncertain. They may succeed or fail in accomplishing their goals, or the goals themselves may

be poorly defined, deliberately ambiguous, or

self-justifying. They often do not know in advance how much time will be required to meet

their objectives, what the ultimate value of

their work will be, or how much money they

will make from a work.

Distributors of information face uncertainty

because they have only imperfect control over

the public dissemination and use of their products. Information is inherently “leaky,” so it

is both expensive and difficult for them to exclude nonpayers and competitors from using

it. Also, because users’ requirements and preferences are hard to define precisely and they

change unpredictably, price discrimination is

a trial-and-error process.

“The distinction between information distributors and managers is informed by an analysis by Charles Jonscher. (“Information Resources and Economic Productivity, pp. 18-1 9.) As

Jonscher states, it is difficult to precisely ascertain the relative

magnitude of effort accounted for by market allocation versus

centralized management of information, but:

The distinction is quite fundamental, in that the extent to

which economic [and information resource] management is centralized or left to the interaction of independent trading parties

lies at the heart of the distinction between market and nonmarket allocation processes, and indeed between socialist and

capitalist economies.

Jonscher estimates that in 1978 information management and

distribution activities, which together account for more than

80 percent of total information economic activities, were carried out approximately half by distributors (39 percent of total

activity) and half by managers working for firms or government

bodies (42 percent of total). Intellectual property rules are fundamental to the operations of independent distributors, and thus

crucial to market-driven allocation of information resources, In

the absence of adequate incentives for independent distribution of information, it is reasonable to assume that private sector firms will be compelled to rely more on internal production

and distribution and centralized management of information

resources, and the need for government to provide publicly available information will rise.

The professional managers of information—

employees of companies and government who

obtain, organize, and provide access to information—also face large uncertainties. They

must contend with increasingly complex media and information content, while continuing

to meet organizations ever-changing information needs. Moreover, within corporate and

State bureaucracies, the real cost of generating and managing information resources is generally accounted for very poorly or not at all,

so there is often little ability or incentive to

engage in rigorous “make or buy” decisions

when information is needed.35

Users, perhaps, face the greatest uncertainties of all. Economist Kenneth Arrow recognized a paradox in trying to determine the demand for information. “[The] value [of

information] for the purchaser is not known

until he has the information, but then he has

in effect acquired it without cost. "36 Of course,

through experience and exposure to advertising, users build expectations about the value

of information packages that they consider for

purchase. They may browse through printed

information in book stores and, if facilities and

resources are available, at public libraries. But

the user of electronic information is generally

denied access unless he agrees in advance to

pay. Therefore, he may be unable to compare

one package with another. Moreover, because

access to electronic databases is charged for

by the hour or minute, the user is under the

pressure of the clock.37 (See table 6-3.) Also,

‘

r

’Marc Porat, “Information Workers Jt’ithin 13ureaucracies, Bulletin of the American SOciet-}r for Information Science,

February 1984, p. 17. See also, Burns, The 13conomics of Znforrnation, pp. V-l-9.

“Kenneth J. Arrow, “Economic Welfare and the Allocation

of Resources to Invention, ” Economics of Information and

Knowledge, D.M. I.amberton (cd.) (Baltimore, MD: Penguin

Books, 1971), p. 148.

‘“Both of these factors sharply limit peoples’ opportunity to

browse randomly and make the occasional serendipitous discovery. This is a complex subject that involl’es the design of

computerized information-delivery systems and the methods

used to index, access, retrieve, and charge for computerized information, Automated systems may yet be designed and offered

that can promote the ability to make new connections among

disparate pieces of information. But this capability is limited

in present systems, and the pressure of a ‘‘running meter’ further limits their use as general tools in knowledge building. The

question of how information resources are to be structured to

(continued on next page)
168 ● Intellectual Property Rights in an Age of Electronics and Information

Table 6-3.—Representative Charges for

On-Line Database Access

Database Per minute

(publisher) access chargea

Academic American Encyclopedia

(Grolier Electronic Publishing) . . . . . . . . . . .

AP News

(Press Association) . . . . . . . . . . . . . . . . . . . .

BLS Consumer Price Index

(U.S. Bureau of Labor Statistics). . . . . . . . . .

Books in Print

(RR. Bowker) . . . . . . . . . . . . . . . . . . . . . . . . . .

Career Placement Registry

(Career Placement Registry, Inc.) . . . . . . . . .

Chemsearch TM

(Dialog Information Services, Inc. and

Chemical Abstracts Service) . . . . . . . . . .

CIS

(Congressional Information Service, Inc.) . .

Claims TM/U.S. Patent Abstracts

(lFI/Plenum Data Company) . . . . . . . . . . . . .

Compendex

(Engineering Information, Inc.) . . . . . . . . . . .

Laborlaw

(Bureau of National Affairs) . . . . . . . . . . . . . .

Medline

(U.S. National Library of Medicine). . . . . . . .

Peterson’s College Database

(Peterson’s Guides, Inc.) . . . . . . . . . . . . . . . .

Pollution Abstracts

(Cambridge Scientific Abstracts) . . . . . . . . .

PTS U.S. Time Series

(Predicasts, Inc.) . . . . . . . . . . . . . . . . . . . . . . .

Zoological Record

(Biosciences Information Services) . . . . . . .

$0.75

1.40

0.75

1.08

1.58

2.42

1.50

1.58

1.65

2.00

0.60

0,90

1.40

1.90

a 

1.30 — Does not include telecommunications charges. which run $6 to $18 Per hour

SOURCE DIALOG Price List, October 1985

unless public or shared facilities are available,

he must buy equipment before he can receive

electronic information, equipment that may

subsequently fall drastically in price or soon

become obsolete.

Investment in information production, distribution, management, and use is risky. Only

meet different information needs is a problem that libraries constantly face. Public libraries are increasingly compelled to make

either/or choices, in a time of shrinking budgets, among investments in different kinds of information resources for their patrons. The issue of charges for information services in public

libraries is sparking great controversy, and the introduction

of computerized retrieval systems is at the center of that debate. See, for example, Brett Butler, “Online Public Access: The

Sleeping Beast Awakens, ” Bulletin of the American Society

for Information Science, December 1983, pp. 6-10; and JoseMarie Griffiths and Donald W. King, Impact of Information

Technology on Information Service Providers and Their Clientele, contract report prepared for OTA by King Research, Inc.,

July 1985, pp. 54-84.

a small portion of the total value that individuals and society gain from the use of information resources can be expected to be returned

to producers and distributors through payments for use. This is because information is

intangible and leaky, and its value expands unpredictably through new uses and the building of knowledge.38 As a result of this discrepancy, the private economy allocates less land,

labor, and capital to information resource production than is socially efficient or desirable.

Economists characterize those markets in

which resources are unlikely to be allocated efficiently as exhibiting market failure. There are

numerous types and degrees of market failure;39 study of market failures associated with

information began in the mid-1920s.40 In their

analyses, economists generally have included

information in a class of goods called public

goods. Others in this class are parks, lighthouses, and national defense.” Because the pri-

‘FPriest, ‘The Character of Information, pp. 33-35.

“See, for example, Francis M. Bator, “The Anatomy of

Market Failure, ” QmrterlyJoumal of Economics, August 1958,

pp. 351-379; and Robert H. Haveman and Julius Margolis (eds.),

Public Expenditures and Policy Analysis (Chicago, IL: Markham, 1970).

4“Pigou recognized that knowledge provides benefits to society as well as to the purchaser. Arthur C. Pigou, The Econormcs of Welfare, 4th ed. (London: Macmillan, 1932). In 1962,

Arrow wrote a seminal piece on the subject in which he recognized three forms of market failure associated with information: indivisibilities, inappropriability, and uncertainty. (Kenneth Arrow, “Economic Welfare and the Allocation of Resources

to Invention.”) More recent looks at information and market

failure include: Yale M. Braunstein, “The Functioning of Information Markets, ” in Issues in Information Policy, directed

by Jane H. Yurow, edited by Helen A. Shaw (U.S. Department

of Commerce, National Telecommunications and Information

Administration, February 1981), pp. 57-74; Michael D. Cooper,

“The Structure and Future of the Information Economy, ” Information Processing and Management, vol. 19, No. 1, pp. 9-

26; W. Curtiss Priest, “Characteristics of Information in Commerce and Transactions, ” working paper (Cambridge, MA: MIT

Center for Policy Alternatives, Oct. 25, 1984); and W. Curtiss

Priest, “Development of Economic Guidelines and Alternative

Options for Public Investment Decisions in Scientific and Technical [formation,” working paper (Cambridge, MA: MIT Center for Policy Alternatives, Mar. 15, 1984).

“According to Samuelson, a public good has the attribute

“that each individual’s consumption of such a good leads to

no subtraction from any other individual’s consumption of that

good . .“ Paul Samuelson, “The Pure Theory of Public Expenditure, ” Review of Econorm”cs and Statistics, vol. 36, 1954, p.

387. Actually, Samuelson uses the term “collective consumption good, ” but public good is now the commonly accepted terminology. Stanley M. Besen, Economic Issues Relating to New

Technologies and Intellectual Property, contract report prepared

for OTA, December 1984, p. 1.
Ch. 6—Technology, Intellectual Property, and the Operation of Information Markets ● 169

. —

vate economy underinvests in them, public

goods are often provided or subsidized by the

government.”

Given the importance of information resources and the fact that the private sector underinvests in them, the public policy question

is: How might the government best encourage

their growth and use? Can the government reduce the uncertainties faced by people engaging in information activities, and if so, how?

May reducing the uncertainty of one group result in problems or expense for others? And,

given that it costs more to originate information than to reproduce and distribute it, a corollary question is: How might the government

best encourage the growth of the human resources that form the pool of knowledge, creativity, and skill from which valuable information originates?

Motivated only by financial profit, the private sector will produce and distribute those

types and forms of information from which

they can inexpensively exclude nonpayers and

competitors, and for which they can collect

enough revenue to cover their costs and realize a profit that is competitive with other investments. 43 To compensate for insufficient private investment, government could:

1. institute policies that help proprietors to

. . —

‘-Since exclusion is difficult and may be socially inefficient,

the use of tax-payer money to supply the good can often be justified. F;conomists and public admimstrators point out that government is not obligated to provide all public goods. There are

situations in which the waste and distortion that government

ma~’ incur in trying to counteract market failures associated

with public goods may produce more inefficiency than it cures.

See, for example I’ritz hlachlup, Know’fecige: Its Creation, Distribution and F;ccmomic Significance, Volume 111: The Economics of Information and Human Capital 1 Princeton, NJ:

Princeton University Press, 1 984), p. 157.

‘ Fortunately, there are many moti~ations for producing

and disseminating information aside from financial gain. See

ch. 5, “The Creati\e Fln\rironment. ’ See also, Robert M. Hurt

and Robert !YI. Schuchman, “The Economic Rationale of Copyright, ” .+!merican Plccmomic }iet’iew’, Maj’ 1966, pp. 425-426.

exclude nonpayers and competitors, collect payment, or price discriminate;

Z. subsidize investment in the production or

distribution of information that the private sector finds unprofitable; and/or

3. undertake the task of producing and/or

disseminating information.

The latter two approaches require that government identify unprofitable kinds of information for which there is a compelling social

need and public interest. Some of these judgments are straightforward. Public investment

has long supported most basic scientific research, a large part of the applied research in

fields such as medicine, agriculture, and energy, the bulk of economic and social statistics

on which government policy is based, a large

share of the cost of formal education, and many

other information activities.

The first approach—helping private enterprise exclude, collect payment, and price discriminate—has been the traditional role of

intellectual property policy and law. It has afforded three distinct advantages over government subsidy or direct investment in production. First, it minimizes the government need

to make judgments about the specific value

and uses of information. Second, it permits private markets to respond quickly to changes

in consumer demand where profits signal investors to shift resources and where there are

no substantial barriers to competition. Third,

intellectual property protection has traditionally promoted both learning and private investments in the production of ideas.

Changes in technology that alter the incentives for producing and disseminating information may in some cases weaken the advantages of intellectual property protection. If

unchecked, the incentive to control access and

to concentrate ownership of media and content

may undermine the promotion of learning and

widespread participation in the development

and use of knowledge and information resources.
170 ● Intellectual Property Rights in an Age of Electronics and information

GOVERNMENT POLICY AND THE DIVERSITY

OF INFORMATION-BASED GOODS

A basic goal of intellectual property law is

to promote a healthy diversity in the ideas, information, and knowledge available to society.

In the age of print, diversity was fostered by

granting individual creators the right to control the conditions under which their works

were published, printed, and distributed in tangible copies. The questions of what rights attach to works embodied in tangible copies,

which particular rights a proprietor retains,

and which rights are transferred to a buyer of

a copy of a work have been relatively easy to

determine. The incentives to originate works

and disseminate copies were clearly fostered

by the limited controls afforded by copyright.

Users’ ability to employ existing works in

learning and scholarship were supported by the

legal limits of copyright control developed in

the fair use and first sale doctrines.44 Thus, a

rich diversity of information, and the growth

and use of knowledge, was promoted by a balanced set of rights over information.

As information is increasingly distributed

in less tangible electronic forms, these questions of rights in information become more

complicated. If one assumes that, in the information age, more people will make a living producing, distributing, and using information,

these questions of rights become all the more

important. As detailed in chapter 3, new technologies are blurring the boundaries defined

by the traditional legal rights over information. Concomitantly, as seen in chapter 4, the

enforcement of those traditional rights is increasingly difficult and troublesome. Works

in electronic form take on a fluid character.

Form and content are transformable and dynamic; separating idea from expression is a

more arbitrary judgment; and information is

an integral part of automated processes, as well

as a conveyor of meaning to people.

“The first sale doctrine states that ownership of a copy of

a work passes to the purchaser of the copy. The purchaser may

then sell or otherwise dispose of his copy (section 109). The first

sale doctrine allows the development of trade and rental markets out of the control of the copyright owner and thus limits

his potential market power.

Alongside changes in the character of information as a technical package, as an economic

and social good, and as a cluster of legal concepts, the structure of incentives for originating, disseminating, and adding value to information is undergoing change. To maintain a

balance in the rights over information, new

definitions that correspond to the emerging

technical, economic, and social characteristics

of electronic information must be developed.

In particular, the definition of rights should

clarify the ways purchasers may use works:

What are the rules for using protected works

in producing and distributing information?

How may one compete with his source of information or with sellers of similar works?

For some types of information, especially

works of fact, proper inducements to add value

may be as important in the information age

as incentives to originate works were in the

age of print.45 For other types of works, especially art, rules that help creators preserve the

integrity of their contributions may be most

appropriate. New types of art that arise from

collaborative or interactive processes may require new kinds of corporate arrangements.

Functional works may require new administrative mechanisms to assure that proper, policy-consistent controls are placed both on infringements and on the market power inherent

in patent-like protection.4G In these ways,

intellectual property law may continue to foster the creation and dissemination of emerging information-based goods, a healthy diversity of works, and the profitable trade of

information in open markets.

Historically, many other government policy

mechanisms-communications regulation, antitrust enforcement, R&D management and

support, the development and promulgation

“Burns, The Econom”cs of Information, pp. 111-17-18.

“See Carroll Pursell, Historical Case Studies of the lrlfluence of Intellectual Property Laws on Technolo~”cal Change,

contract report prepared for OTA, August 1985, for a discussion clf the history of market power derived from patents in a

selection of information technology industries.
Ch. 6—Technology, Intellectual Property, and the Operation of Information Markets • 171

of technical standards, special tax provisions,

the funding of education, and public information production and dissemination-have also

had significant effects on the development of

information markets. As markets change in

response to new media and the expanding role

of information in economic life, policy makers

may need to think about how all of these mechanisms interact in their affect on the diversity

of available information.

Problems in Framing Policy To

Promote Information Diversity

Designing policy to promote diversity in information is fraught with difficulty. Few efforts have been made to collect adequate data

to make policy judgments about information

markets based on strict, quantitative criteria.47

The data that exist reveal little about how different kinds of information are produced and

used, about the factors that guide producers

and users in their investment and purchase decisions, or about how to measure the influence

of different kinds of information as factors in

the production of subsequent information or

other goods. 48 Moreover, much of the available

47Two comprehensive efforts at collecting data on the information economy have been undertaken and published. The first,

Fritz Machlup’s The Production and Ilistribution of Knowledge

in the .!lnited States, published by the Princeton University

Press in 1962 and since extended in three additional volumes,

Knowledge and Knowledge Production, 1980, The Branches of

Learning, 1982, and The Economics of Information and Human Capital, 1984, presents data on aspects of the production

of some varieties of information. The second, I,Iarc Porat The

Information Economy, published in 1977 by the Department

of Commerce, Office of Telecommunications, is a snapshot of

information-related economic activities for the year 1967. A third

study, which updates some of Machlup’s work, is scheduled for

publication in 1986: Michael Rubin and Mary Taylor Huber,

The Knowledge Industry in the United States: 1960-1980

(Princeton, NJ: Princeton University Press, in press). The Copyright Office has begun to produce a series of studies on the size

of the copyright industries, the first of which was presented

to the Senate Judiciary Committee in December 1984. Many

economists and other writers use a wider array of industry-level

statistics in analyzing the operation of information markets.

It is often the case that these data are incomplete or may even

be inappropriate to the analytic questions under consideration.

‘“”A strong argument can be made that this new kind of

capital [knowledge capital] is more critical to the growth of the

American economy than is money capital. But knowledge capital does not show up in the numbers economists look at (or quote)

when evaluating capital formation. From “Gnomons, Words

and Policies, a speech given by Walter B. Wriston to the I+~xecutives’ Club of Chicago on May 8, 1985, as quoted in Harper ‘s,

September 1985, p. 22.

data is supplied by stakeholders in the policy

debates, and thus may be biased. At present,

the available data are inadequate to directly

and objectively test hypotheses about investment in and supply of different kinds of information.

Another problem is that the optimal diversity of information-based goods is difficult, if

not impossible, to specify. Each person’s needs

for information are unique; and individuals

place different value on information depending on the uses to which they plan to put it.

In some cases, the information package may

be most valuable if it is standardized, as, for

example, is information on the toxicity of

chemicals. Other kinds of information are most

valuable when they are simultaneously available to a wide audience, as, for example, is news

coverage of a historic event. Other information is uniquely prepared for, and only valuable to, a single individual, as is the financial

analysis of one’s estate. Therefore, the intellectual property goal of fostering a balanced

diversity of information is difficult to achieve,

given the vastly different kinds of content and

the wide range of media that are needed to efficiently serve audiences ranging from one to

millions of users.

Proprietor Concerns, Government

Policy Tools, and the Diversity

of Information

The actual diversity of information-based

goods available to individuals and society depends on a complex set of factors. Because of

economies of scale and scope, proprietors’

choices of profit-making strategies will be

guided by whether, and to what degree, they

can select the audience for a given information

package. They select customers focusing on

three major criteria: exclusion (of nonpayers

and competitors), collection, and price discrimination. Government policy interacts with proprietor concerns and their strategies for selecting audiences on a technical level and a

transactional level to affect the diversity of

available information.
172 . Intellectual Property Rights in an Age of Electronics and Information

Technical Concerns

Information providers must select a distribution medium with technical characteristics

suitable for their particular variety of information content. For example, a broadcast television signal requires a dedicated portion of

radio spectrum; a publicly available computerized database information service requires

computer hardware, software programs, and

a public switched telephone network.

Government support for and promulgation

of technical standards will fundamentally affect the development and operation of communications media. The regulation and licensing

of radio spectrum affects the operations of information providers who use broadcast or private radio channels (including terrestrial microwave and geosynchronous satellite links) to

distribute goods. The development of Integrated Services Digital Network (ISDN), which

will rely heavily on fiber-optic lines, is currently

the subject of a worldwide, but loosely coordinated, standards-making procedure. The resulting system will have major and long-lasting

effects on markets for information-based

goods.”

Technical standards are also of fundamental importance in regulating the content of certain kinds of information, particularly factual

and functional information. The National Bureau of Standards (NBS) has been interested

for some time in establishing “Data Quality

Indicators” for scientific and technical information that could help universities, businesses,

and government agencies by increasing the

‘“See, for example, Michael D. Bander, “Pacific Bell Forsees

Three-Phase ISDN Revolution, ” Telephony, Mar. 24, 1986, pp.

44-53. In general, technical standards perform four basic functions in markets:

1. they provide information on terminology and test and measurement methods;

2. they promote minimum levels of acceptable quality, such

as safety standards do;

3. they promote compatildity of components in systems to

allow users to purchase components from multiple vendors;

and

4. they promote reduction in variety to allow economies of

scale to be realized.

John H. Young, Effects of Standards on Information Technology R&D: Local Area Net works and Integrated Service Di~”-

tal Network, contract report prepared for OTA, November 1983.

reliability of factual information distributed

by computer databases. “These indicators

would provide the user with enough information to determine the utility and suitability for

specific purposes. ’50 Such information, many

believe, could yield substantial productivity

improvements in research, development, and

manufacturing in a wide range of fields, and

increased safety for workers and for the public. NBS is also at work on technical standards

for computer software to improve government

operations. These efforts may affect the nature of computer programs used by the private

sector as well.

Because of technical differences among media, the difficulty of excluding, collecting, and

price discriminating will vary according to the

medium. For example, many goods published

in tangible copies, such as books, are available

to everyone at more or less identical prices.

They are paid for in individual transactions,

and require a visible capital investment to be

competitively reproduced for sale. Information

broadcast over radio and television is, by and

large, available to all and paid for by advertisers, and competing broadcasts are easy to

recognize and exclude from competition.51

Information-based goods may also be leased

or exhibited to consumers on a per-use basis.

Movies shown in theaters, pay-per-view television, and electronic databases are paid for

in this manner. Many goods are provided by

subscription on a more or less continuing basis. Information packages offered by lease or

subscription vary widely in terms of how

proprietors can exclude, collect, and price discriminate. Some of these packages and transaction mechanisms are looked at in detail

. — —

‘

(

’National Bureau of Standards, Workshop on Data Quality

Indicators: Summary Report and Recommendations. Gathersburg, MD, Feb. 10-12, 1982, p. iii.

“Printed and broadcast information are increasingly vulnerable to advanced copying technologies, Proprietors’ ability to

exclude private copying is a subject of heated debate, and is

discussed in other sections of this report. At this point, it is

important to consider the potential for private copying as one

of the factors that all information proprietors must consider

in their marketing strategies.
Ch. 6—Technology, Intellectual Property, and the Operation of Information Markets ● 173

below. 52 As technologies for storing, communicating, and processing information converge

in computer-based systems, proprietors are increasingly concerned about the extent to which

users may subsequently reuse or trade their

works, and thus diminish proprietors’ opportunities to collect for use and price discriminate.

Some forms of distribution and payment will

encourage mass markets for goods and tend

to restrict the diversity of the goods offered.53

Other forms of distribution and payment will

encourage highly diverse varieties of information that are tailored to individual needs and

preferences. s

’ Economic theory suggests that

producers will use the feedback they receive,

from observing how consumers purchase and

use goods, to fine-tune products and services

to serve consumer preferences. Information

providers may also use this transactional information to improve price discrimination and

thus increase their profits.

Transactional Concerns

A second factor a proprietor must consider

in selecting distribution media and offering information content is the cost of administering

business transactions with his customers.

Transaction costs will depend on the technical characteristics of the media, the number

of customers the proprietor must deal with

directly, and government-derived rules that

specify the legal conditions to which transactions must adhere. The information he receives from transactions will, in turn, provide

the proprietor with feedback, allowing adjustments in products, services, and prices.

‘“’’What we must do is to analyze the natural structure of

the new systems of communication as they seem to be emerging to try to identify what systems of payment are enforceable

and socially acceptable. ” Ithiel de Sola Pool, 7’ecfmolo@”es of

Freedom (Cambridge, MA: Belknap Press, 1983), p. 5.

“If the profitable provision of highly differentiated products can occur only where different prices can be charged to

different customers of the same product, while undifferentiated

products can be sold profitably at a single price, the differentiated products will not be offered even if efficiency would be

increased by doing so.” Besen, Economic Issues Relating to

New Technologies and Intellectual Property, p. 4.

‘Ithiel de Sola Pool, ‘*The Culture of Electronic Print, ”

Daedalus, vol. 3, No. 4, fall 1982, pp. 17-31.

Intellectual property law and other government mechanisms may affect diversity by

encouraging one form of distribution over

another. For example, the enforcement of theft

of service laws might make terrestrial microwave (MDS) more attractive than free broadcast television as away of distributing movies

by making transactions with individual consumers profitable. Government-sanctioned

mechanisms that aggregate transactions, such

as the Copyright Royalty Tribunal or private

collecting societies such as ASCAP, can reduce

the cost of managing the transactions between

proprietors and users. This may give media

that are covered by such arrangements cost

advantages in obtaining content for distribution. The aggregation of transaction arrangements may also affect ownership concentration and market power in the information

industry. For example, eliminating the compulsory licensing provision for cable television

retransmissions may give cable program suppliers increased incentive to merge with or buy

out competitors.55 Other regulations, such as

those that govern common carriers and those

called for in the Cable Communications Act

of 1984, can require companies to offer leased

access to channels on a competitive basis.

Government policy may also encourage investment in certain types of information content by affecting the risks producers face in

transacting business. For example, tax credits

and subsidies may discriminate among different types of information-based goods. Compulc5Priest, The Character of Information, p. 37. The current

operation of the Copyright Royalty Tribunal (CRT) encourages

programs suppliers to work together to settle royalty disputes

so as to avoid the Tribunal’s adjudication procedure. This requires suppliers to seek representation from powerful trade ass~

ciations, such as the National Association of Broadcasters and

the Motion Picture Association of America, who can afford the

cost of presenting a case for remuneration to the Tribunal. The

Copyright Act grants antitrust immunity for private agreements

on the distribution of royalties by the CRT. There is no public

record of how the trade associations decide to disburse funds

to the copyright holders they represent. See Cable Retransmission of Broadcast Television Programs Following Elimination

of the “Must Carrj’ Ru)es (Washington, DC: Office of Policy

Analysis and Development, National Telecommunications and

Information Administration, U.S. Department of Commerce,

1985), p. 7. Some private collecting societies operate under antitrust consent decrees that serve to inhibit price fixing and anticompetitive behavior. (See footnote 70, p. 281.)
174 . Intellectual Property Rights in an Age of Electronics and Information

sory licenses and royalty collection and distribution may affect the relative costs of

rebroadcasting versus originating information

content.56 Government R&D and public information activities may make information-based

goods available that can compete with goods

produced or offered by the private sector. Rules

limiting the transferability of intellectual property rights between creators and publishers

may affect the transfer of risk. Common-carriage, cross-ownership, equal-access, and antitrust rules can set limits on industry concentration and check anticompetitive transaction

arrangements.

Private sector transactions may not provide

all the information society requires because the

profit motive may not allow for the production or distribution of some kinds of information. Some information may be of such critical importance to citizens and to the process

of governing that policy makers may decide

that no one should be denied access for any

reason. Therefore, free or subsidized public information sources, such as libraries and public schools, and tax-supported public information content, such as the census, weather

forecasts, and information on the operations

of government agencies, may be reasonable

and proper alternatives to reliance on private-

‘

hSee Cable Retransmission of Broadcast Television Programs Following Elimination of the “Must Carry” Rules.

sector, profit-motivated information transactions .57

At the most basic level, intellectual property

law may specify which works are public information or are of such a fundamental nature

that they are neither copyrightable or patentable. In this way, the law can prevent companies from discriminating in the selection of

users or from employing de facto proprietary

standards to exclude competition and exercise

market power.58 And, as discussed above, legal distinctions, such as those implied by the

categories of art, fact, and function, may be

useful in adjusting the incentive structure to

the realities of electronic information production and distribution.

“OTA has studied the question of the impact of changing

technology on the provision of public information. See Federal

Government Information Technology: Management, Security,

and Congressional Oversight, ch. 7, pp. 139-158, February 1986,

for an overview of policy concerns relating to government information.

“HThe fact that electronic information is often available only

through a system, that is, “a set of complementary products

which must be used together to provide value” (Brock, The

Telecommunications Industry, p. 16), the potential for attaining market power is enhanced. For example, a computer manufacturer may be able to restrict competition in markets for

peripheral components by developing proprietary processor-interconnection standards (Brock, p. 17). Similarly, a company

may employ copyright on operating system software to restrict

competition for its hardware or applications software; and a

communication company may restrict competition by refusing

to provide competitors with connecting lines to customers.

PROBLEMS IN SELECTED MARKETS FOR

INTELLECTUAL WORKS

Print Technology and the Functioning

of Copyright in Book Markets

Traditionally, copyright law has been most

concerned with the relatively simple markets

for distributing information-based goods in

printed form. Printing production technology

is efficient on a relatively small scale; for example, printers may produce a fairly small

number of copies of books at a per-copy cost

that is not much higher than large-scale printing. Thus, there are more than 15,000 American book publishers, and most of these companies are small.59 But large advertising

expenditures, buyouts of publishing houses by

conglomerates that may be more adverse to

taking risks,60 and the concentration of book

retailing61 have, some observers contend,

“’’The Book Business, ” Ech”torid Research Reports, June

28, 1’385, p. 479.

‘Twelve publishing firms, all of them divisions of conglomerate corporations, garnered 45 percent of book sales in 1983.

“The Book Business, ’ p. 486. See also, Lewis A. Coser, Charles

Kadushin, and Walter W. Powell, Books: The Culture and

Commerce of Publkdu”ng (New York: Basic Books, 1982), p. 29.

‘

i

’ Although approximately 80 percent of the 9,500 full-line

bookstores are independently owned, the volume of orders that

publishers obtain from the major chains, Waldenbooks, B. Dal-

[continued on next page)
Ch. 6—Technology, Intellectual Property, and the Operation of Information Markets . 175

erected substantial and growing barriers for

authors trying to publish their first book.62

Others contend that, “the cost of printing, offsetting, or photocopying a manuscript remains

low enough that virtually anyone can publish

anything. "

63 Thus, the problem for new authors

may not be getting their books published, but

getting them reviewed and widely read.

Not all publishing firms perceive of their

business in the same ways. Some consider

themselves to have an almost exclusive responsibility to maximize profits for owners and

stockholders. Others feel they are primarily responsible to the educated public, to the general public, or to the cultural traditions of the

Nation. 64

Publishers are increasingly influenced by the

media industries and corporate world in which

they must do business. The growth and resulting complexity of many publishing houses has,

in some cases, caused a loss of contact between

publishers and the writers, thinkers, and literary critics who previously were central to the

publishing business. The integration of book

publishing into conglomerate corporations also

tends to divorce publishing decisions from

purely literary criteria. Publishing contracts

are more often negotiated with literary agents

or lawyers rather than with authors. 65

Independent authors use copyright in negotiating the conditions under which publishers

will offer their books to the public. In most

cases, the author transfers his copyright own-

(continues from previous page)

ton, Barnes & Noble, and Crown, give them a major influence

over what gets published.

[T]he chains tend to reserve shelf space for guaranteed bestsellers b}’ name authors, books that are hot at the moment (such

as celeb;ity exercise books or diet books) and low-cost sale books

called remainders [unsold hardcover books returned to publishers

and wholesaled to chains at very low prices]. Many books that

have been published in the recent past and sell in steady but

low quantities, are difficult, if not impossible, to find at the discount chains.

“The Book Business, ” p. 495.

““J%’ill Books Survive?”’ a discussion held at the American

Booksellers Association convention in San Francisco, Lewis H.

Lapham, moderator, Harper’s, August 1985.

‘ ‘Paul Hirsch, “U.S. Cultural Productions: The Impact of

Ownership, ” Journal of Communication, vol. 35, No. 3, summer 1985, p. 114.

“Coser, Kadushin, and Powell, Books, p. 15.

“’Ibid., pp. 31-32,

ership to the publisher in exchange for editing, typesetting, printing, distribution, advertising, and promotional services. The author

may receive compensation in advance of the

sale of copies. He also will receive a royalty,

usually about 10 percent of the sale price, for

each copy sold. Often, the advance payment

is deducted from the author’s forthcoming

royalties.

Currently, the players in the intellectual

property community are debating the transferability of intellectual property rights, and the

potential alterations in the bargaining positions of creators and publishers that might

occur should the transferability of rights be

changed. The transfer of rights is closely related to the transfer of risk between author and

publisher. Some economists contend that a

change in intellectual property law that limits

the extent to which authors may transfer

rights over their works will limit their ability

to transfer risk.66 Such a view assumes that

“work for hire’ is the extreme case in which

a creator is so averse to risk that he exchanges

all rights in his work for a salary.

Existing copyright law returns control of a

work to an independent author after 35 years

unless he renews the transfer contract.67 Policymakers could shorten this term, taking into

account the reasonable shelf life of different

kinds of works, and so give independent authors more long-term control over their work

without producing a large effect on their ability to transfer risk.

The work-for-hire situation is more complicated. Employers often supply hired creators

with sophisticated and expensive equipment,

and therefore claim ownership in the works

produced in their shops. Another problem is

that many works are produced by teams of creators, and it can be very difficult to divide

rights in a work. In such cases, corporate

ownership may be a more efficient way of orga-

“’Besen, Economic Issues Relating to New Technologies

and Intellectual Property, pp. 30-33.

‘

-Generally, publishing contracts allow publishers, but not

authors, to terminate the contract. Coser, Kadushin, and Powell,

Books, p. 229.
176 ● Intellectual Property Rights in an Age of Electronics and information

nizing production, distribution, and rewards

to creators. Thus, although modifying the rules

about transfer of rights may foster the diversity of some kinds of information by encouraging independent authorship, other kinds of

information production may be too complex

for anything but corporate sponsorship and

control.

Subsidiary rights to derivative works is

another issue of interest in the negotiations

between a creator of an intellectual work and

a publisher. The law allows a copyright proprietor to exploit markets for a work other than

those for the initial form in which the work is

published. This raises the question of whether

the creator or the publisher is to control the

exploitation of markets for these works. When

the subsidiary markets are known (e.g., a novel

always has a potential to be produced as a play

or movie), the contract between author and

publisher can specifically address the control

of subsidiary rights. However, given the rapid

changes in information uses and distribution

technologies, it is conceivable that new forms

for distributing works will emerge that are not

contemplated in current publication contracts.

In this context, intellectual property law could

specify which party owns rights in unanticipated markets if contracts are not explicit

about subsidiary rights.

The questions raised by the issue of the

transferability of rights between creator and

publisher may be relevant to a wide range of

situations. For example:

the development of computer software,

where the question involves the way in

which the authors of software and firms

that market and distribute their products

divide the revenues from sale or lease;

the production of motion pictures, where

the questions involve the rights retained

by producers and those transferred to a

film’s distributors;

the production of television programs,

where the questions involve the rights retained by producers and those transferred

to the networks; and

the invention of technical processes or new

products, where the questions involve the

rights retained by the inventor and those

transferred to the exploiters of the invention.

Motion Pictures, Videocassettes, and

the First Sale Doctrine

Motion picture production and distribution

is a part of the information industry in which

the definition of rights and the conditions under which those rights may be transferred are

of growing importance. In this part of the information industry, intellectual property rules

have a major influence on the diversity of products produced and made available to the public. The markets for motion picture products

have expanded since the 1950s as television,

followed by videocassettes, became alternative

methods of distribution, augmenting traditional theater exhibitions.68

The major motion picture distributors stagger the release of feature films in these markets to maximize the per-viewer net revenue

they can obtain in each, and thus maximize

their profits for each film.69 (See figure 6-2.) The

staggered or ‘tiered’ release strategy is away

of implementing price discrimination. Those

consumers who value early access to a movie

are willing to pay a higher price than those who

are content to wait for it to appear on pay television or those who can wait 2 years or more

until they may expect to see the movie on free

television.

““The characterization of “scope” in movie products may be

a subject of disagreement. To be characterized, on a priori

grounds, as distinct markets for different products, the different forms of movie distribution would have to substitute very

little for each other. In practice, there apparently is substantial substitution between at least some of the forms, in particular rented cassettes and pay television. Other forms, such as

theater attendance and cassette sales, substitute less and may

in fact be complementary products. See David Waterman, “Prerecorded Home Video and the Distribution of Theatrical Feature Films, ” ch. 7, pp. 221-243, in Video Media Competition:

Regulation, Econom”cs and ‘Technology, Eli M. Noam (cd.) (New

York Columbia University Press, 1985). The Justice Department has specific guidelines for defining market scope in merger

and antitrust actions that are based on the ability of producers

to control prices. See U.S. Department of Justice, Antitrust

Division, Merger Guidelines, 1984.

“’Waterman, “Prerecorded Home Video and the Distribution of Theatrical Feature Films, ” p. 231.
Ch. 6—Technology, lntellectual Property, and the Operation of Information Markets “ 177

Figure 6-2. —Representative Release Sequence for

a Major Theatrical Feature

SOURCE Waterman & Associates Video Media Competition. Regulation Economics and Technology. EIi M.Noam (ed) (New York Columbia University Press 1985)

The profitability of the tiered release strategy depends on the distributor’s ability to control the timing, number of exhibitions, and

price of the movie in each market. Such control allows him to coordinate advertising and

promotion, and segment markets according to

the cost of the various distribution media and

the value of the product to different consumers. 70

Price discrimination in the sale of information-based products may promote efficient

allocation of investment since the revenue

returned to a producer more closely approximates the value of the good to consumers. The

profitability of markets for different forms can

alert producers and distributors to trends in

consumer preference. However, extensive price

control combined with barriers to market entry for potential competitors may reduce market efficiency by allowing producers to restrict

supply and obtain monopolistic profits. Traditionally, movie distributors have almost completely controlled access to their products and

the prices charged for access.” This has been

I hid,

Marketplace controls by motion picture producers, distributors, and exhibitors ha~re been the subject of antitrust litigation for many years. See, for example, Paramount Famous Lask.lr

Corp. ~. United States, 282 U.S. 30,42 (1930), Schine Chain Theaters, Inc. t’. United States, 334 U.S. 110 I 1948), United States

\r. l)aramount Pictures, Inc., 334 U.S. 131 ( 1948), and United

S’tates }’. l,oew Inc., 371 U.S. 38 ( 1962). These and other cases

possible, in part, because until recently movies

were not distributed to end-users in individual, tangible copies. And lease agreements for

theaters and television have strictly controlled

the conditions under which movies may be exhibited.

The release of movies in videocassette form

and the growth of the video rental market have

loosened distributors’ control over the timing,

frequency, and prices charged for access to

their products. The first sale doctrine is a major impediment to distributors’ control over

the cassette rental market.72 Because of this,

the major distributors of feature movies support amendment of the first sale doctrine to

allow distributors more income from videocassette rentals and to compel rental outlets to

seek specific permission to rent cassettes.73

Other cassette distributors who do not also distribute movies to theaters for exhibition oppose this change.74

Amendment of the first sale doctrine could

have mixed effects on the overall efficiency of

the videocassette market. On one hand, distributors would probably try to raise prices for

cassette rental. This would tend to push their

per-viewer revenues on cassette rentals closer

to those from the highly price-efficient pay-perview cable and theater distribution modes and

thus increase the major distributors’ net revenues. The major distributors argue that this

revenue would be used to finance the production of more movies to meet the increased demand for films fostered by the new distribu-

.

are analysed in Michael Conant, Antitrust in the Motion Picture Industry (Philadelphia, PA: Ayer Co., 1978).

“’’The fact that distributors choose to release movies on

prerecorded software [video cassettes and disks] in spite of the

[first-sale] doctrine is evidence that they increase their net revenue by doing so. Waterman, p. 236.

“The Motion Picture Industry Association and its member

companies, Paramount, Columbia, MGM/United Artists, 20th

Century Fox, Universal, Warner Brothers, Embassy, Orion, and

Buena Vista (Walt Disney), who together controlled more than

89 percent of theatrical distribution and 90 percent of videocassette distribution in 1983 (data from Waterman, tables 1 I and

IV) have been the major proponents of first sale doctrine amendment for videocassettes. Two bills to amend the first sale doctrine for audio-visual works were introduced in Congress and

had hearings held on them in 1983 and 1984: H.R. 1029 and S.33.

“’Statement of Austin O. Furst, Jr., before the House Judiciary Subcommittee on Courts, Civil Liberties, and the Administration of Justice, Apr. 12, 1984.
178 . Intellectual Property Rights in an Age of Electronics and /formation

tion technologies. 75 They argue, moreover, that

the prices for cassette purchases by users

would decline because distributors could price

discriminate between sales to rental outlets

and to final consumers.

On the other hand, higher cassette rental

returns to distributors may force many rental

outlets out of business. The market for cassette rentals is in the process of consolidation

and shake-out even with the first sale doctrine

intact.76 Any increase in rental prices that

caused a substantial reduction in rental volume would be likely to cause further concentration and would work to the disadvantage

of smaller outlets.77 A reduction in rental outlets would tend to reduce price competition

among the remaining outlets; a reduction in

rental volume could force the outlets left to

devote more shelf space to mass-market feature titles and less to titles appealing to

smaller, more specialized consumer markets.78

Some opponents of past attempts to amend

the first sale doctrine for videocassettes are

also concerned that modifications could lead

to the imposition of “tie-in’ or “full-line” sales

requirements by distributors. In such arrangements, a distributor would require a rental outlet to purchase additional titles as a condition

for obtaining one or more very popular works.

If this were legal,79 a distributor would have

—— ——- - — . ——

“’iThe Consumer Video Sales/Rental Amendment of 1983

Briefing Materials” (Washington, DC: Motion Picture Association of America, 1983),

“’Alex Ben Block, “Hard Dollars in Video Software, ” Forbes,

June 17, 1985, pp. 128-131.

“’Statement of Nina W. Cornell, President, Cornell, Pelcovits & Brenner Economists Inc., before the Subcommittee

on Courts, Civil I.iberties, and the Administration of Justice

of the House Judiciary Comrnittee, Econom”c Impacts of Repealing the First Sale Doctn”ne for Audiovisual Works, Oct. 27, 1983,

pp. 29-31.

‘“Statement of Stuart Karl before the House Judiciary Subcommittee on Courts, Civil Liberties and the Administration

of Justice, Apr. 12, 1984, pp. 13-15.

“9The Supreme Court has ruled that tying arrangements are

illegal because they, “deny competitors free access to the market for the tied product, not because the party imposing the

tying requirements has a better product or lower price but because of this power or leverage in another market. At the same

time buyers are forced to forego their free choice between competing products. ” Northern Pacific Railway v. United States,

356 U.S. 1,6 (1958). The amendment of the first sale doctrine

proposed in H.R. 1029 may not specifically permit such tying

arrangements, but it may lead to many situations in which litimore control over a rental outlet shelf space,

and could compete with other distributors on

bases other than the price and quality of his

goods.

The conflict over the first sale doctrine

among players in the videocassette market is

especially interesting in light of the motion picture industry’s overall current situation. Figure 6-3 shows the number of feature movie

starts by major studios and independent producers. The steep rise in feature film production beginning in 1982 was predicated on the

industry’s perception of increased demand,

fostered by the growth of the cable television

and videocassette markets and by an infusion

of more than $1 billion in capital in 1984.80

Some stock analysts consider markets for feature motion pictures to be facing an impending glut. They have cautioned investors not

to expect impressive earnings from the major

distributors. 81 In fact, the major movie studios

have recently cut production sharply .82

The important policy question is whether the

proposed amendment of the first sale doctrine

will, as the major distributors claim, lead to

increases in the number of films produced and

make the films more valuable and available to

consumers. Faced with impending market glut,

the producers of feature films often react by

cutting production. Alternatively, they may

attempt various mechanisms to exact more

revenue from the films they produce. Advergation would be required to nullify cases of tying, whereas their

likelihood is much less under the current video cassette market

structure. See Statement of Jonathan Rose, Professor of Law,

Arizona State University College of Law, before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the House Judiciary Committee, Feb. 23, 1984. Generally, unlike the legal precedent in patent infringement cases,

antitrust violations have not been treated as a valid defense

of copyright infringement. See Robert A. Feitel, “Copyright

Misuse and Cable Television: Orth-O-Vision, Inc. v. Home Box

office,’” Federal Commum”cations ~Jtfw Journal, vol. 35, fall 1983,

pp. ,347-373.

“OHarold A. Vogel, “(llitterless Glut,’” ~ntert~”nment ~n.

dustry, Merrill Lynch, Capital Markets Securities Research Division, Jan. 28, 1985.

“J’ogel, “Glitterless Glut. ”

““A cut in production apparently improves the quality of

films–and improves their chances to become hits by giving them

more exposure. ” Ellen Farley, “The Movie Studios Hope Less

Will Be More, ” Business Week, Jan. 13, 1986, p. 9.
Ch. 6— Technology, Intellectual Property, and the Operation of Information Markets “ 179

Figure 6-3.— Feature Motion Picture Releases

1973 1974 1975 1976 1977

SOURCE Weekly Variety, Jan 2, 1985

tising and promotion for individual films may

increase. Concomitantly, distributors may try

to increase the efficiency of price discrimination.

The amendment of the first sale doctrine, as

we have seen, could be expected to aid the major feature film producers, at least, in doing

this. Some have suggested other ways to increase price efficiency. One proposal is to give

rebates to purchasers of cassettes to, in effect,

discriminate between the sale-only and rental

markets.83

The industry is responding to market conditions in the absence of changes to the first

sale doctrine. Distributors are beginning to use

the broad retail market base that has sprung

up from demand for cassette rentals to segment rental markets into more specialized and

diverse video offerings. This trend is already

evident in the growing popularity of educational titles and such specialty items as “Jane

Fonda’s Workout. ”

The videocassette market may represent an

opportunity for independent film producers to

market their movies without signing over con-

“ ftose, pp. ~12-fItI. The important factor- in the success of this

strattigyr would he the elasticity of demand for cassette purch as(~s. S{)m(’ e~riden{e suggests that sales of some very popular title+ can t)e increased dramaticall~. l)~r lowering the pric’c

to n(’zirer t ht. marginal cost. See M’aterman, p. 2;35, and (’ornell.

pp 19-21

---

1978 1979 1980 1981 1982 1983 1984

Year

trol of all distribution rights to the major distributors, as they have generally been obliged

to do with feature motion pictures. The independent distributors are also beginning to use

their revenues to finance the production of

films.84 The issue of first sale doctrine repeal

may thus involve the question of whether the

videocassette market is to be an ancillary market for feature films or a new means of offering consumers a diverse range of video products based on a new technology.

Implicit in the above analysis of the videocassette market is a policy question that may

be particularly difficult to answer definitively:

What level of investment on a given intellectual work does and should intellectual property law encourage? For example, should policy encourage movies that cost $15 million to

produce? This is not the kind of question that

intellectual property law has heretofore been

consciously concerned with. But decisions

about intellectual property rules may have a

major influence on the level of investment in

a given work that is profitable. Because film

makers compete for consumers’ time as well

as money, a decision to uphold the first sale

doctrine in the case of videocassettes may encourage investment in cheaper film projects

at the expense of investment in costlier

‘“’ F’urst pp. I5-16

, .
180 . Intellectual Property Rights in an Age of Electronics and Information

-. —

projects. 85 Thus, intellectual property policymaking may require hard, explicit decisions

about the nature and content of some information markets, which may compel policy

makers to make judgments about the social

value of private investments in different kinds

of works.

Information Services, Electronic

Databases, and Derivative Works

The scope of the information services industry is illustrated by table 6-4 which lists the

variety of activities carried out by member

companies of the Information Industry Association. These companies find or create infor-

‘“At least one film-industry analyst disagrees strongly with

this conclusion. He believes that the number of projects undertaken, and not the per-project spending or quality of films, will

be reduced by upholding the first sale doctrine. David Waterman, personal communication, January 1986. However, another

analyst cites the movie industry reaction to the introduction

of television to argue that per-movie investment levels may decline in the face of competition from new technologies. Hirsch,

“U.S. Cultural Productions, ” p. 116; see also Paul Ilirsch, “Processing Fads and Fashions: An organization-Set Analysis of Cultural Industry Systems, American Journal of Sociology, January 1972, pp. 639-659.

— ——

mation and package it in forms most useful

to their clients. They may obtain the information from government sources, nonprofit institutions, other private information companies, or they may originate it themselves. They

add value to this information by packaging the

most relevant, timely, and reliable information

in its most useful form.

Within the information services industry,

the impact of intellectual property law is a subject of great interest and some controversy.

In particular, these markets are directly affected by the rules governing derivative uses

of intellectual properties.

Many information service providers obtain

information from several sources and then

profit from distributing the package of information they create. Often, the information

service company claims a property right on the

package. In other cases, the service company

administers the property rights of those who

provided them with information content.

A producer’s profits and leverage in attracting information from originators depend on his

ability to exclude nonpaying customers from

Table 6-4. —Primary Activities of Information Industry Association Members

26

26

25

22

22

22

20

19

19

19

18

18

17

17

17

17

16

Document acquisitions and delivery (S)

Periodicals-publishers (P)

Publishing (P)

Consulting services (S)

Databases—design and/or

management (S)

Databases—information (P)

(publishers of information about

databases)

Indexing publishing (P)

Databases—searching (S) (firms

that carry out database searches)

Information systems—design and

evaluation (S)

Market research services (S)

Business information (P)

Micropublishing

Current awareness services (S)

Databases–vendors/lessors (S)

(companies that produce or sell the

use of databases)

Government information (P)

Literature searches (S)

Corporate information (P)

.- -—.—. .—

KEY (S) Service

(P) Product

15

13

13

13

12

11

11

10

10

9

8

8

8

8

8

8

7

7

7

7

7

6

6

6—

SOURCE Carlos A Cuadra, ‘The Role of the Private Sector

1, January 1980 p 98

—

Directories (P) 6

Abstracting publishing (P) 6

Indexing services (S) 6

International business information (S) 6

Energy information (P) 6

Abstracting services (S) 5

Financial information (P) 5

Marketing services (S) 5

Software (S) 5

Scientific literature (P) 5

Audiovisual materials (P) 5

Cataloging services (S) 5

Engineering information (P) 5

Environmental information (P) 5

Legal information (P) 5

Television information (P) 5

Clearinghouse (D) 5

Library Automation Services (S) 5

Medical literature (P) 5

Newsletters-publishers (P) 5

Typesetting services (S) 5

Asia (P) 5

Economics (P) 5

Electronics information (P) — .—

Forecasting services (S)

Microform system design services (S)

Micrographic services (S)

Records management services (S)

Reprint publishers (P)

Accounting information (P)

Agriculture (P)

Book information (P)

Bookselling services (S)

Chemical information (P)

Computers-hardware (S)

Conferences-information (P)

Drug information (P)

Education (P)

Europe (P)

Financial Information (International) (P)

Information industry (P)

Looseleaf services (P)

Management information (P)

Patent information (P)

Product development (S)

Social science literature (P)

Statistics (P)

I n the Development and Improvement of LIbrary and Information Services ‘‘Library Quarterly, vol. 50, No
Ch. 6—Technology, Intellectual Property, and the Operation of Information Markets ● 181

using his goods. Success also depends on

whether he can prevent others from commercially exploiting his various packages, and

whether he can prevent competitors from repackaging his products. Such exclusion will

affect his competitors’ available sources of supply and the ways they may use the information available. Thus, the stronger derivative

use rights are, the greater the potential for control a producer will have over the prices he

charges and the exclusion of competition. But

if derivative use controls are too weak, the producer may be unable to receive compensation

adequate to cover the cost of constructing a

particular package.

The information service providers’ dilemma

over derivative use rights is mitigated somewhat by the nature of their business. Their

products are valued because they meet the specific needs of their clients. Thus, given some

latitude in the derivative use of others’ products, small companies can succeed by targeting a particular market niche and serving those

customers well.

Since the products are highly customized,

the market for a particular product may be

quite small because the demand for additional

copies is quickly exhausted. Thus, a service

provider may be able to succeed by focusing

his efforts to exclude competitors on a small

group of people; and control over his products

need only limit the ability of competitors to

steal his customers. With no marketplace rules,

competitors could do this by unfairly undercutting prices and competing without investing in finding and purchasing or developing

their own information. The regulation of unfair trade practices may serve as well or better than copyright in this situation.86

Electronic delivery of information services

complicates the situation. Over the past 10

years, this segment of the information economy has grown to the point where there are

now over 2,800 data files publicly available to

“’The formalities of copyright, registration and deposit of

copies with the I,ibrary of Congress, ma}’ be especially burdensome to the producers of highly di~’ersified and frequently updated information products.

users with the proper computer and communication equipment.87 These services operate

by making a very large file of information, such

as scientific journal bibliographic citations or

industry statistics, available with software

that allows users to search the file and create

a customized information product themselves.

Competitors may copy the entire file or significant portions of it, construct their own

search software, and exploit the original producer’s market by undercutting prices. Thus,

derivative uses of large electronic databases

can be more attractive to competitors; and derivations may damage the original producer of

a large database more than they would a company serving a small market niche. Conversely,

producers of large electronic databases have

economies of scale and scope not available to

those who employ people directly in producing customized products. Thus, the on-line information service industry may have a greater

tendency to concentrate than does its print

counterpart, and large electronic database producers may have greater power to control the

supply and price of information.88

Another potential problem related to concentration in the electronic publishing industry concerns the question of private control

over information in a particular field. Although

it may be most efficient for consumers to be

able to go to one source to obtain all the available information on a particular subject, the

monolithic control thus afforded the proprietor of such a source may allow him to eliminate all effective competition—to corner the

market for information on a subject—and thus

set conditions on access and prices so as to earn

monopoly profits.89

“’Martha E. Williams, “Policy Issues for Electronic Databases and Database Systems,’” The Information Societ~r, vol.

2, Nos. 3/4, 1984, p. 445.

““The top four (out of 14 total) vendors of electronic databases in the U.S. information center library market accounted

for 92.6 percent of the $54.08 million in 1984 re~enues in that

industry. Two firms accounted for approximatel~’ 84 percent

of 1984 revenues. Martha E. Williams, Information ,TfarlretIZIdicators, summer 1985, pp. 1-2.

““Martha E. Williams, “Policy Issues for Electronic I)atabases and Database Systems, ” The Information Societ~r, vol.

2, Nos. 34, 1984, p. 4 11; and Pool, “User Interfaces, p. 441.

Pool suggests that information resource monopolies are likel~r

to be narrow and perhaps short-lived.
182 ● Intellectual Property Rights in an Age of Electronics and Information

Computer Software, Market Size, and

the Cost of Contract Administration

The dynamics of markets for computer software programs depend, to a large extent, on

market size—that is, the number of users who

may find a particular type of program useful

to them. Many programs are so specialized

that markets for them are quite small. In these

cases, it is possible for distribution to proceed

on the basis of contracts worked out with individual purchasers. Individualized contracts

have the advantage of spelling out in detail

the rights that a user purchases and the rights

that a proprietor retains. For example, software for mainframe computers has largely been

distributed under contract lease or license arrangements where the purchaser does not actually buy a copy, but instead buys rights to

use and perhaps modify a program. The vendor often agrees to provide certain services,

such as expert help in customizing a program

for specific user requirements, provision of updated versions at favorable prices, or on-call

response to problems that crop up in using the

software. Often, the software distributed under contract is treated as a trade secret. Thus,

when software is distributed under terms of

individualized contracts, the government role

may be confined to adjudication of contract

disputes at the State level. Software proprietors may also seek Federal copyright for additional protection against programs that may

compete as substitutes.90

Computer software proprietors often face

particular problems in controlling or excluding the marketing of programs that are potential substitutes for their programs. There is

often a range of programs available that may

provide similar value to users. These programs

may have been developed in the course of

government-sponsored R&D, and many are in

the public domain. For example, the computer

language called “Forth” was developed at the

National Radio Astronomy Observatory. One

company that deals in developing and marketing products based on Forth has to compete

‘See SAS Institute, Inc. v. S&H Computer Systems, Inc.

(M.D. Term. 1985, nos. 82-3669 and 82-3670).

with some programs in the public domain, and

some that have been developed by hobbyists

who are not especially interested in profiting

from the use of their work.91 In such situations,

users may see a wide disparity in the prices

being charged for programs that may appear

to have similar capabilities. A proprietor in

commercial business, in these circumstances,

will have to compete with such substitutes by

advertising and offering superior service. Such

competition can result in a healthy diversity

of software products. But users can also be confused by this diversity, and they may be bewildered by the prices that commercial software providers charge.92 Thus, the software

business can be particularly risky, and is often

dependent on elaborate and expensive marketing techniques.

Software developers have tried a number of

innovative marketing techniques for software

programs. For example, one successful effort

goes under the title “Freeware.” The concept

of Freeware evolved of necessity, according to

Andrew Flugelman, the program’s creator and

developer. 93 Flugelman was searching for a way

to share a program he developed for communicating among computers by telephone, and

make money from his efforts at the same time.

To protect his investment, he considered a software protection scheme, but he discarded the

idea because he figured that it would be unpopular, ineffective, and would limit the use

of his software. Having been a book publisher,

Flugelman was well aware of both the high

value and high cost of advertising a product

and of setting up mechanisms to distribute it.

Putting these two concerns together, he came

up with the idea of offering his software free—

first on electronic bulletin boards and later by

mail. He anticipated that, once his method took

y Interview with Edward Conklin, FORTH, Inc., Apr. 19,

1985.

9“Software companies, like most information providers, have

significant discretion in setting prices because, once a package

is developed, reproduction and distribution costs are relatively

low. They often set prices high under the assumption that a

package with a high price is perceived as superior to one that

serves a similar function but is much cheaper. Elizabeth Ranney, “The Puzzle of Software Pricing,” Info WorM, Nov. 4,1985,

pp. 35-39.

‘“ Interview with Andrew Flugelman, Apr. 15, 1985.
Ch. 6—Technology, Intellectual Property, and the Operation of /formation Markets s 183 —

hold, users would themselves advertise and distribute his product. However, while Flugelman

offered his software for free, he encouraged

those who used it to pay a nominal fee to show

their satisfaction with the product.

Several other software developers have used

similar approaches to launch their products.

Some, like Flugelman, have been successful in

generating healthy revenues and in maintaining full-time businesses. 94 These approaches,

however, have had their problems. Since software products often require extensive documentation and user support to be fully utilized,

the costs of such support can grow uncontrollably. Furthermore, as Flugelman has noted,

the Freeware concept appears to have worked

most successfully with the individual user—

the computer hobbyist, the home user, and the

very small business man. With these users, the

creator can appeal on a one-to-one basis to “the

morality and basic honesty of the public.”95

In the environment of large corporations, personal appeals are apt to get lost.

Software designers may indeed increasingly

have to resort to approaches that rely on users

to advertise and distribute software, because

both advertising and distribution are beginning to constitute larger and larger proportions

of software companies’ total costs. AshtonTate, for example, spent $4 million on advertising during the Democratic Convention and

the Los Angeles Olympics, Similarly, other

companies are aggressively pursuing a variety of advertising and marketing schemes in

an effort to stay at the top of what is now a

highly turbulent and competitive industry. To

increase the sales and name recognition of their

products, some companies are even offering

their buyers coupons, trial samples, and tradeins on previous models. In such a climate, a

whole variety of new advertising and distribution schemes can be expected.

As personal computers have come into widespread use, the cost to software proprietors

—

“See Larry Thompson, *’Freewa-~ and Freeware. ” Iliscotrer,

November 1984, pp. 87-89.

4 “Software: The .New Driving Force: J$rith Computers Becoming More Alike, the Action Shifts to Programs, Business

Ureek, Feb. 27, 1984, p. 74.

of managing individualized contracts and providing customized user services has risen dramatically. Proprietors have tried a number of

strategies to lower these transaction costs. For

instance, many software companies offer” site

licenses” that authorize a purchaser, such as

a company or government agency, to make a

specific number of copies for multiple use

within the institution. But site licensing may

not be practical unless the proprietor deals with

a relatively small number of institutions. This

is because the proprietor must have frequent

contact with the user institution, sending representatives to the site regularly enough to assure that the terms of the agreement are not

being violated.” Moreover, when proprietors

are dealing with very large institutions, site

licenses may make the problem of enforcing

compliance with the license extremely costly

to monitor.

Another strategy adopted by the distributors of personal computer software is the

“shrink-wrap” license. With these, vendors of

mass-market programs, such as word processing packages, display a licensing contract on

the cover of the container in which the software and its documentation are sold that specifies the exclusive rights that they retain. (See

figure 6-4.) By opening the package, the purchaser tacitly agrees to the provisions of the

contract. The legality of such ‘take it or leave

it contracts has been tested in only one State,

Louisiana, which passed a specific statute

validating shrink-wrap licenses.

Many computer program users are concerned about shrink-wrap licensing because it

increases their uncertainty in making computer software purchase and use decisions. A

user may decide after trying a program that

it is not appropriate for his particular needs.

There is also a question of what rights a purchaser might have should the software vendor go out of business. A purchaser may entrust valuable information that is critical to

his business to the operation of a particular

software system, and come to rely on vendor

support. Industry is addressing this problem

‘+’lldward !{’arner, “Site I,icensin~ Stirs IJebat~ at Comdex, ” C’omputerworki, May 13, 1985, pp. 1,11.
184 . Intellectual Property Rights in an Age of Electronics and /formation

to some extent by establishing “software es- licensees should the vendor go out of business

crow” systems in which a third party holds or terminate service on a particular program.97

a program’s source code and development and “-Liliane Choney, “Software Escrow and the Security Pracmaintenance documentation for release to titimer, Computer Security Journal, summer 1984, pp. 67-76.

Figure 6-4.—A Shrink-Wrap License Contract

XYQUEST Program License Agreement

YOU SHOULD CAREFULLY READ THE TERMS AND CONDITIONS OF THIS AGREEMENT BEFORE

BREAKING THE SEAL OF THIS PACKAGE OPENING THE PACKAGE INDICATES YOUR ACCEPTANCE

OF THESE TERMS AND (’CONDITIONS XYQUEST PROVIDES THIS PROGRAM AND LIENSES ITS USE

IN THE UNITED STATES AND PUERTO RlCO. YOU ASSUME THE RESPONSIBILITY FOR THE SELECTION OF THE PROGRAM TO ACHIEVE YOUR INTENDED RESULTS, AND FOR THE INSTALLATION,

USE AND RESULTS OBTAINED FROM THE PROGRAM

LICENSE

You may

a) use the program on a single machine,

b) copy the program into any machine readable or printed form for backup or modification purposes in support of

your intended use of the program on a single machine.

c) modify the program and/or merge it into another program on the single machine (Any Portion of this program

merged into another program will continue to be subjecl to the terms and conditions of this agreement.); and,

d) transfer the program and license to another party if the other party agrees to accept the terms and conditions of this

Agreement If you transfer the program, you must at the same time either transfer all copies whether in printed or

machine readable form to the same party or destroy any coples not transfered, this includes all modifications and

portions of the program contained or merged into other programs

You must reproduce and include the copyright notice on any copy, modification or portion merged into another

program

YOU MAY NOT USE, COPY, MODIFY OR TRANSFER THE PROGRAM, OR ANY COPY, MODIFICATION

OR MERGED PORTION, IN WHOLE OR IN PART, EXCEPT AS EXPRESSLY PROVIDED FOR IN THIS

LICENSE

IF YOU TRANSFER POSSESSION OF ANY COPY, MODIFICATION OR MERGED PORTION OF THE

PROGRAM TO ANOTHER PARTY YOUR LICENSE IS AUTOMATICALLY TERMINATED

TERM OF LICENSE

The license is effective until terminated. You may terminate the license at any other time by destroying the program

together with all copies, modifications and merged portions in any form It will also terminate upon conditions set

forth elsewhere in this Agreement or if you fail to comply with any term or condition of this Agreement. You agree

upon such termination to destroy the program together with all copies, modifications and merged portions in any

form

Limited Warranty

THE PROGRAM IS PROVIDED ‘AS IS’ WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR

IMPLIED, INCLUDING, BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY

AND FITNESS FOR A PARTICULAR PURPOSE THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE PROGRAM IS WITH YOU. SHOULD THE PROGRAM PROVE DEFECTIVE, YOU ASSUME THE ENTIRE COST OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION. SOME STATES

DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT

APPLY TO YOU THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS AND YOU MAY ALSO HAVE

OTHER RIGHTS THAT VARY FROM STATE TO STATE

XYQUEST does not warrant that the functions contained in the program Will meet your requirements or that the

operation of the program will be uninterrupted or error free.

Limitations of Remedies

XYQUEST’s entire liability and your exclusive remedy shall be:

a) the replacement of any diskette not meeting XYQUEST’s Limited Warranty and which is returned to XYQUEST

or an authorized XYQUEST distributor along with a copy of your receipt, or

b) if XYQUEST is unable to deliver a replacement diskette which is free of defects in materials or workmanship, you

may terminate this agreement by returning the program with all documentatlon and your money will be refunded.

IN NO EVENT WILL XYQUEST BE LIABLE TO YOU FOR ANY DAMAGES, INCLUDING ANY LOST

PROFITS, LOST SAVINGS OR OTHER INCIDENTAL OF CONSEQUENTIAL DAMAGES ARISING OUT

OF THE USE OR INABILITY TO USE SUCH PROGRAM EVEN IF XYQUEST HAS BEEN ADVISED OF THE

POSSIBILITY OF SUCH DAMAGES OR FOR ANY CLAIM BY ANY PARTY.

SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL

OR CONSEQUENTIAL DAMAGES SO THE ABOVE LIMITATION MAY NOT APPLY TO YOU.

General

You may not sublicense, assign or transfer the license or the program except as expressly provided m this Agreement.

Any attempt otherwise to sublicense, assign or transfer any of the rights, duties or obligations hereunder is void.

This Agreement will be governed by the laws of the state of Massachusetts.

Should you have any questions about this Agreement, you may contact XYQUEST, Sofeware Sales and service, P.O.

Box 372, Bedford, Massachusetts 01730.

YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT, UNDERSTAND IT AND AGREE TO

ITS TERMS AND COND1TIONS. YOU FURTHER AGREE THAT IT IS THE COMPLETE AND EXCLUSIVE

STATEMENT OF THE AGREEMENT BETWEEN YOU AND XYQUEST WHICH SUPERSEDES ANY PROPOSAL OR PRIOR AGREEMENT, ORAL OR WRITTEN, AND ANY OTHER COMMUNICATIONS BETWEEN US RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.

SOURCE. XYWRITE II Program Materials, XyQuest, Inc. , 1983
Chapter 7

New Technologies and the

Intellectual Property Bargain
Contents

Findings . . . . . . . . . . . . . . . . . . . . . . . . . .

The Intellectual Property Bargain . . . .

Transformation of the Constitutional

. . . . . . . . . . . . . . . . . . . . . . . .

Bargain : : : : : : : : : : : : : : : :

The Intellectual Property Bargain in a New Technological Context

Private Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Private Use as Fair Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .

Pag e

187

188

190

193

193

195
Chapter 7

New Technologies and the

Intellectual Property Bargain

●

●

●

FINDINGS

Technology is spawning a wide range of new

opportunities to use information-based products and services. A central question for intellectual property law is who shall benefit

from these opportunities. In the Supreme

Court’s “Betamax” decision, for example,

the question was whether proprietors or

users would benefit, either directly or indirectly, from home videorecording capabilities. As even newer technologies affect individuals’ abilities to copy, store, and modify

information, such questions are likely to

multiply.

Because it evolved in a period when duplication and storage technologies were centralized and deployed in a commercial context, copyright law offers little guidance to

courts in resolving conflicts over who shall

benefit from new uses afforded by technology.

Neither the existing framework of rights nor

limitations on those rights, such as fair use,

clearly apply to the private use of information-based goods.

Some survey research has been conducted

on the financial benefits that would accrue

to proprietors if they were remunerated for

new technological uses, and unremunerated

uses are often considered harmful to copyright proprietors. Estimates of harm, however, are in and of themselves insufficient to

assist Congress in resolving the issue of who

is to benefit from new uses. They presuppose

●

●

and cannot be the foundation for a legal right

to profit from new uses of copyrighted works

made available by technology. Whether Congress wishes to consider new uses as harmful will depend on the goals that it seeks to

promote through copyright law, and where

it believes the benefits of new technologies

should be allocated.

The need for congressional action on this issue is immediate. Public opinion, while tending to favor free private use, is not yet firmly

established. However, as technologies for

duplicating, storing, and manipulating information become more prevalent and sophisticated, public opinion and public behaviors may become more entrenched.

A separate, but related issue is that of access to information goods distributed electronically. Traditionally, copyright law has

provided a quid pro quo between proprietors and the public in information goods sold

in copies. The sale of copies ensured public

access to copyrighted works. However, because electronically disseminated works are

not sold in copies, but accessed through communications media, Congress may need to rethink the intellectual property bargain to ensure adequate access to information goods.

The policies pursued with respect to access

and communications law will affect the resolution of the private use issue.

INTRODUCTION: A NEW INTELLECTUAL

PROPERTY CONTEXT

Innovations in information technology re- information-based products and services: 1)

quire that policy makers address two funda- what rights in information products and servmental questions about property rights in ices should be granted to a proprietor and 2) what

187
188 ● Intellectual Property Rights in an Age of Electronics and Information —

rights should be retained by the public? Although copyright law has traditionally answered these questions, information and communication technologies have created a new

context in which the application of copyright

law is uncertain. In some cases, the technology is shifting the capabilities of printing, publishing, and distributing information from the

centralized commercial entrepreneur to private

individuals. In others, the technology is creating new and unprecedented uses for information products and services. The videocassette recorder, for instance, not only allows a

user to watch motion pictures where and when

he will, but also to store video transmissions

taken off the airwaves.

The current debate before the courts and

Congress centers on whether copyright proprietors or the public shall benefit from these new

technological capabilities, and whether and

how both can benefit. On the one hand, technology gives the public an unprecedented ability to access, store, transmit, and manipulate

information, with little or no need for publishers, printers, or distributors. On the other,

the same technologies simultaneously permit

the copyright proprietor to exploit markets

that have never before existed. In many cases,

the interests of the proprietor and the public

are in conflict; as, for example, with home video

recording.

In resolving the question of who should benefit from new technology, one must begin by

understanding that rights granted to a proprietor in a work act as prohibitions on the subsequent uses that others may make of it. To

grant a right is to make certain activities illegal for all but the author of a work. Thus, the

———

benefit conferred on an author by the grant

of a right exacts a corresponding cost from the

remainder of society.

The rights granted the author are not, however, meant to be gratuitous burdens on the

freedoms of the public. Congress has in the past

stressed that rights are granted to authors for

the purpose of benefiting the public, and so,

. , . [i]n enacting a copyright law Congress

must consider . . . two questions: First how

much will the legislation stimulate the producer and so benefit the public, and, second,

how much will the monopoly granted be detrimental to the public? The granting of such

exclusive rights, under the proper terms and

conditions, confers a benefit upon the public

that outweighs the evils of the temporary

monopoly. 1

The effect of technology on this ‘cost/benefit” equation underlies the discussion in this

chapter. To understand how the current debate

arose, the chapter looks first at the U.S. Constitution and the bargain that it established

between authors and the public. It then examines how technology has changed the context

in which that bargain is carried out, causing

ambiguity and uncertainty over which rights

should belong to the proprietor and which

should be retained by the public. Finally, this

chapter suggests that resolving this issue will

depend on which criteria are chosen for analysis, and which goals Congress seeks to implement through intellectual property policy.

Four such criteria are considered: harm, efficiency, access, and public opinion.

‘H. R, Rep, No. 2222, 60th Cong., 2d sess. (1909).

THE INTELLECTUAL PROPERTY BARGAIN

We saw in chapter 2 that American intellec- tion of writings, and the eventual return of both

tual property law can be thought of as a bar- to the public domain.2 The purpose of copygain between individual creators and the pub- right, in particular, is to benefit the public by

lie. In exchange for granting authors and encouraging learning through the disseminainventors exclusive rights in their writings and ——— ‘U.S. Const., Art., I, sec. 8, cl. 8. At the time the constitu- inventions, the American public is to benefit

from the disclosure of inventions, the publication was written, the word “science” meant knowledge in the

broadest sense of the word.
Ch. 7—New Technologies and the Intellectual Property Bargain ● 189 — ——

tion of works. Although the Supreme Court

has consistently interpreted the intellectual

property bargain to be “primarily” for the benefit of the public,3 James Madision—the principal author of the intellectual property clause—

believed that “[t]he public good fully coincides . . . with the claims of individuals’ in intellectual property.’ In Madison’s view there

was no question of subordinating the interests

of either the author or the public. The purpose

of the intellectual property clause—the public

benefit–and the mechanism for achieving that

purpose—the creator’s exclusive right—were

merged in one simple bargain.5

Although few disagree that the ends that intellectual property seeks to promote are in the

public interest, many feel that the means chosen are in fact inimical to it. Because the constitution grants exclusive rights, copyrights

and patents are sometimes considered “monopolies,” and—at best—necessary evils. Thomas

Macaulay, a British legal historian, voiced this

opinion in a speech on the subject of copyright

before Parliament:

Copyright is a monopoly, and produces all

the effects which the general voice of mankind attributes to monopoly. The effect of

monopoly generally is to make articles scarce,

to make them dear, and to make them bad.

It is good that authors should be remunerated; and the least exceptionable way of

remunerating them is by a monopoly. Yet

monopoly is an evil. For the sake of the good

we must submit to the evil; but the evil ought

not last a day longer than is necessary for the

purpose of securing the good.’

James Madison, too, was aware of the monopolistic connotations of a governmentally

granted exclusive right.7 However, he distinguished American intellectual property and

thus copyright from the pernicious monopolies that had preceded it:

Monopolies are sacrifices of the many to the

few. Where the power is in the few it is natural for them to sacrifice the many to their own

partialities and corruptions. When the power

as with us is in the many not in the few the

danger cannot be very great that the few will

be thus favored.8

To avoid the evils of monopoly, Madison intended that the exclusive rights afforded by

copyright be very limited; he envisioned limited rights, owned by “many,” for limited

periods of time.

Madison’s concerns over monopoly and his

confidence in the “coincidence” of the public

and private interest were reflected in the parsimonious bundle of rights granted by the first

copyright act.9 To accomplish its stated goal

of encouraging learning, the act granted authors

rights that were far more limited than those

of the most recent copyright statute. Copyright law gave authors only the rights to

“print, reprint, publish and vend” their writings. The author retained the right to reproduce the copyrighted work for sale, but he held

no property rights in books as such. A copyright was infringed, not by the uses to which

a work was put, but by the unauthorized exercise of the author’s commercial rights to sell

the work and to print copies of it. ’” Thus, af-

“’The Copyright law, like the patent statute, makes reward

to the owner a secondary consideration.’” Fox Film v. Doyal,

286 U.S. 123, 127, as quoted in SorJy Corp. v. Universid Cit~T

Studios, 464 U.S. 417, 429 [1984).

‘From The Federalist, No. XLIII, 281 (italics added).

Leon Seltzer, author of a noted book on copyright, wrote

that “to sav that the benefit to the author is a ‘secondary consideration’-is like saying that when reliance is put on a flask

to transport wine across a carpeted room, whether or not the

flask leaks is, with respect to getting the wine there, a ‘secondary consideration. ‘‘ Leon Seltzer, Exemptions and Fair Use

in Cop}’right (Cambridge, MA: Harvard University Press, 1978),

p.14.

‘Thomas Macaulay, “Speeches on Copyright” (1841), quoted

from Barbara Ringer, The Demonology of Cop~ight (New York:

R.R. Bowker, 1974), p. 13. More recently, Stephen Breyer and

Benjamin Kaplan have expressed similar views on copyright,

calling for limits on its scope and duration. See: Stephen Breyer,

‘‘The Uneasy Case for Copyright, 84 Harvard La w Re~+ew 281,

1970: and Benjamin Kaplan, An Unhurried View of Cop~v-ight

(New York: Columbia University Press, 1967).

As ch. 2 discussed, many of the earliest intellectual property schemes, such as the Stationers Copyright, were true monopolies, concentrating a good deal of economic and social power

in the hands of a small number of people.

‘Letter from James Madison to Thomas Jefferson, Oct. 17,

1788, as quoted in Bruce Bugbee, (ienesis of American Patent

and Cop-vright Law (11’ashington, DC: Public Affairs Press,

1967), p. 130.

C’Act of May 31, 1790, ch, 15, 1 Stat. 124.

“At the time that the constitution was written, printing

and publishing required large, costly equipment that made them

essentially commercial enterprises. The constitutional bargain

therefore presupposed a commercial environment for the exploitation of Writings; it could hardly have done otherwise, since

the technology of the day necessitated a publisher. Thus, because of the economics and technology of publishing, the rights

(continued on next page)
190 . Intellectual Property Rights in an Age of Electronics and Information

ter a work had been commercially printed and

sold, others could display it, read from it publicly, or even write other books based on it,

without infringing the author’s copyright.11

Even though the author might have profited

from these subsequent uses, the drafters of the

first copyright act did not believe it necessary

to grant such extensive rights in order to encourage learning.

Numerous other features of the first copyright law ensured that the bargain struck between the author and the public would not constitute a monopoly.12 For example, the term

of copyright protection was limited to 14

years, 13 after which time the work would return to the public domain and anyone would

be free to print it. The copyright term ended

within the lifetime of both the author and his

reading public, so that, even if copyright were

a monopoly, it was one that could not last long.

Moreover, copyright was initially vested in the

author, although he could thereafter assign his

copyright to others. By creating as many copyrights as there were authors, the law avoided

the concentration of market power, as Madison said, in “hands of the few. ”

(continued from previous page)

conferred by the intellectual property clause on authors had

operational significance as a regulation of the business of publishing. Indeed, this notion of copyright as a form of trade regulation is, as we shall see, substantiated in other developments.

The precursor to the concept of copyright—the Stationer’s

Charter-granted publishing rights to printers, rather than

authors; furthermore, the first Federal copyright statute was

held to extinguish any common law rights of the author upon

publication (an activity which at the time required the commercial publisher as intermediary).

“Each of these activities would be illegal today,

12It is doubtful that a copyright would qualify as a monopoly as defined by antitrust law. Monopoly, as the term is used

in antitrust, is the power to set prices or exclude competition

in a relevant geographic and product market. See, e.g., United

States v. Grinnell Corp., 384 U.S. 563 (1966). A single copyright is at most a monopoly of a product, which seldom gives

the copyright proprietor market power. Others are free to compete with the author, so long as they do not copy or produce

works that are substantially similar.

13This term was renewable by living authors for another 14

years. The drafters of the act may have arrived at 14 years based

on previous experience. Several of the States had, per a 1783

recommendation of the Continental Congress, passed copyright

legislation with a term of 14 years. The recommendation was

modeled on the Statute of Anne, which also implemented a 14-

year term. L. Ray Patterson, Copyright in Historical Perspective (Nashville, TN: Vanderbilt University Press, 1968), p. 183.

Transformation of the

Constitutional Bargain

During the 19th and 20th centuries, this constitutional bargain was gradually transformed,

perhaps the most significantly through the

gradual expansion of rights. Like the expansion of copyrightable subject matter (see ch.

3), the expansion of rights granted under copyright largely tracked technological development. Those granted under the first copyright

act of 1790 corresponded to the capabilities

of the printing press; these were the rights to

print, reprint, publish, and vend a writing.14

New rights were gradually added to the copyright scheme as social and technological change

prompted Congress to include an expanding

variety of subject matter. The “right to perform, ” for example, was first granted in 1856

for dramatic compositions, 15 and in 1897 was

applied to musical compositions.16 In 1909,

Congress granted musical compositions a “mechanical recording right, "17 at which time the

duration of copyright was also lengthened from

its initial 14 to 28 years,18 and on renewal, to

56 years.19 Finally, in 1976, the term of copyright was extended to the life of the author plus

50 years.20

During this period of statutory expansion,

the judiciary also sought to mark the boundaries of the exclusive right. In the beginning,

the courts confined infringement to literal

word-for-word plagiarism, and seldom assessed

the ostensible similarities between one work

and another. They did not extend copyright

protection to protect what are now known as

“derivative works.”21 A playwright, for example, did not require permission from the author

of a novel to base his play on the novel. Courts

strictly limited infringement to printing the

author’s book without his consent.

. —

‘“A(t of May 31, 1790, ch. 15, 1 Stat. 124.

“Act of Aug. 18, 1856, ch. 169, 11 Stat. 138.

“Act of Jan. 6, 1897, ch. 4, 29 Stat. 481.

‘

7 Act of Mar. 4, 1909, ch. 320, 35 Stat. 1075.

‘

n Ib~d.

“Former Title 17 U.S.C. $24.

‘“Current 17 U.S.C. j302.

“For example, a German translation of the entirety of Uncle Tom Cabin was held not to infringe. Stowe v. Thomas, 23

Fed. Cas. 201, No. 13514 (C. C. E. D. Pa. 1853).
—.—

Ch. 7—New Technologies and the intellectual Property Bargain ● 191

Gradually, however, the courts began to

adopt a broader and more qualitative approach

to the question of similarity.22 They began to

interpret “copying” to mean more than simple duplication and to include mimicking or extensive borrowing within its definition. They

decided whether a defendant had infringed a

plaintiff’s right to print, reprint, publish, or

vend on the basis of an often subjective estimation of what was essential and unique to

a given author’s writing.23 As chapter 3 details,

the courts began to use the concept of “idea”

versus “expression” as the accepted tool of

analysis for determinations of similarity. They

ruled that infringement occurred not only when

an individual printed the writings of another,

but also when one author adopted an expression that was similar to another’s. Courts

found no infringement only when the similarities between works were confined to ideas—

the abstract concepts or themes employed in

the work.

It was Congress however, that, unwittingly

and perhaps accidentally, granted written

works the most far reaching of rights in the

act of 1909. To the exclusive rights of printing, reprinting, publishing, and vending, it

added the right to copy.24 Before then, “copying’ was a right applied only to photographs,

paintings, engravings, and other graphic works:

works that were not ordinarily reproduced

through “printing” or “reprinting.” Although

section 1 of the 1909 act claimed to “retain

without change” the rights granted under prior

22See, for example, the case of Daly v. Palmer, 6 Fed. Cas.

1132, No 3552 (C.C.S.D.N.Y. 1868), in which an escape from

bondage to a train track constituted the sole common theme

between two plays, and the basis of infringement.

“Kaplan, Unhurried View, p. 28.

“The word “copy” was first used in conjunction with the infringement of etchings in an amendment of 1802, ch. 36, ~3,

2, Stat. 171. Again, in an amendment of 1831, copying was a

term applied to the infringement of other than literary works.

See the Revision of 1831, Ch. 16, jj6-7, 4 Stat. 436, In 1870,

when paintings, drawings, chromos, statuettes, and other threedimensional works were added to the growing list of subject

matter, the rights afforded all copyrighted works were ag-

~egated under one section ($86), but the activities constituting infringing conduct were separated so that “copy” applied

to works other than maps, books, and charts. Revision of 1870,

ch. 230, \ \99-100, 16 Stat. 198. In the general revision of 1909,

infringing conduct was not defined, and “copy” was retained

as a right applying to all works.

law,25 it nevertheless extended the right to copy

to a new subject matter.26

This seemingly trivial change in the wording of the law would have far-reaching consequences. The change meant that “copyright

proprietors, without seeking it and apparently

quite by accident, acquired at least the semblance of a right of an activity that was to have

increasing importance in the new century. “27

For the ambiguity of the word “copy” subsequently endowed proprietors with rights, not

only against commercial piracy, but also

against noncommercial personal or private

use.28 To some, this expansion of copyright law

is at odds with the traditional intention of copyright. Commenting on the issue of photocopying, Francis Nevins, a copyright scholar, notes

that:

. . . [copyright is intended to govern relations

between the creator of a work and all those

business people who intervene between the

creator and the work’s ultimate consumers.

It is not intended to control non-commercial

————— 25H.R. Rep. No. 2222, 60th Cong., 2d sess. 4 (1909).

‘

bThus, the redundancy of the terms “print, reprint, and

copy” was noted years later in a Report of the Registrar of

Copyrights on the General Revision of the U.S. Copyright Law,

87th Cong., 1st sess., 1961. Although the verbs “copy” and

‘‘print are nowhere defined in the law, Webster offers a definition of print most clearly fitting the context of authorship and

publication: “to publish in print. ” This defintion would make

sense of phrases such as “out of print. ” “Copy” is described

as a synonym for “imitate, mimic, ape, mock. ”

“L. Ray Patterson, “Copyright, Congress and Technology:

The Public Record ’” —Book Review, 34 Vanderbilt Law Review,

833 (1981), n.30; see also Vernon Clapp, Cop.vright —A Librarian View (1968),

“The dubious pedigree of the right to copy was later recognized in the watershed case of Williams & Wilkins Company

v. United States, 487 F.2d 1345, 1351 (Ct. Cl. 1973), aff’d, 420

U.S. 376 (1975), which stated that “ ‘copy’ is not to be taken

in its full literal sweep, thus raising ‘‘a solid doubt whether

and how far ‘copy’ applies to books and journals. In this case,

publishers of medical journals sued the United States for the

copying activities of the National Libraries of Medicine and National Institutes of Health, which, in a split decision, the Court

of Claims determined to be fair use. Professor Nimmer notes

the ambiguity regarding “copy,” and says that the confusion

is no longer present ‘‘since under the 1976 act the term ‘copy’

clearly includes a photocopy (citing Section 101 of the Act which

defines “copies’’ ).” Nimmer on Cop~”ght j13.05[Ej (]984). HOWever, the definition to which Professor Nimmer alludes is of the

noun form—i.e., “the tangible object’ ’–while the ambiguity

noted in Williams & Wilkins revolves around the meaning and

application of the verb form—i.e., whether the activity of copying is one in which the copyright owner holds a right.
192 ● Intellectual Property Rights in an Age of Electronics and Information

use of copyrighted works nor to permit lawsuits against non-commercial users. 29

At a critical juncture in the emergence of new

technologies such as the photocopier and the

tape recorder, the vagaries of copyright law

may have yielded a fundamental change in the

bargain between the proprietor and the public. A literal interpretation of the right to copy

transformed copyright from the right to control the use of copyright for commercial profit

(vis-à-vis competing publishers) to the right

to control the copyrighted work itself (vis-àvis the user of the copyrighted work) .30 Ironically, proprietors’ control over the copyrighted

work emerged at same time as technology was

perfecting methods of denying them that control—the photocopier and the tape recorder.

This distinction between control over a copyright and control over a copyrighted work is

critical. If copyright is essentially the right to

commercially exploit an intellectual creation,

then it is a form of regulation designed to ensure that only an author will be allowed to sell

his work to the public. It also means that end

users of the work are free to copy, store, manipulate, and share copies that they have purchased. If, on the other hand, copyright is a

right to control how a work is used, then it is

a form of property; a bundle of rights that follows each and every copy of a book, record,

or computer program. Under this theory, proprietors have rights to profit from the uses to

which the work is put.31

“Francis M. Nevins, Jr., “University Photocopying and

Fair Use: An American Perspective, ” 8 European lntellectual

Property Review 222 (1985) (italicx added). Support for this notion of copyright as an essentially commercial right can also

be found in Supreme Court opinions:

An author who possesses an unlimited copyright may preclude

others from copying his creation for commercial purposes without permission. . Congress may guarantee to authors and inventors a reward in the form of control over the sale or commercial use of copies of their works.

GoMs.tein v. California, 412 U.S. 546,555 (1973) (italics added).

“’Note that this is different than the distinction made in

Section 202 of the Copyright Law between the work and the copy.

“Today, rights to these uses is confined to reproducing, deriving, publically performing or displaying, and distributing the

copyrighted work. 17 U.S.C. j 106. Other rights to uses of a work

have been proposed, such as rights to royalties on library lending.

The theory of copyright as property is the

source of much confusion and conflict over

copyright law. It provides the basis for saying that copyright proprietors have a problem

of enforcing unauthorized uses, such as home

videotaping (see ch. 4). If copyright is a public

policy tool, directed toward regulating competitors in the marketplace, rights to these uses

do not exist. Nor do problems of enforcing

them. Also, as new uses for copyrighted works

are bred by technology (see later in this chapter), conflicts arise over who benefits from

these new uses. Again, if copyright is construed as a right to commercialize one’s creation, rather than a property right in each copy

of that creation, the benefits of new technologies will go to the public.

The central question that Congress needs to

address is whether copyright shall be considered property or regulation. If Congress were

to resolve the question, clear guidelines on the

legality of the “private use”32 of copyrighted

works might be possible. So far, however, Congress has not given a clear statement of the

nature and purpose of copyright. When it enacted the latest revision of the copyright law

in 1976, Congress folded the exclusive rights

to print, reprint, and copy into the right “to

reproduce the copyrighted work in copies. ’33

Ambiguities remain, however, about whether

this and other exclusive rights are proprietary

or regulatory in nature, and therefore, whether

they apply to private use activities. The House

Committee Report that accompanies the act

sheds little light on the question, but suggests

that at least the right to reproduce copies is

directed at commercial printing and publishing activities, and is therefore regulatory .34 Significantly, no court has yet held private use

to be an infringement, which also suggests that

32Private use is defined and discussed in greater detail in

the next section.

“17 U.S.C. § 106(1).

“11.R. Report No. 94-1476 says that:

A single act of infringement may violate all of these rights

(under $106) at once, as where a publisher reproduces, adapts,

and sells copies of a person’s copyrighted work as part of a pubhshing venture. Infringement takes place when any of the rights

is violated: where, for example, a printer reproduces copies without selling them or a retailer sells copies of a person’s copyrighted

work as part of a publishing venture.
Ch. 7—New Technologies and the Intellectual Property Bargain ● 193

— —

copyright is regulatory and not meant to prohibit copying by end users of a work.35 The “Betamax” decision, in which the Supreme Court

ruled that videotaping for purposes of "timeshifting’ is legal, left the question of private

use open. The status of rights in sound recordings are also ambiguous. Although the House

Report accompanying the 1971 recording rights

amendment says that “private copying’ is excluded from the act,36 advocates of the record-

— . —

The U’illiams & WilJc~rIs case seems to be the closest that

courts have come to deciding the issue of pri~’ate use. That

case— which decided that the substantial and systematic copying and distribution of journal articles by two governmental

institutions was fair use— has little resemblance to the pritrate

use concerns of the record, software, and motion picture industries. The case was heard by a total of 16 judges, and was split

/3 to 8 on the issue of infringement. In dicta, S0%’1’ Corp. }’.

Universal Cit.v Studios. 464 U.S. 417 (1 984), the Supreme Court

has said that:

., [e]ven copying for noncommercial purposes may impair the

copvright hol(iers ah iljt} [ o oht ain the rewards that Congress

intended him to havcj

But, the status of such pri~ate use was further obscured in the

next sentences:

Hut a use that has no d(.mon~trahle effect upon the potential

market for, or the \alue of, the copyrighted work need not be

prohibited in order to protect the author’s incentive to create

The prwhihition of ~uch noncommercial uses would mere]; inhihlt access to Ideas without an} countervailing benefit.

The issue of private use, as a class of uses to which cop~righted

works majr be put, remains unresolved.

“ H.1{. Rep. No. 92-487, 92d Cong., 1st sess. 2 ( 1971) reads:

ing and electronics industries disagree over

whether these comments apply to the 1976 revision. Proposed legislation, which would provide for “royalties’ on blank tape,37 and exemptions for home-taping activities” are all

predicated on the resolution of this policy issue, which existed since the time the photocopier was introduced over 20 years ago.

The issue of whether copyright is regulatory

and governs only commercial entrepreneurs,

or whether it is proprietary and controls the

ultimate users of copyrighted works is still unsettled. A definitive answer will require congressional action. Whether, in deciding the issue, Congress wants to strike a new bargain

will depend on a number of criteria, four of

which are considered in the next part of this

chapter.

Specifically, it is not the intent ion of theC’ommittee to restrain

the home recording, from broadcasts or from tapes or records,

of recorded performances, where the home recording is for private use and with not purpose of reproducing or otherwise

capitalizing on it This practice is common and unres[ralned

today, and the record produc~rs and performers would be in no

different position from that of the owners of copyright in

recorded musical composition o~’er the past 20 y ears.

‘“S.31 and H.R. 1030 (Sen. N!athias and Rep. Don Edwards),

9t3th Cong., 1st sess.

%. 175 and H.R. 175 (Sen. DeConcini and Rep. Fole~r), 98Lh

Cong., 1st sess.

THE INTELLECTUAL PROPERTY BARGAIN

IN A NEW TECHNOLOGICAL CONTEXT

Technology is transferring activities such as what conditions. Whether copyright should exprinting, publishing, reproducing, and modi- tend to private use depends, in turn, on a numfying works from the commercial entrepreneur ber of criteria, including whether it causes

to the end user. As a result, policy questions harm to copyright proprietors, whether it

are emerging about whether and how the copy- would be economically efficient to extend

right proprietor is to be remunerated for end rights, whether political support for an extenuser, or private use, activities. The private use sion of rights exists, and whether access to inof copyrighted works raises questions of how formation can be ensured.

far the rights currently granted to the copyright proprietor should extend when new tech- Private Use

nologies change the context in which these

rights operate. Because copyright law does not Private use of copyrighted works differs

clearly extend to private use, Congress needs from commercial piracy in several ways. Prito consider whether it should, and if so, under vate use is private, meaning that it is difficult,
194 ● Intellectual Property Rights in an Age of Electronics and Information

if not impossible, to detect, monitor, and control the use.39 Unlike commercial piracy, private use is not a commercial activity. The person who makes a copy of a television program

or a magazine article does not ordinarily attempt to sell that copy. He is typically an end

user of the information, and as such, does not

compete commercially with the proprietor.

However, as is discussed below, the aggregate

economic effect of individuals’ private use may

be equivalent to what might occur with commercial piracy.

For puposes of this discussion we shall define private use as the unauthorized, uncompensated, noncommercial, and noncompetitive

use of a copyrighted work by an individual who

is a purchaser or user of that work.40 The "time

shifting” videotaping involved in Sony Corp.

v. Universal City Studios,41 the home recording of a piece of music, the copying of a magazine, a newspaper article, or a computer program might all be considered instances of

private use. Private use may be occasional or

insubstantial-as when a cartoon is photocopied (possibly infringing reproduction rights)

and posted on an office door (possibly infringing display rights) -or it can be systematic and

substantial-as when music “libraries” are

built on blank tape (possibly infringing reproduction rights) and shared amongst friends

(possibly infringing distribution rights) .42

Technology has fostered private use, and it

will continue to expand individuals’ capabilities to make private use of copyrighted materials. With each new application of technology,

“The difficulties of enforcing private use activities is discussed in ch. 6 on enforcement.

‘“See Anne Branscomb, The Accommodation of Intellectual

Property Law to the Introduction of New Technologies, OTA

contract re ort, December 1984, discussed under the term” r- P sonal use. ’ It should be noted that “unauthorized” here roes

not mean “illegal’’ -it means without consent. “Noncompetitive” means that the fruits of private use are not sold commercially. Private use is also referred to as “

p

rsona.1 use, ” “private co in , “ “noncommercial use, ” an “home use. ”

4’SO{~ (%orp. v. Universal City Studios, 464 U.S. 417

(1984).

“The literal application of Section 106 of Title 17 would,

subject to the application of fair use or exemptions, make any

reproduction, derivation, dissemination, performance or display,

regardless of its context, an infringement. It may well be that

the new wave of technological uses, urdike the technolo “es of

reprography and reproduction, would implicate each o these ?

rights.

new forms of private use will occur. At present,

these uses principally involve the copyright

proprietor’s right to reproduce the copyrighted

work.43 The photocopier and the audio and

videocassette player, for example, each enable

users to reproduce information, and perhaps

infringe the proprietor’s reproduction right. As

more information becomes distributed electronically and downloaded over networks, the

issue of private use involving reproduction

may become more complex. In the age of print,

for example, a person could purchase a book,

and read and re-read it as often as he pleased.

When accessing information over a network,

however, a person may need to reproduce a

work tore-use it. Thus, conflicts may arise between proprietors and users requiring a policy decision about the rights people have in

information they have purchased.

Private use involving reproduction rights

may be only the beginning of private use issues. As inexpensive home computers become

more prevalent, and as more information is

stored in computer processible media,44 the

proprietor’s exclusive right to make derivative

works may become an equally important issue.45 The extreme manipulability of digitally

mediated information will allow individuals to

reconstruct, enhance, and modify information

to suit their taste or needs. This is already possible with computer programs, and may soon

be feasible for music, video, and text. In the

future, a user might enter the digital version

of a song—perhaps stored in a medium similar to today’s compact disk-into the memory

of his computer. Once in the computer, he could

subject the song to any number of modifications: he may take the vocals out and substitute them with his own; he may vary the pitch,

rhythm, and melody; or he may add instruments. The issue will then be whether the copyright proprietor has the exclusive right to provide users with modified versions of his work.

Just as today’s audiotaping potentially harms

proprietors by displacing a sale (see below), so

too might proprietors say that user derivation

of their works deprives them of potential sales.

4“17 U.S.C. §106(1). 44 See ch. 4 on enforcement.

“17 U.S.C. §§ lOl, 106(2).
—.

Ch. 7—New Technologies and the Intellectual Property Bargain ● 195

As computer networks proliferate, private

use may assume other forms, and create issues

involving the proprietor’s exclusive rights to

distribute, perform, or display the copyrighted

work. 46 If, for example, a user in a computer

network sends copyrighted information to another network user, has he infringed the proprietor’s right to distribute the work? If policymakers or the courts liken this sharing over

networks to sending a book to a friend through

the mail, they will find no infringement of copyright, and hence no issue of private use. If, instead, they compare it to a person photocopying and sending a book to a friend, they may

find that the proprietor’s copyright has been

infringed. Whether private use is considered

an illegal activity will often depend on the analogies that policy makers use.

New methods of distributing information,

such as Cable Television, Satellite MasterAntenna Television (SMATV), Multichannel

Multipoint Distribution Service (MMDS), and

Direct Broadcast Satellites (DBS), augment the

technologies for private use and exacerbate existing tensions with respect to it.47 In many

cases, the communication issues created by the

new distribution technologies are very similar to copyright issues involving private use.

The case of DBS and “satellite viewing

rights’ is one example. A recently enacted law

allows people to sell and own receiving equipment, such as dish antennae, but requires them

to pay a “reasonable” fee to program owners

if a marketing system for collecting such fees

has been set up.48 Although ostensibly a communications law, this prohibition of unauthorized reception is bound up with intellectual

property issues, including private use.49 As

“17 U.S.C. § 106(3),(4), (5).

‘

-Although these communication technologies are presently

used primarily for television, their application need not be so

limited. Telephone signals, videotext, teletext, and data transmissions may eventually be routed through cable and satellite

systems. Trudy Bell, “The New Television: Looking Behind the

Tube,” IEEE Spectrum, September 1984.

‘“Section 705 of the Communications Act (Section 5 of the

Communications Policy Act).

“’Unauthorized reception of signals by an individual infringes none of the rights of the copyright holder. SMATV, which

ties many receivers to a master antenna, may infringe the right

to perform.

with activities such as home taping, the proprietors of DBS programming assert that the unauthorized and unremunerated reception of signals deprives them of revenue. Cable Television

operators, who are the intended recipients of

many of these satellite signals, also assert that

unauthorized reception undermines their subscription system. Like private use, the satellite viewing rights issue also involves the

balancing of compensation to proprietors with

public access to the signals.50 Like private use,

unauthorized reception is difficult to monitor

and prove, and detection may raise privacy

problems. 51 Because of these similarities, much

of the following analysis of private use applies

with equal force to unauthorized reception.

Private Use as Fair Use

Fair use is a judicially developed doctrine,

which originated in 1841 in the case of Folsom

v. Marsh.52 Its purpose, like that of the copyright itself, is to benefit the public by facilitating the access to and dissemination of works.

It is a “safety valve” for cases in which copyright law does not serve the public interest.53

In other words, fair use concerns those uses

of a work that would be technically infringing,

but for the fact that they themselves further

the promotion of science and useful arts.

Fair use is not subject to precise definition.

Which uses are fair will often depend on the

particular circumstances of a case. For this reason, fair use is often called an “equitable rule

of reason. ’54 Although Congress codified the

-.—.—-——-

‘

(

’S.1618 (Sen. Gore), “Satellite Viewing Rights Act of

1985, ” for example, seeks to ensure access by limiting broadcaster discretion over distribution, pricing, price discrimination,

and decoder availability.

“’’Short of Staking Out the Farmhouse, How Can Program

Owners Prove That a Farmer Ripped Them Off? Answer: They

Probably Can’t. ” Forbes, Nov. 5, 1984. See also ch. 4 on enforcement.

529 Fed. Cas. 342,246, No. 4,901 (C.C.D. Mass. 1841).

“In some cases, “courts in passing upon particular claims

of infringement must occasionally subordinate the copyright

holder’s interest in a maximum financial return to the greater

public interest in the development of art, science and industry. ”

13erlik v. E.C. Puln%mtions, Inc., 329 F.2d 541,544 (2d Cir. 1964).

“41 7 U.S.C. j 107; “Indeed, since the doctrine is an equitable

rule of reason, no generally applicable defintion is possible, and

each case raising the question must be decided on its own facts. ”

H.R. Rep. No. 94-1476 (1975).
196 ● Intellectual Property Rights in an Age of Electronics and Information

.- ——

doctrine in the 1976 Copyright Act, it preferred

not to define the term, and instead delegated

its interpretation to the courts. Even the type

of ‘use” that falls under the term ‘fair’ in the

statute was left unspecified by Congress, but

a House Report says that such uses would “include” reproduction.55

Fair use is not, however, a tabula rasa. It

is a defense to a claim of infringement that,

if successful, negates a finding of infringement.56 Section 107 of the 1976 Copyright Act

lists four factors that courts may consider in

deciding whether a particular use is fair:

1. the purpose and character of the use, including whether such use is of a commercial

nature or is for nonprofit educational

purposes;

2. the nature of the copyrighted work;

3. the amount and substantiality of the portion used in relation to the copyrighted

work as a whole; and

4. the effect of the use upon the potential market for or the value of the copyrighted

work. 57

Although the fair use factors are neither exhaustive nor determinative of the “fairness”

of a particular use, they are nevertheless used

by courts to balance the competing claims of

learning and economic incentive. Judicial history is replete with interpretations of the fair

use factors, and the types of activities that can

be labeled fair use are well charted. The fair

use doctrine has proven most difficult and controversial in cases of first impression, where

the court must proceed with little or no guidance from prior rulings.

Despite its usefulness as a safety valve for

copyright protection, the fair use doctrine may

be an inappropriate mechanism for resolving

the private use issue for a variety of reasons.

First, and perhaps most important, the application of the fair use doctrine presupposes infringing conduct. Although legal scholars disagree about whether fair use excuses or negates

55Id. Arguably, fair use comes into play anytime there is an

allegation of infringement of any of the exclusive rights in § 106

of Title 17.

‘hSee n. 58.

‘“17 U.s.c. §107.

a claim of infringement, it is clear that the defense of fair use is only relevant where infringement is alleged.58 For instance, one need not

claim that sharing a book with a friend is fair

use, because sharing books is not infringing

conduct under copyright law. Since neither the

courts nor Congress has unequivocally determined that private use constitutes an infringement, the application of the fair use doctrine

to private use may be premature.

Secondly, fair use is a tool used by the judiciary to resolve competing claims over the use

of copyrighted works. However, the judiciary

may be an inappropriate forum for addressing the private use issue. Private use is essentially a policy issue. It involves a determination of whether whole classes of activities, such

as audio or video taping, should be considered

infringements. It requires, moreover, an evaluation of who shall benefit, and how, from new

technological uses, and whether copyright protection should extend beyond protecting commercial activities to protecting profits in markets that did not exist before the introduction

of new technologies. However, the function of

courts is not to make policy, but to interpret

law. In recognition of this point, the Supreme

Court stated in Sony v. Universal Studios, “it

is not our job to apply laws that have not been

written. ’59

— — —

““Professor Nimmer seems to favor the latter interpretation

(despite a substantial similarity of works, “the defendant is rendered immune from liability because the particular use which

he has made of the plaintiff’s material is a ‘fair use. ’ “ Nimmer

on Copyright, § 13.05 (1985)); as does Professor Goldstein (“[t]he

effect of the fair use defense is to excuse otherwise infringing

conduct in circumstances where the public interest compels free

access “ Goldstein, “Copyright and the First Amendment, 70

Columbia Law Review 1011 (1970)). Messers Kaplan (“policy

runs throughout our subject . . . it would, I think, be possible

to dispense with it (fair use) in relation to (infringement). ”

Kaplan, An Unhurried View of Copyright (New York and London: Columbia University Press, 1967), pp. 69-70 and Seltzer

(“[f]air use. . . has to do with whether a particular cost-free use

is one both foreseen by the author and contemplated by the

Constitution.” Seltzer, Exemptions and Fair Use in Copyright,

(Cambridge and London: Harvard University Press, 1978), p.

29 seem to favor the former. For purposes of this discussion,

the matter may be academic, since the fair use defense arises

only in cases where a claim of infringement is made.

“Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984).

For a discussion of the institutional reasons why the courts may

not be best suited to deal with these issue, see ch. 9.
—

Ch. 7—New Technologies and the Intellectual Property Bargain ● 197

. —— . . .

Moreover, because fair use evolved in a commercial context, the fair use doctrine may simply be inapplicable to private use activities.

Traditionally, fair use has been limited to cases

in which a copyrighted work was used in the

production of yet another work.60 The use of

a work for its own sake-for intrinsic purposes–has traditionally fallen outside of the

fair use doctrine. The reason for this interpretation had to do with the very purpose of copyright: the promotion of learning. 61 Without

some “give” in the exclusive rights of an

author to his or her work, other authors might

be thwarted in their ability to make contributions to the public good by way of “criticism,

comment, news reporting, teaching, scholarship or research."62 Fair use, then, does not

shield every ostensibly infringing use of a

work, only those justified by the very purpose

of copyright itself.

Fair use evolved in the context of print era

technologies, and was designed to resolve the

tensions between an author and others making use of his work. Typically, the doctrine was

invoked by an author who wanted to use portions of another’s work. Thus, it was aimed

primarily at the resolution of tensions between

copyright interests, broadly construed to include those activities for the promotion of

learning. The emergence of reprographic technology, however, created a new and uncertain

context for fair use. For the first time, it was

end users and not competing authors who invoked the doctrine, seeking to use material for

its intrinsic purposes.63 Thus, fair use was

— —— - ——— ——

“ Fair use “has always had to do with the use by a second

author of a first author’s work. Leon Seltzer, Exemptions and

Fair Use in Copvright, p. 24. This principle, termed “producti~’e use” by the Circuit Court in Universal Cittiv Studios, Inc.

~’. Son.}’ Corp., 659 F.2d 963 (9th Cir. 1981 ), rev ‘d, 464 U.S. 417

( 1984)104 S. Ct. 774 ( 1984), was rejected as a sole criterion by

the Supreme Court majority in the Son-v case, but the rejection

has no support in prior case law. Indeed, in a study prepared

by Alan I,atman for the Senate Committee on the Judiciary,

Copyright I.aw Revision, Subcommittee on Patents, Trademarks, and Copyrights. 86th Cong., 2d sess., 1 (1960), not a

case was found upholding the fair use defense in the instance

of intrinsic, private use.

‘‘ See: Patterson, Cop.vright and .Vew Technolog~’: The Impact on the Law of PrivacLv, .4ntitrust, and Free Speech, OTA

contract report, 1985.

‘-17 U.s. c. $107.

‘‘\{’illiams & W’ilkins Co, F’. United States, 487 F.2d 1345

(Ct. Cl. 1973), aff’d, 420 IJ.S. 376 (1975).

called on to resolve extra-copyright claims between proprietors and end users.

To decide the issue of reprography, the courts

drew an analogy between photocopying and

making a handwritten copy of the work for private consumption. Photocopying was regarded

as merely a more efficient way of doing the

same thing as hand copying, and as such, was

not considered to be an infringement.64 Although similar in principle, the analogy between hand and photocopying soon breaks

down, however. For, precisely because photocopying is more efficient than hand copying,

its potential to cause economic harm is much

greater. 65 This is the problem of harm in the

aggregate, a problem that becomes more

troublesome as technology continues to improve the efficiency of private copying.

In addressing the private use issue to which

the new technologies give rise, the fair use doctrine, as we have seen, is of limited value. Instead, policy makers will need to decide the issues on the basis of value judgments about who

should benefit from the new uses that technology creates—proprietors or private users. The

four criteria discussed below may serve as the

basis for such a discussion.

1. The Criterion of Economic Harm

Within the copyright community, many people argue that private use damages the copyright proprietor economically by displacing potential sales and thus profits. This argument,

founded on an interpretation of existing law

and on economic analyses of harm, presup-

. —

“The legal status of hand-copying for personal use is not

known. Nimmer reports that “[t]here is no reported case on the

question of whether a single handwritten copy of all or substantially all of a book or other protected work made fort he copier’s

own private use is an infringement or fair use, ” ,Vimmer on Cop> Tright j 13.05[E], but the ~~illiams and llllkins case states that

,,

. . . it is almost unanimously accepted that a scholar can make

a handwritten copy of an entire copyrighted article for his own

use. . . “ 487 F.2d at p. 1350. “[A]nyway,” says Professor

Kaplan, ” it was a question no one would be interested to litigate,’” op. cit. p. 68.

“’’Few people hand copy, but millions find machine copying

economical and convenient. . . .(the argument) fails to take into

account the true economic effect when thousands of individual

decisions are aggregated. ‘“ “New Technology and the Law of

Copyright, ” 15 U. C.1..A. Law Review 931, 951 (1968). Whether

such deleterious economic effects exist is uncertain (see ch. 4).
198 • Intellectual Property Rights in an Age of Electronics and Information

poses the existence of a right to profit on private use.66 Such a right, however, does not

clearly exist. Instead, policymaker have yet

decide to what uses the proprietors’ exclusive

rights should extend. In doing so, they may

want to take the economic consequences of private use into account. They should also note

that assertions that private use causes economic damages presupposes the transgression

of a legal right, and cannot, therefore, be the

foundation of that right.

One of the difficulties of using economic

harm as a criterion for determining the issue

of private use is that the economic consequences of new technological uses vary significantly according to the type of use, the type

of work, and the marketing adaptations that

copyright proprietors make to accommodate

that use. Moreover, technologies that permit

copying can either harm or benefit both proprietors and users, depending on several empirically determined factors: the costs of production and distribution, the behavior of producers

and consumers in the absence of unauthorized

copying, and the effects of copying on subsequent purchasing behavior. Using harm as a

criterion for determining rights in new technological uses would require, therefore, the

compilation and analysis of a significant amount

of information.

It is not surprising, therefore, that not all

of those involved in the intellectual property

debate agree that harm should be used as a

basis to determine rights. David Ladd, a former Register of Copyrights, for example, argues

that to require a showing of harm in order to

secure protection would inevitably prejudice

the interests of proprietors, since such a showing is difficult in any event, and it assumes

that a neutral observer could determine what

“fair” compensation is for new technological

uses.67 Others, however, suggest that a heavy

‘Notwithstanding those uses which are fair uses, or which

are exempt or not covered by the act.

“Mr. David Ladd, from a speech, “Seven Years of the New

Copyright Act, ” sponsored by the American Bar Association

Forum Committee on the Entertainent and Sports Industries,

Section on Patent, Trademark and Copyright Law, Washington, DC, Oct. 26-27, 1984. Some have also argued that since

Section 504(c) of the Copyright Act permits a court to, in its

burden of proof for extending rights to new

areas and showing harm should lie on those

seeking proprietary rights. David Lange would

have the proponent of a new right prove not

only that it would make him more secure economically, but that the public domain would

ultimately be enhanced by the extension of existing or new rights to the new uses.68 The Supreme Court, in Sony Corp. v. Universal City

Studios, proposes yet a different standard:

. . . [a] challenge to a non-commercial use of a

copyrighted work requires proof either that

the particular use is harmful, or that if it

should become widespread, it would adversely

affect the potential market for the copyrighted

work.69

The use of harm as a criterion is made even

more difficult by the fact that the concept has

no clear qualitative definition. Rights define

harm. Where there is no right, there may be

economic consequences, but not harm. If, for

example, a person wished to charge money

every time his name was uttered in public, he

would need a right to do so. If his claim to

remuneration went uncompensated, he might

be said to suffer economic consequences (he

would not receive money), but in lieu of a right

to receive money, one would hesitate to say

he had been harmed. Harm to intellectual property owners therefore hinges on how policymakers define the proprietors’ rights, but new

technologies have made the application of

rights to new contexts ambiguous.

Notwithstanding these difficulties, OTA

found that a calculation of harm is unavoidable in instances where new technology rearranges the relationships between proprietors

and the public. Because intellectual property

— —

discretion, award statutory damages in lieu of actual damages

for willful infringement, the issue of harm is irrelevant to infringement. This argument, however, is not entirely germane

to the policy issue of whether a right should be granted or extended in the first place, and assumes that a fair use defense

is unsuccessful.

‘Statement of Professor David Lange, Duke University

School of Law, Hearings Before the Subcommittee on Courts,

Civil Liberties, and the Administration of Justice of the Committee on the Judiciary, House of Representatives, 98th Cong.,

1st sess., July 20 and 21, 1983.

“Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984).
Ch. 7—New Technologies and the Intellectual Property Bargain ● 199

law itself serves to compensate for market failure in the production or dissemination of a public good,70 and because the allocation and

strength of rights determines who and what

will be compensated, the question of harm cannot be dispensed with.71 Moreover, in the absence of clearly defined rights to new uses,72

it is still possible to distinguish between at

least two different types of claims to harm in

intellectual property: actual harm and potential harm.

Actual harm occurs when there is a reduction in the profits of the producer below their

level prior to a new unauthorized use.73 Actual

harm does not occur, however, if the unauthorized use leaves profits from all previous uses

unaffected. 74 The criterion of actual harm looks

to whether new uses made available by technology compete with proprietors’ preexisting

economic interests. For example:

Ž if a commercial broadcaster’s programs

are taped off-air by a viewer, and the

broadcaster’s advertising revenues from

that program do not decline, the broadcaster has suffered no actual harm;75

• if a radio broadcaster or cable company

transmits a long-playing album to an audience, and the audience avoids purchas-

“’For a discussion of market failure, see ch. 6.

“Moreover, copyright law–through the vehicle of the Copyright Royalty Tribunal—is already determining what constitutes a “fair return’ to creators and ‘‘fair income’ to users under two of the compulsory licensing provisions of the act. 17

U.S.C. \801(b)(l)(A), governing the objectives of rates under

Sections 115 and 116. In addition, bills submitted in the 98th

Congress (S.31 and H. R.103O), which deal indirectly with the

issue of private use by imposing a‘ ‘compulsory license’ on purchasers of video and audio equipment and tape, would have an

arbitration board determine “the projected impact of home video

recording on copyright owners. The ‘compulsory license’ created by these bills differs from any previous compulsory license.

Formerly, compulsory licenses were imposed on the copyright

owner for the benefit of competitors; the bills would impose a

compulsory license on the user for the benefit of the copyright

owner. Patterson, Copyright and New Technologies.

‘iThe analysis of harm that follows is, in other words, based

on the assumption that the proprietor’s exclusive rights under

$106 of Title 17 do not clearly apply to private use.

‘iBesen, op. cit., p. 46.

‘“Ibid.

“$Even though the copyright holder’s right to reproduce the

work may have been infringed.

•

●

●

ing the album by taping it off-air, the

proprietor has suffered actual harm;76

if a purchaser of a computer program runs

that program simultaneously on several

machines, no actual harm has occurred;77

if the purchaser of a computer program

modifies the program to run more efficiently, the copyright proprietor of the unmodified program has suffered no actual

harm; 78 and

if a SMATV system is set up in a hotel

to receive commercial broadcasts and distribute them to the hotel rooms, no actual

harm has occurred.79

Actual harm cannot be presumed on the basis of infringement—it is a thoroughly empirical measurement. The same standard of measuring actual harm can be used regardless of

the technology involved: if a new technologically based use causes a reduction in profits

by substituting for previous uses, then actual

harm is present. Causation, however, is not always easy to establish, even with empirical

data available, since mere correlation (e.g.,

declining sales in the presence of a new use)

is not tantamount to causation (e.g., the substitution of a new use for a previous one).

The second type of harm is potential harm,

where harm occurs if the new use reduces profits below the level they would have reached

had the producer been able to exploit the market served without authorization.80 In other

words, potential harm arises where a proprietor could have and would have been able to

supply the product and receive compensation.

Unlike actual harm, potential harm occurs even

if existing markets are unaffected.

—.———.

“’Note that the copyright owner of the sound recording has

no performance right, and a broadcast of sound recordings is

not an infringement, even though the broadcast may be taped.

The end-user’s taping may be an infringement, but this is uncertain.

“Technically, loading programs into several machines may

be an infringement of the reproduction right, but this is uncertain under Section 117 of the Copyright Act.

78The modification of the program is probably an infringement of the proprietor’s right to prepare derivative works, unless allowed by Section 117.

“’This conduct may be in violation of Section 705 of the

Communications Act.

“’Besen, op. cit., p. 46.
200 . Intellectual Property Rights in an Age of Electronics and Information

Claims of potential harm are based on a right

to the new opportunities provided by technology. In a potential harm situation, proprietors

and users have competing claims to the value

of the new use. To the copyright proprietor,

these new opportunities represent new and

profitable markets. To the copyright user, the

opportunities provide enhanced flexibility, widespread availability and inexpensive access.

Arguments based on an analysis of harm presume—and so cannot be the basis of—a proprietary right in the new opportunities for

use.81 Potential harm, therefore, cannot in and

of itself justify the extension of a right. Instead, some other criterion, such as an increase

in efficiency or access (see below), is needed

in order to determine whether to extend a right

to new uses.

Like actual harm situations, potential harm

can take many different forms and appeal to

many different rights:

●

●

●

An unauthorized off-air videotape of a subscription television motion picture is made

by a consumer. The proprietor of the motion picture has suffered potential harm

if the consumer could have and would have

purchased the motion picture from the

proprietor-or if the consumer could have

and would have paid for the right to make

an authorized videotape of the motion picture.82

A computer program designed to run in

BASIC computer language is translated,

without authorization, by a user to run in

FORTRAN. The author of the program

has suffered potential harm if the user

could have and would have purchased a

translated version of the program from the

author.

A user of an on-line database downloads,

without authorization, the entire text of

“’To predicate a proprietary right on a potential harm analysis is circular: X is harmed because X has a right to the new

use and X has a right to the new use because X is harmed.

“’Note that in this scenario, potential harm exists even

though the conduct may be entirely legal.

an article. The user thereafter consults the

article at his leisure. Database articles are

normally paid for on a “pay per use” basis. The proprietor has suffered potential

harm if the user could have and would

have paid for each use.

A television station broadcasts its news

stories and shortly thereafter erases the

videotapes on which they are fixed. A business videotapes the news programs offair, and later sells copies of the tapes to

interested parties. The news program has

suffered no potential harm, since interested parties could not have purchased the

tapes from the television station.83

The criterion of potential harm makes intellectual property rights considerably more powerful than that of actual harm. This added

strength of rights under a theory of potential

harm stems from the fact that the potential

uses to which a work can be put are unlimited

in number and variety. Once the criterion of

potential harm is accepted, its amount is

limited in principle only by the activities covered by intellectual property rights. So long

as a case can be made that a user could have

and would have84 remunerated the proprietor

for the use, all conceivable uses that infringe

a right could be said to cause potential harm.

Potential harm, however, is not an easy case

to make. Empirical studies of the potential

harm done to proprietors all suffer from a basic

methodological shortcoming: they do not clearly

describe the behavior of either consumers or

producers in the absence of private use.85 The

assertion that consumers “would have” purchased an original in the absence of private use

. —

“’See: Duncan v. Pacific and Southern, 744 F.2d 1490 (llth

Cir. 1984), cert. denied, 105 S. Ct. 1867.

“Note that even “would have and could have” suffers from

definitional ambiguity. “Would have” can refer to a subjective

disposition of the user to buy in the absence of an ability to

copy (a most difficult item of proof), or to the collective economic behavior of the market in the absence of copying (it is

the latter of these that Besen uses in his resolution of the problem of indeterminacy (see below)). “Could have” can refer to

either the financial ability of the user to buy in the absence of

copying (calculated either individually or in the aggregate) or

to the availability of an original (problematic in the case of television broadcasts).

“S~e Besen, op. cit.,pp 52-54.
Ch. 7—New Technologies and the Intellectual Property Bargain . 201

depends on what the price of the original would

have been in the absence of private use. But

by the same token, the price of the original cannot be determined until the behavior of consumers in the absence of copying is known, The

harm done to producers by private use is therefore indeterminate.”

The situation is even more complicated when

no copy (i. e., no original tangible object) is

available-as is the case with television and

radio broadcasts, teletext and videotext, and

on-line databases. In these instances, the allegedly infringing copy is often not a substitute for the sale of an original, since the original is seldom sold in copies (i. e., published or

distributed). The copyright holder must then

use other empirical criteria to demonstrate

harm-i. e., the user would have and could have

made further use of, or further access to, the

ephemeral copyrighted work. It should be

noted, moreover, that works disseminated over

electronic media, instead of in copies, also raise

questions of access. This issue is discussed

below.

Most estimates of harm to producers of intellectual property are based on surveys of user

practices, in combination with data on sales

and the costs of production. However, a consideration of the beneficial effects of new technological uses to either new or existing mar-

.——

“’To know what consumer behavior “would have been, ” one

must determine price in the absence of private use; but price

is itself partially depend ant on consumer behavior. A model for

estimating harm that may account for this indeterminacy has

been suggested, but has not yet been used in any empirical study

of harm.

In order to estimate the effect of copying. it is necessary to determine what would have been the situzition if copying had not

occurred. the determination of a counterfactual. The technique is to ‘calibrate’ the model. using data on the number of

copies made per original, the cost of copying, the cost of producing originals, the number of originaIs sold, and the price being

charged for originals m the absence of copying, The intercept

of the demand curve can be determined using data on the price

of originals, the costs of producing originals and copies, and the

number of copies per original. The intercept, together with the

cost of originals, can then be employed to dererrnine (sic; in original) the price of originals that would have prmailed if there were

no cop:ing. With data on the number of originals sold, the estimated intercept of the demand curve, and the number of copies

per original, the slope of the demand curve for originals can be

calculated. Together wit h information on the cost of producing

originals, the market equilibrium that would have existed in the

absence of cop}ing can he estimated.

13esen, op. cit., pp. 54-55.

kets for intellectual property is often absent

from such estimates. Although the videocassette recorder may give rise to copying, it also

permits the exploitation of markets that would

otherwise not exist. Both factors must be taken

into account in considering harm. The policymaker is therefore still left with a decision over

who will benefit from new technological uses,

and for what reasons.

To make such decisions, Congress may itself need to gather timely and accurate data

on harm. Existing surveys vary considerably,

and rapid changes in technologies and use

make previous surveys of harm increasingly

less relevant. Conducted by parties involved

in the intellectual property debate, most of the

surveys that are available are, moreover, subject to bias.

The discrepancies in previous analyses are

clearly illustrated in a sampling of principle

findings of surveys conducted over the last

10 years, listed below. Because these surveys

often focused on a unique product or geographical market, and because each employed different methods of research and presentation, no

attempt has been made to list them in a comparable form.

Survey Sponsor: Recording Industry Association

of America (RIAA)

Year: 1983 {for sales year 1982)

Domain: audiocassette taping

Conducted by: Greenspan

Principal Findings;

● Overall, more than two-fifths of home taping

was in lieu of the purchase of prerecorded

records and tapes, representing lost sales of

approximately 32 percent, or about $1 billion

out of a total of $3.2 billion in actual sales. This

sales displacement is said to have depressed

all record sales by 5 percent, bringing total

losses from home taping to $1.4 billion. In particular, the study found that:

–Approximately 50 percent of taped, borrowed records or tapes ‘‘would have generated” purchases of originals, if no taping had

occurred.

—Forty-two percent of taping from owned

records “would have resulted’ in purchases

of additional records and tapes, if no taping

had occurred.
202 ● Intellectual Property Rights in an Age of Electronics and Information

—Forty percent of all off-air taping “would have

generated” record and tape purchases.

Survey Sponsor: Motion Picture Association of

America (MPAA)

Year: 1983 (for sales year 1982)

Domain: videocassette taping

Conducted by: Battelle Pacific Northwest

Principal Findings:

● Tape-to-tape copying: If no blank videocassettes were sold, the market for prerecorded

videocassettes would approximately double

(by inference, lost sales due to tape-to-tape

copying). Using this figure, lost sales for 1982

would be about 1.1 million units, or about $11

million in royalties (based on a $10 per unit

royalty rate). Projections for 1990, using the

same assumptions, amount to approximately

11.2 million units lost sales, or $112.4 million

in lost royalties

● Off-m-r taping: The survey predicts that

prerecorded videocassette sales would again

approximately double, were there no off-air

taping from television. Using this result, they

estimate royalties lost in 1982 of approximately $26.9 million for commercial television,

and approximately $19,3 million for pay television. Comparable estimates for 1990 are

$273.7 million and $196.7 million, respectively,

for commercial and pay television.

Survey Sponsor: International Federation of Phonogram and Videogram Producers (IFPI)

Year: 1979

Domain: video and audio cassette taping (United

Kingdom)

Conducted by: G. Davies

Principal Findings:

● Audiotaping In 1979, approximately 280 million LPs had been copied. Approximately 25

percent of these copies replace retail sales, resulting in lost sales of approximately $622

million-or the equivalent of 70 percent of the

value of retail sales in 1979.

• Videotaping A‘ ‘tentative estimate’ of losses

to the video industry of $24 million at the retail level, and $9 million to the copyright

holders. (No details of methodology provided.)

Survey Sponsor: British Phonograph Industry

Year: 1973, 1975, 1977

Domain: audiocassette taping (United Kingdom)

Conducted by: Anna, Impey, Morrish & Partners

(AIM)

Principle Findings:

● Loss estimates based on the length of time of

music taped in-home correlated with the LP

equivalent-hours were used. . .

● . . . in combination with a survey of whether

consumers would have purchased if not for

taping. This yielded a loss sales estimate of

between £ 63 and £ 98 million.

● . . . in combination with estimates of the

proportion of blank tape used for home taping and with the above survey. This produced

a loss sales estimate of between £ 90 and

£ 139.5 million.

● . . . a third estimate based on a comparison between actual sales and projected sales (using

data from 1972 to 1974) produced an estimate

of lost sales of £ 85 million.

Survey Sponsor: National Music Publishers Association (NMPA) and Recording Industry Association of America (RIAA)

Year: 1982

Domain: audiocassette taping

Conducted by: Roper Organization

Principle Findings:

● Based on a survey of people who taped at

home from any source, in which the respondents were asked how many records and tapes

they saved buying as a result of taping. The

survey revealed that 90 percent of everything

taped from other than respondents’ own collections would have been purchased if not

taped at home. This translates into 268 million albums and 213 singles. Roper ultimately

accepted a potential sales loss of 14 percent.

Survey Sponsor: Audio Recording Rights Coalition

Year: 1982

Domain: audiocassette taping

Conducted by: Yankelovich, Skelly & White, Inc.

Principal Findings:

● This survey—unlike others—concerned primarily audiocassette taping practices and the

reasons cited for those practices, rather than

estimates of harm done by audio taping.

Among the major findings were:

–Seventy percent of the respondents recorded

primarily to construct their own program

selections, rather than to avoid paying for

prerecorded selections. From 1 to 3 percent

cite cost as the only reason for home taping.

–Seventy-five percent tape for reasons of

portability; 51 percent cite quality; and 57

percent cite convenience.
Ch. 7—New Technologies and the Intellectual Property Bargain • 203

–Fifty-two percent of all audiotaping was of

something other than prerecorded music.

Fifty-one percent of tapes were made from

respondents’s own selections.

–“Heavy tapers” owned approximately three

times as many prerecorded selections (which,

according to the survey, indicates that taping stimulates purchases).

Survey Sponsor: Recording Industry Association

of America (RIAA)

Year: 1983

Domain: audiocassette taping

Conducted by: Audits and Surveys

Principal Findings:

● Americans tape the equivalent of 564 million

albums of music annually, resulting in lost

sales of 325 million albums. Non-copyrighted

materials accounted for 302 million album

equivalents.

• Only 7 percent of retail purchases of prerecorded tapes are stimulated by taping.

● Eighty-four percent of blank tapes are used

to record prerecorded music,

Survey Sponsor: Warner Communications, Inc.

Year: 1981 (1980 Survey Year)

Domain: audiocassette taping

Conducted by: M. Kapp, S. Middlestadt, and M.

Fishbein

Principal Findings:

● A ‘‘conservative estimate’ the total value of

home-taped music is $2858.5 million.

● Seventy-five percent of all blank tapes purchased were ultimately used to record music.

Consumers spent $609 million for blank audio tape for the purpose of recording music or

other professional entertainment

● Twenty-five percent of all home tapers taped

in order to avoid buying prerecorded music.

Survey Sponsor: CBS Records

Year: 1980 (1979-80 Survey Year)

Domain: audiocassette taping

Conducted by: CBS Records Market Research

Principal Findings:

Audiocassette taping costs the prerecorded

music industry 100 million units annually—

or lost sales of $700 to $800 million.

Seventy-five percent of home tapers tape in

order to “customize” tape selections,

Fifty-five percent of home tapers tape in order to save money. Twenty-five percent cite

“better quality” as the reason for taping.

● Forty percent of consumers tape from their

own records or tapes, and 30 percent tape from

borrowed records or tapes. An additional 20

percent tape from radio broadcasts.

Survey Sponsor: The Association of Data Processing Service Organizations (ADAPSO)

Year: 1985 (Survey Year 1984)

Domain: Computer Software

Conducted by: Future Computing, Inc.

Principal Findings:

● Fifty percent of all programs (database programs, spreadsheet/accounting programs, and

word processing programs) are unauthorized

copies. (No distinction made between legal

“backup” copies authorized by 17 U.S.C.

§ 117 and other copies).

● Estimated loss revenues in 1985 were $800

million.

2. The Criterion of Efficiency

Another criterion for determining rights in

private use is that of efficiency: does private

use either hinder or promote an economically

efficient market for particular types of information-based products or services.87 The term

“efficiency” assumes that the welfare of producers and users will both be simultaneously

maximized. It is a relevant criterion, therefore,

because the intellectual property bargain also

assumes that the interests of the public and

the author coincide. Like harm, however, efficiency is hard to determine. Depending on the

particular market for the type of information

that is being produced and on the costs of

transactions in these markets, uncompensated

use may either increase, decrease, or have no

effect on efficiency. The problem of determining efficiency is made more difficult by the fact

that, as the previous chapter points out, information markets are subject to market failures, and our understanding of, and knowledge

about, these markets is still quite limited.

——. .

‘“A market is economically efficient when the cost of producing an additional unit of a good equals the value of that unit

to consumers. An economically efficient market maximizes the

welfare of both the producers and consumers of information,

and allocates resources to their most valued use. These concepts,

as the~’ appl~’ to information markets, are discussed in greater

detail in ch. 6.
204 . Intellectual Property Rights in an Age of Electronics and /formation

Using efficiency as a criterion for allocating

rights, policymakers might extend proprietors

rights to private use so as to allow them to

recover income equal to the value of private

use to consumers. Under ideal market conditions, the producer would then be able to invest this additional income in more information products, and the market would receive

the signal it needs to identify and supply consumer demand. Consumers would also benefit from the resulting increase in productivity

and from a market that was attuned to their

preferences.

In the case of information markets that are

not ideal, however, the criterion of efficiency

is more difficult to apply. Because information

is a public good, it does not operate efficiently

in the marketplace. Hence, it is impossible to

determine precisely at what point rights to private use would maximize the joint welfare of

users and producers.88

The costs of transactions in information impedes efficiency, and thus greatly complicates

this problem. The user’s need to obtain clearance and pay for use, and the producer’s need

to monitor use and obtain payment may offset the actual value of the use to the user, or

the income to the provider. Transactions costs

may be reduced through the formation of

collecting societies (for example, Copyright

Clearance Center), or by compulsory licenses

administered through a governmental or nongovernmental agency (such as The Copyright

Royalty Tribunal). In these arenas, outcomes

often have less to do with efficiency than with

the extent of the resources that stakeholders

can bring to bear.

88For example, if all consumers pay the same rate to download from a database, those who value the use at less than that

price will be unwilling to purchase it. This is inefficient since

there are no additional costs to serving these consumers, At

the same time, consumers who value the use at more than the

market price contribute less to its production and distribution

than its value to them. This, too, is inefficient, because the value

placed on the use by the consumer is not reflected in the price

that he is charged. In the absence of an ability to price discriminate between users based on value, a market based on legal rights to private use is unlikely to be efficient. In other words,

it is impossible to determine whether rights to private use would

simultaneously maximize the welfare of both producers and users

of information.

Determining efficiency in the granting of intellectual property rights will become even

more troublesome as new technologies allow

individuals not just to copy, but to reprocess

information in their homes. In effect, private

use will take the form of derivative use. And,

as in all cases of derivative use, policy makers

will find it difficult to use efficiency as a criterion for determining rights. For they will not

be able to anticipate all future uses to which

a work might be put, or the values that might

be attached to them.

Unable to establish an efficient level of

rights, policy makers may want to leave some

leeway for unremunerated private use. In the

absence of clear evidence to the contrary, flexibility may be the best way to encourage the

greatest variety of works and those that are

best suited to individual needs. In this way,

if they err, it will be on the side of creativity.

3. Access as a Criterion

One criterion that will have to be used in resolving issues surrounding private use is access. This criterion differs from efficiency or

harm in one important respect: the right to access is part of the constitutional bargain. Moreover, unlike the other criteria, access is not

hard to define or measure. Rather, the problem for policymakers in an electronic era is in

establishing rules that will continue to provide

access to information.

Problems of access can arise, for example,

when copyright protection is extended to

information that is communicated through a

means other than publication- e.g., television,

teletext and videotext, and computer networks.

The access problem occurs because electronic

dissemination—unlike printing—does not involve the publication of copies. As a consequence, copyright ownership is transformed

from the right to reproduce a copyrighted work

in copies for sale to the right to control access

to the copyrighted work for any reason.89 Thus,

when copyright is applied to works that are

“’This potential was articulated by L. Ray Patterson, Copyright and New Technology: The Impact of the Law of Privacvv,

Antitrust and Free Speech, OTA contract report, 1984.
Ch. 7—New Technologies and the Intellectual Property Bargain . 205

electronically disseminated, the balance between the rights held by the proprietor and

those retained by the public is changed. This

problem of access can best be seen by contrasting what happens when works are disseminated by print and electronic technology.

Dissemination by Print. Copyright law, from

the Statute of Anne in 1710 to the Copyright

Act of 1976, has adopted the technological paradigm of printing—the distribution of a work

in copies for sale-as its underlying conceptual paradigm. 90 Indeed, until the invention of

radio around 1900 and television in about 1928,

no other form of dissemination was possible;

copyrighted works were always found in printed

copies. 91

Until the Copyright Act of 1976, copyright

protection was conditional on publication. That

is, unless the work was available to the public

in copies, it did not receive statutory copyright

protection. 92 Common law protection was available for unpublished works, but Federal law

required that, if statutory protection was

sought, the author’s discretion over whether

to publish was relinquished.93 The 1976 act

abolished this requirement, replacing it with

the principle of “automatic copyright ‘–that

is, copyright now subsists from the moment

——

“’The Statute of Anne was concerned exclusively with

books, since the printing press was the only “information technology” then in existence. The Statute is prefaced by this phrase:

“An Act for the ~ncouragement of I.earnin~, by Vesting the

Copies of Printed Books in the Authors or Purchasers of such

Copies, during the Times therein mentioned. ” 8 Ame C. 19 (1710)

(underline added). The Statute contemplated that the only

method for distributing information was in books.

The 1909 Act predicated copyright protection on publication

of a work in copies. Former Title 17 U.S. C. 510).

Similarly, the Copyright Act of 1976 contemplates the distribution and publication of a work in copies, 17 U.S.C. \ f 106,

101, and the formal requirements of ❑ otice ($ \ 401-406) and deposit (~407) are also based on publication.

“A copy is the material object in which a work is fixed; it

is, for example, the printed and bound version of the literary

work Grat’ity ‘S Rainbow, or the exposed strip of celluloid in

which the work known as Citizen Kane is fixed. For sound recordings, the material object is referred to as a “phonorecord, ” 17

U.s.c. $101,

“’section 10 of the 1909 act required publication of the work

with notice as a condition of copyright. An exception to this

rule was found in Section 12, concerning works, such as motion

pictures or statuary, which are not normally reproduced for sale

(published), but performed or exhibited in public.

’117 U. SC. ~\2, 10 (repealed).

the work is created and fixed in a tangible

medium.94

Where a work is sold in copies, a proprietor’s

control over these copies (but not the copyright) ceases after they are sold.95 This is known

as the first sale doctrine and it permits a purchaser of a copy of work to lend, sell, or freely

reuse that copy without authorization from the

proprietor. Once a copy enters the public arena,

its presence there is permanent and uncontrolled; determining who sees the copy, for how

long, and under what conditions are not the

prerogatives of the proprietor. Copyright control extends to the first sale of the copy,96 after which efforts to control distribution or price

are prohibited by law. In print publishing, the

proprietor does not control the conduits through

which the public has access to a work—or, if

he does, the control was not based on copyright. Thus, a publisher’s effort to maintain

the retail prices of its books was rejected as

counter to the first sale doctrine.97 Even when

the copyright owner does not exercise his right

to vend the work, and instead licenses its use,

attempts to maintain prices or control performance of work sometimes may run afoul of antitrust laws.98

Under a print system, the legal rights are

also limited to control over the first sale of a

copy. Property rights in the intangible “work,”

such as a literary work, do not extend to the

tangible “thing,” such as a book, in which the

information is embodied. The public access to

a copyrighted work—the number and variety

of conduits through which copies of a work can

be obtained and the ability to use and dispose

of the copy freely—is thus guaranteed under

a print system requiring publication as a con-

‘“Sections 102 and 302 of Title 17. The act also preempted

commonlaw copyright.

“This principle is known as the doctrine of first sale. See:

17 U.S.C. $109 (formerly $27). Under the first sale doctrine, copyright permits no restraints on the alienation of a copy.

‘Former Title 17 U.S.C. $27, the first codification of the

“first sale doctrine. ”

“-Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908); See also:

Scribner v. Straws, 210 U.S. 352 (1908) and !3rzms v. American

Publisher’s Association, 231 U.S. 192 (1913),

“’E.g., Interstate Circuit, Inc. v. United States, 306 U.S.

208 (1939) and United States ~’. Paramount Pictures, Inc., 334

Us. 131 (1947).
206 ● Intellectual Property Rights in an Age of Electronics and Information

dition of protection. The bargain between

author and public is built into the law, and assumes the dissemination of a work in copies.

Electronic Dissemination: A New Copyright

Milieu. While the system of print publication

may to an extent still reflect reality, it has in

recent years been largely superseded by a new

system of dissemination.99 For purposes of this

discussion, we will refer to the new system as

electronic dissemination, 100 and define it as the

transmission of information in the form of electronic signals. Under this system, a work is

communicated, rather than distributed. In

other words, the work is disseminated in an

intangible, rather than tangible, medium.101

Hence, novels and newspapers, which have

traditionally been distributed in print on paper, may now be stored and delivered electronically. 102 The last vestiges of information as a

— . —

‘As Ithiel de Sola Pool observes:

The nonprint media are not just passing the print media (in

terms of the amount of information as measured by the number

of words), but are for the first time showing signs of displacing

them in part.

Ithiel De Sola Pool, 7’echnolo@”es of Freedom, (Cambridge, MA:

Belknap Press, 1983), p.20.

‘

(

”

)The word “dissemination” is used in place of either “distribution” or “publication.” The latter are terms of art having

a unique legal denotation. Under the Copyright Act, ‘ ‘publication” is the distribution of copies or phonorecords of a work,

17 U.S.C. jlOl, and “distribution” occurs by offering copies

or phonorecords of the work for sale or other transfer of ownership, 17 U.S. C. \ 106(3). Both terms are predicated on the notion of a copy–the material object in which the work is fixed.

17 U.s.c. $101.

‘(’’Electronic dissemination can be said to be an intangible

medium for a number of reasons:

1. electrons, electromagnetic waves or photons are transient

(for our purposes these can be considered the same

phenomena); they disappear when their energy stimulus

is turned off. On a high speed telecommunications circuit

they appear and disappear as rapidly as 10 billion times

each second;

2. without a receiving devise of some kind, the transmission

is for all practical purposes, non-existent; and

3. unlike physical media (disks, tapes, film), wire or other transmission does not lend itself to physical controls (such as

a locked box).

From Solomon, “Intellectual Property and the New ComputerBased Media, ” OTA contractor paper, p.8.

‘

(]’The demise of the book has been prophesied for some

time now (See; e.g., C. Overhage, and R. Harmon, Project lntrex (Cambridge, MA: MIT Press, 1965), speculating on the

promising future of microfilm), but despite a growing infrastructure (i.e., the growing popularity of the home computer, the growing availability of online information, and the prospect of the

Integrated Services Digital Network), it is likely that–for certangible “thing” to be bought and sold have

been removed, and it has taken on the attributes of a service.103

Not all technologies for electronic dissemination have the same potential to raise issues

of access. The technologies differ widely in

their format, limitations, and suitability for

use with particular types of information.104

Moreover, technological limitations, consumer

demand, and the economics of production will

variously affect the likelihood that these technologies will replace or augment a traditional

mode of distributing copyrighted works. Other

factors, such as whether the dissemination system is “open’ or “closed, "]05 and prohibitions

on copying or downloading, may also affect the

salience of the access issue. Also, many of the

technologies now being developed are of unknown technological or commercial viability,106

or lack definite application. These uncertainties further obscure the possibility of conclusive statements regarding affect of access concerns on private use.

In general, the technologies of electronic

dissemination can be, or are now used for

communicating copyrighted or copyrightable

works to the public. Each technology makes

it unnecessary to distribute copies. Each also

represents a way of moving information from

place to place that has no clear analog in the

system of print. Electronic dissemination requires a consideration of how copyright principles that apply to it—automatic copyright,107

tain uses, such as temporary storage media—printed information will always be with us. OTA Workshop on Storage Technologies, 1985.

“’’Electronic dissemination is not new, only the copyright

protection of electronically disseminated works. Television and

radio broadcasts have been around since early in the century,

but were not copyrightable until the 1976 act.

‘(’’For present purposes, electronic dissemination technologies comprise television (including broadcast, cable, SMATV,

DES, STV, and others); radio; video and teletext (included, perhaps, under the designation of television); and online services.

‘

(

’’Broadcast television is an example of an open system; pay

television or on-line database services are examples of a closed

system.

“’

hPay-per-View television is a case in point. See: “Here We

Go Again, ” Forbes, Aug. 26, 1985, pp. 108-114.

‘(’’Automatic copyright, endows the proprietor with copyright protection from the moment a work is created, with no

obligation to make the work available to the public—in copies

or otherwise. 17 U.S.C. §102(a).
Ch. 7—New Technologies and the lntellectual Property Bargain . 207

uniform protection,108 and the first sale doctrine 109—affect private use issues.

Because no copies are distributed, electronic

dissemination means that the proprietor must

either monitor or control access in order to be

remunerated. 110 111 In broadcasting, where access to works can be measured but not controlled, advertising has proven a successful

method of paying for the copyrighted work. 112

In other cases, advertising may not be viable

or desirable. In these instances, the communications medium must lend itself to the measurement and control of access, whether by subscription, pay-per-use, or user-identification.

The proprietor is remunerated through control

over access to either the medium (e.g., cable

television) 113 or the work (e.g., on-line databases, and videotext and teletext).114

“All original works of authorship are copyrightable, regardless of how they are disseminated, as long as they are perceptible either directly or with the aid of a machine or device.

17 U.S. C. j102(a). Thus, books disseminated in tangible copies

and books that are distributed in the form of intangible electromagnetic signals receive the same protection. While the copyright holder of the printed book loses control over price, use,

and distribution of the copy once the work is published, the copyright holder of the “electronic” book does not. Performances

and pictures of events transmittedlive are also protected as long

as a tangible copy —e. g., a videotape—is fixed simultaneously

when the signal is transmitted. However, a performance, e.g.,

a news broadcast, does not constitute publication. (It should

be noted that different rights for different kinds of subject matter

are provided in Section 106, and that Section 108 through 118

set subject matter specific limitations on rights).

““’The doctrine of first sale, Title 17 U.S.C. f109, which has

always abbreviated the rights of the copyright holder in the

copy, is largely irrelevant to works disseminated electronically,

since no tangible version of such works is ever sold. Instead,

what is sold is access to the copy in limited slices of time or

quantity.

“’’The copyright proprietor of many television shows, for instance, is also the broadcaster, but need not be—the copyright

proprietor may be the producer, or even the filmmaker. Ultimately, a copyright proprietor must be compensated for proceeds of a broadcast (whether by assignment of performance

or display rights, or license, or royalty).

“The measurement or control of access may take many

forms. In television, for example, it maybe based upon by viewer

penetration rate, as measured by “Nielson Ratings,”’ which is

in turn translated into advertising revenues (as with networkbroadcasts); or it may be based on a set royalty (as is the case

with cable television rebroadcasts); or on a pay-per-use basis

(as with many database services).

“- For a discussion of private alternatives, see ch. 6.

“ ‘Where access to the medium is controlled, the copyright

proprietor is often remunerated indirectly. In cable television,

for example, the copyright proprietor is remunerated (often via

a compulsory license) indirectly on the basis of the cable companies’ ability to control access to the coaxial cable.

114The situation occurs most often in cases in which the

Copyright protection is, however, still useful to proprietors whose works are electronically disseminated. Indeed, the value of copyright to the proprietor may be enhanced, since

he may avoid the consequences of the first sale

doctrine. Consequently, the proprietor can capture payment for more of the value of additional uses of the copyrighted work, and can

price discriminate among buyers, thereby recovering the marginal utility of a work to a

variety of users.115 The proprietor may also

avoid the need for channels of distribution, including shippers, wholesalers, and retailers.

The result may be an overall increase in the

economic efficiency of production and distribution, but may pose problems insofar as the

dissemination of copyrighted works is encumbered with the public interest.

Electronic dissemination creates some very

complex issues with respect to the public interest, and involves the intellectual property

system in other issues, such as communications, antitrust, and freedom of speech. The

very means by which the proprietor secures

remuneration is by controlling dissemination

to the public. The public does not gain access

to copyrighted works by buying or borrowing

published copies, but through the reception of

ephemeral performances or displays, such as

television programs. Because works are never

published, the proprietor need not give up legal control over access. As a consequence, the

public is dependent on the information provider for each and every access made to a work,

and the provider may be the sole source for

the work. Competitive pricing between retailers, and the competition for the copyrighted

work from alternative sources, such as libraries

and “second hand” booksellers is removed.

Situations in which access is controlled by

a proprietor heighten the potential for antiproprietor, assignee, or licenser and the disseminator are one

and the same entity. In such cases, copyright control is direct:

access to the work itself is controlled.

‘

]

’’See: Besen, op. cit., p. 4; and David Waterman, Videocassettes, Videodiscs, and the Role of Theatrical Distribution,

Waterman and Associates, and Annenberg School of Communications, University of Southern California, Mar. 13, 1984, from

a conference on “R-ivalry Among Video Transmission Media:

Assessment and Implications. ” (Harriman, NY: Arden House,

Apr. 13-15, 1984).
208 ● Intellectual Property Rights in an Age of Electronics and Information

competitive behavior, especially where crossownership exists between the medium of communication and the material that is communicated. This potential becomes even more acute

when the copyrighted content is accessed, but

not purchased by the consumer. Since the copyright owner need not lose control over distribution, it can at once be the owner and the sole

source of access to the copyrighted work.116

This combination of content and distribution

is a form of vertical integration, and forms the

junction between copyright policy-which has

traditionally dealt with ownership of content

—and communication policy-which has traditionally dealt with the ownership of carriage.

When communications becomes the necessary condition for access to a work, it is necessary to consider what interrelations exist between carriage and content. In particular, when

control over content and control over carriage

are located in one and the same entity, the

power of copyright becomes closely related to

the number of channels of access to a given

work. Some cross-ownership restrictions117 address themselves primarily to cross-ownership

between the media (telephone and broadcast

television), but do not deal with the mediumcontent issue. The FCC’s Computer I and II,

and most recently, Computer III regulations

are efforts to address the issue of vertical integration through restrictions on the communications industry.118

There may also be first amendment considerations involved in the issue of access. When

—-—

“’There are some indications that the vertical integration of

production and dissemination through cross-ownership is beginning to occur, especially in the cable industry. The motion

picture industry is presently an oligopoly of seven companies

which comprising S5 percent of the market (based on box office

gross]. ~~sjmss ~ee~, Feb. 21, 1983, p. 78. Each major production studio, or its parent, either owns or is involved in joint

ventures in pay-television st~tions. See Ithiel de Sola Pool, 7’ec~-

~oh~”es of Freedom (Cambridge MA: Belknap Press, 1983); and

Who Owns Whom (London: Dun & Bradstreet, 1984). In general, acquisitions and mergers in the information industry hit

a new record in 1984. Information Hotline, vol. 17, No. 5, May

1985, pp. 1, 12.

‘“For example, Section 613 of the recently enacted Cable

Communications Policy Act of 1984 (Title VI of the Communications Act of 1934).

“KSee ch. 6 on information markets for a more thorough discussion of the vertical integration.

no copy of a copyrighted work is available to

the public, the “right to receive information

and ideas"119 may conflict with the right to restrict access based on proprietary discretion. 120

Robust debate requires that information be

available for public inspection and analysis. 121

Fair use may be a way of reconciling conflicts

between private rights and political rights, but

there are important theoretical as well as practical differences between fair use and the first

amendment. 122

5. The Criterion of Public Opinion

Finally, the importance of public opinion in

decisions about intellectual property rights

cannot be overlooked. For the public’s perception of what is fair and equitable is bound up

with questions of legitimacy and enforceability y:

On few points in the longstanding debate

over the “rule of law” is there greater consensus than on the close and necessary relation between societal support for a system of

“’Board~f Education v. Pico, 457 U.S. 853, 867 (1982); Cf.

Stanley v. Geor~”a, 394 U.S. 557, 564 (1969).

“’

)

In Duncan v. Pacific& Southern Co., Inc., 744 F.2d 1490

(1 lth Cir. 1984), cert. denied, 105 S. Ct. 1867 (1985), for example, a defendant to a copyright infringement suit was enjoined

from taping local television newscasts and selling them to interested parties. Despite the fact that the television station

erased tapes of its news programs after they were retained a

week, and the fact that the news clips were sold only to the

subjects of the station’s broadcasts, the court found for the plaintiff. Unlike the recent case of Harper & Row, Inc. v. Nation

Enterprises, S. Ct. No. 83-1632 (citing the Duncan case), the

plaintiff in the Duncan case, per its own admission, was neither

in competition with nor harmed by the defendant news service. I n the Duncan case, ironically, the infringed videotape was

obtained through a customer of the defendant’s.

“’Such was the basis of the defense in the CBS v. Vanderbilt University litigation (Civ. No. 7336 (M.D. Tenn., filed Dec.

21, 1973), a case in which Vanderbilt University was engaged

in copying CBS’s news coverage for archival and educational

purposes. The suit was later dropped when Section 108(b) of

the new copyright law essentially mooted the issue.

“’’’The scope and extent of fair use falls within the discretion of the Congress itself. Fair use, when properly applied, is

limited to copying by others which does not materially impair

the marketability of the work which is copied. The First Amendment principle, when appropriate, may be invoked despite the

fact that the marketability of the copied work is thereby impaired. Nimmer, Cases and Maten”a)s on Cop~ight ( 1978), Section 1.10 A, pp. 1-64 as quoted in Rosenfeld, “The American

constitution, Free Inquiry, and The Law, ” in Fti”r Use and Free

Znqujry, Lawrence and Timberg (eds.) (Ablex Publishing Corp.:

New Jersey) 1980, p. 287, 302.
Ch. 7—New Technologies and the Intellectual Property Bargain ● 209

law and the effectiveness of such a legal system in regulating conduct. The viability of the

legal order of a free society cannot rest solely

on applications or threats of force by authorities. It must rest on a people’s sense of the

legitimacy of the rule-making institutions and

of the rules these institutions make. 123

A survey of the public commissioned by

OTA on the issue of intellectual property rights

reveals a number of findings of relevance to

the public’s perceptions of what rights should

and should not exist in information products.124

With respect to the issue of private use, in particular, the public’s attitudes seem to reflect

a rough congruence to the distinction between

commercial and noncommercial uses.

The survey reveals that two-thirds of the

public is neither familiar with nor feels affected

by intellectual property rights issues. However, neither familiarity nor self-interest appear

to be related to their responses; the knowledgeable and the uninformed responded in very

much the same way. Among the more significant of those responses were:

The vast majority of the public (over 7 in

10) believes that copying personal possessions, like a record or a program from one’s

own TV, is acceptable behavior.

A majority of the public believes that trading and copying information and entertainment such as computer programs and

records is acceptable behavior.

When there is an issue of access–either

the information is readily available such

as a library book or there is a question

whether the information (broadcast signals or airwaves) should be free—the public is divided.

While each of these behaviors involved personal or private behavior which might give rise

Sha[ tu{k. l’ublr’c \ ttitude.q .nnd th(> b.’nf[]rceahilitjr of Law,

OTA contract report. 1985. p 2. “Sometimes . the official sector maj be dt’tached from the prik’ate sector, in the sense that

there l’+ no longer genw-al obedience tot he rules which are valid

according LO the (t it ~ria of ~’aliditj’ in use in the courts. Th~’

~’aricty of w:t}~ in whi~h t his may happen !Jelongs to the pathology of 1(’#<ul s}’ St e In % . ‘ ‘ 11.1 ,..+4. IIart, The ~oncepl of l.a}~

( I,ondon: oxff~r{l ( ‘ni\ersit J l)ress. 1961), p 114.

“Puhli( l’ercepcion,s of tht’ “lntellt’ctu:tl [+-c~pert> liights” q

issue, prepared b?’ The Policy Planning (;roup }’a]’kelo~ich

Skelly & W’hite, Inc., February 1985.

to civil liability under copyright law,125 there

appears to be little public support for such consequences.

However, when asked about conduct which

generally involved commercial, for-profit activity or willful, active attempts to avoid paying

for something the public responded as follows:

More than 8 in 10 among the public find

behaviors that obviously circumvent a fee

or service (such as purchasing a descrambler to watch pay TV, or secretly recording a concert) to be unacceptable.

There is almost complete unanimity among

the public that behaviors which jeopardize privacy, such as entering a database

without permission are unacceptable.

If copying of copyrighted materials is

done for reasons other than private use,

for public display, for sale or personal gain,

or on behalf of a large corporation, the

majority oft he public found the behavior

less acceptable.

While the public was not informed of the illegality or criminal nature of any of the behaviors

on which they were questioned, it is interesting to note that many of their responses reflect the criteria for criminal infringement set

forth in in the copyright law: the infringement

of copyright “willfully and for purposes of commercial advantage or private financial gain."126

In general, the public seems to be in support

of laws regarding criminal infringement or access, and competitive or institutionalized copying activities, but it withholds support for prohibitions on civil infringement or private use

copying behavior.

——.

“ Under 1 T U.S. C \ \ 106, 501, if these protrusions arc interpreted to co~’er pri~ate use,

‘“’ 17 U .S. C, \50G. This is not to suggest that criminal infringement is not a problem for the motion picture :Ind recording industries. “W’hile reports of raids and confiscation of pirated materials are quite common, it should be emphasized that

the statistics suggest that there [ire man~’ nlore pirates opw-at -

ing than are ever apprehended, . “ Statement of Nlr, Df)nald

C. (krran, Acting [tegistrar, I.ibrary of ~ongrt>ss, ]]cari) ig on

Ci\il and Crirnin:il k;nforcement of th~ Copyright I.aws Refore

the Senate Subcoml.~ittee on Patents, Copyrights and ‘l’rademarks, Commit ttx’ on the tJudiciar~, ~lpr. 17, 19S5. According

to industrj’ sour~es, criminal infringement has stabilized. W’ilIiam Nix, MPAA and .Joe lloscaret. \ ice Prescient of Film and

Video stwurit~ at Paran]ount l’ict ures, as cited in {’urran, op. cit.
Chapter 8

Impact of New Technologies

on the International Intellectual

Property System
Contents

Page

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........................213

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,..214

Early History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............................214

Present International Intellectual Property System ..,,, . . . . . . . . . . . . . . . . . 215

Harmonization of Disparate National Intellectual Property” Systems . .............215

Principle of National Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............219

Minimum Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........................219

Stresses on the International Intellectual Property System. . ......................220

Increasing Flows of Information and Information-Based Products and Services

Between Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........................221

Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........................,223

Growing Importance of Information and Information-Based Products and

Services to National Economies and International Trade and Competitiveness ....224

Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..................,......225

Increasing Cultural and Political Significance of Information and

Information-Based Products and services . . . . . . . . . . . . . . . . . . . . . . . . . . ........228

Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........................230

Emergence of New Information-Based Products and Services That Do Not

Correspond to Traditional Intellectual Property Protections . . . . . . . .............232

Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......235

Increasing Difficulty of Enforcing Intellectual Property Rights Caused by

Emerging Information and Communication Technologies . .....................237

Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........................246

Growing Convergence of International Intellectual Property Issues With Other

International Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...247

Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...............,.........249

Implications for Future U.S. International Intellectual Property Policy . ............250

Tables

Table No. Page

8-l. International Intellectual Property Agreements . .............................216

8-2. Membership in the Berne Convention, the Universal Copyright Convention,

and the Paris Convention for the protection of Industrial Property ..., . ........218

8-3. Estimated Losses From Piracy in Ten Selected Countries . ....................241

8-4. Countries and Regions That Infringe Copyrights of U.S. Motion Picture and

Television, Prerecorded Entertainment, Publishing, and Advertising Industries . . .242

8-5. Policy Options for Addressing International Intellectual Property Issues . .......251

Figures

Figures No. Page

8-1. Shrinking of Our Planet by Humans’ Increased Travel and Communications .. ...222

8-2. Computer Utilization: Selected Countries, 13 Sectors . ........................226

8-3. The Speed of Change: Intervals Between Discovery and Application in

Physical Science. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........................233

8-4. The Level and Location of International Counterfeit Activity of U.S. Products ...239
Chapter 8

Impact of New Technologies

on the International Intellectual

Property System

FINDINGS

OTA found that recent developments in information and communication technologies are

creating new stresses on the international intellectual property system. Such developments

include:

●

●

●

●

●

●

the increasing flow of information and

information-based products and services

among nations;

the growing economic importance of information and related products and services, both within and between nations;

the increasing cultural and political significance of information and related products and services;

the emergence of new information-based

products and services that do not correspond to traditional categories of protection;

the increasing difficulty of enforcing intellectual property rights at the international level; and

the growing convergence of international

intellectual property issues with other international issues.

Given their magnitude, these technological

developments pose novel difficulties that challenge the relative stability of the international

system. They affect not only the international

legal system, but also international economic

and political relations. Consequently, they

have major implications for the United States

both as a participant in the international intellectual property system and also with respect to its choices for domestic intellectual

property policy. These policy implications are:

● As information and communication technologies facilitate the international exchange of intellectual property, domestic

intellectual property issues will need to

be resolved within an international context and according to internationally agreed

upon norms.

As technological change prompts greater

need for rapid international consensus on

how and what to protect, the United

States will need to take greater international action to keep abreast of as well as

influence the development of international

policies for the protection of new technologies.

As information and information-based

products and services become major trade

items and the basis for economic growth,

international trade and economic considerations will increasingly be brought to bear

on the resolution of international intellectual property issues.

Given the growing cultural and political

significance of information-based products and services, international political

relations will need to be taken into account

in resolving international intellectual property issues.

As information and communication technologies undermine the traditional mechanisms for enforcing intellectual property

rights, the international community will

need to cooperate and coordinate their efforts to provide adequate and uniform enforcement mechanisms and remedies.

Given the convergence of international intellectual property issues with other international issues, the United States

might need to establish domestic institutional arrangements to develop and coordinate consistent international policies.

213
214 • Intellectual Property Rights in an Age of Electronics and Information

The United States can choose among a variety of policy strategies to deal with technological change and its effects on the international

intellectual property system. There is no clearcut, single strategy, however, that will comprehensively address all international intellectual property issues. Moreover, many policy

strategies may conflict with one another and

exacerbate other stresses on the international

intellectual property system. Thus, the United

States will need to make fundamental decisions

about how it would like to frame international

intellectual property issues (for example, in

terms of trade, legal, or political relations) and

design its international intellectual property

policies accordingly. As information and communication technologies become major factors

in international trade and nations’ economic

and social development, such policy decisions

will become more significant to many aspects

of U.S. foreign policy—from international issues of trade, defense, and foreign aid to issues of international information and communication policy.

INTRODUCTION

Historically, U.S. intellectual property policy developed in isolation from the rest of the

world. Such isolation was possible because

print materials were confined, for the most

part, within national borders. Over time and

as the necessity arose, the United States slowly

began to extend its participation in the international intellectual property system.

Recently, however, new technological developments have led to a great expansion in the

number of ways to create, store, reproduce, distribute, and transmit literary, scientific, and

creative works. The progressive development

of, for example, radio, television, and computers coupled with advanced telecommunication

and satellite systems have greatly increased

international distribution and access to works.

These technological developments are creating new stresses on the international intellectual property system, which raise questions

about whether the United States should play

EARLY

Before the 19th century, intellectual property protection was largely a domestic concern.

Because of the limited intercourse and communication among nations, works were distributed almost exclusively within their authors’

country. Thus, the lack of international protection caused little concern.

a more active role in the international intellectual property system.

To examine the effects of new communication and information technologies on the international intellectual property system and

the adequacy of U.S. participation in it, this

chapter will:

1.

2.

3.

4.

review the early history of U.S. participation in the international intellectual

property system;

describe the present international intellectual property system;

describe how technological developments

may affect the international intellectual

property system; and

suggest the implications that these developments have for both the level and type

of U.S. participation in the international

intellectual property system and for U.S.

domestic intellectual property policy.

HISTORY

By the early 1800s, a variety of social and

technological developments began to generate

interest in international intellectual property

protection. Increased trade, communications,

and travel were important factors, as was the

growing practice of learning foreign languages.

In response, the European nations began to
—

Ch. 8—Irnpact of New Technologies on the International Intellectual Property System ● 215

consider mechanisms to ensure protection

abroad for their domestic works, as well as to

protect foreign works. These nations first set

up a number of bilateral protection agreements; then, in 1866, many of the European

nations joined together and signed the first

multilateral agreement, the Berne Convention.1

While many European states relied on multilateral agreements to regulate their copyright

relations, the United States did not participate

in any international copyright arrangements

for the first 100 years of its existence, nor did

it recognize any copyright protection for foreign works or authors.z In fact, in the first U.S.

copyright law of 1790, Congress explicitly restricted the protection of foreign works:

‘Edward W. Ploman and L. Clark Hamilton, Copyright: IrIteffec.tual Property in the Information Age (London: Routledge

& Kegan Paul, 1980), p. 18.

The position of the United States was almost unique at the

time. The major Western nations early on made provisions for

the international protection of authors’ rights. Acting in 1828,

Denmark was the first, Prussia followed in 1836 and England

in 1837. France in 1852 and Belgium in 1854 also granted protection for alI for foreign works. By the mid-19th century, only

the Soviet Union, the Ottoman Empire, and the United States

did not grant protection for foreign works. Aubert J. Clark, The

Movement for International Copyright in Nineteenth Century

America, (Washington DC: The Catholic University Press, 1960),

p. 26.

. . . [N]othing in this act shall be construed to

extend to prohibit the importation or vending, reprinting or publishing within the

United States, of any map, chart, book or

books, written or printed, or published by any

person not a citizen of the United States, in

foreign parts or places without the jurisdiction of the United States.3

It was not until 1891, when Congress passed

the Chace International Copyright Act, that

the United States begin to recognize international copyright relations. The act, however,

provided neither for multilateral agreements

nor for the protection for foreign works manufactured outside the United States.4 But it

did extend copyright relations to nations found

and proclaimed by the President to afford adequate protection to American works. This act

provided the basis for all of the U.S. bilateral

copyright relations for more than the next 60

years.

‘Committee on the Judiciary, Subcommittee on Patents,

Copyrights, and Trademarks, hearing on “Oversight on International Copyrights, ’ Sept. 24, 1984, p. 28.

‘The manufacturing requirement, still in existence today albeit in a much diluted form, stipulates that nondramatic literary material must be manufactured in the United States (or

Canada) to enjoy full copyright protection in the United States.

This requirement is scheduled to be repealed as of July 1986.

Title 17 U.S.C. Sec. 601(a).

PRESENT INTERNATIONAL INTELLECTUAL

PROPERTY SYSTEM

Over the last century, the international system for protecting intellectual property has

been quite stable, displaying a higher level of

cooperation than other international agreements. Unlike other international agreements

that are periodically readapted or completely

revised, the interlocking conventions that constitute the international intellectual property

system have provided a permanent legal frame

work, although it is subject to amendments

and revisions if required. Table 8-1 summarizes

the major international intellectual property

conventions. Table 8-2 shows the national

membership of each of the three major intellectual property agreements.

The system is complex and structured around

many different international conventions and

agreements to which different groups of countries adhere. These conventions share several

outstanding characteristics that govern the international intellectual property system. They

are:

1. the harmonization of disparate national

intellectual property systems;

2. the principle of national treatment; and

3. the establishment of minimum rights.

Harmonization of Disparate National

intellectual Property Systems

Although rooted in various philosophical traditions, the intellectual property systems of

different nations have been harmonized over

the years under international intellectual prop-
— — .— — Agreement - Revisions ——.— —

Copyright agreements:

The Berne Convention for the Protection

of Literary and Artistic Works (1886)

1896: Paris Additional Act and

Interpretative Declaration

1908 Berlin Act

1914 Berne Additional Protocol

1928: Rome Act

1948: Brussels Act

1967 Stockholm Act

1971 Paris Act

The Rome Convention for the Protection of

Performers, Producers of Phonograms, and

Broadcasting Organizations (1961)

Non e

The Universal Copyright Convention (1957)

1971: Paris

The Convention for the Protection of

Producers of Phonograms Against the

Unauthorized Duplicatlon of Their

Phonograms (1971)

None

Table 8-1 .—International Intellectual Property Agreements

— .

Protected subject matter —.— —

“This Convention obliges Contracting States to protect the

expression of literary and artistic works [which include] every

production in the literary, scientific, and artistic domain, whatever may

be the mode or form of its expression, such as books, pamphlets,

and other writings: lectures, addresses, sermons and other works

of the same nature, dramatic or dramatlco-musical works:

choreographic works and entertainments in dumb show; musical

compositions with or without words, cinematographic works to which

are assimilated works expressed by a process analogous to

cinematography: works of drawing, painting, architecture, sculpture,

engrawng, and Iithography, photographic works to which are

assimilated works expressed by a process analogous to photography;

works of applied art, Illustrations, maps. plans, sketches, and threedimensional works relative to geography, topography, architecture,

or science. ” Article II

This Convention obliges Contracting States to extend protection:

“a) to performers who are its nationals, as regards performances

taking place, broadcast. or first fixed. on its territory,

b) to producers of phonograms who are its nationals, as regards

phonograms first fixed or first published on its territory,

c) to broadcasting organizations which have their headquarters on

its territory, as regaras Broadcasts transmitted from transmitters

situated on its territory “ Article II

“Each Contracting State undertakes to provide for the adequate and

effective protection of the rights of authors and other copyright

proprietors in literary, scientific, and artistic works, including writing,

musical, dramatic, and cinematographic works, and paintings, engravings, and sculpture. ” Article 1.

“Each Contracting State shall protect producers of phonograrns who

are nationals of other Contracting States against the making of

duplicates without the consent of the producer and against the

Importation of such duplicates, provided that any such making or

Importation IS for the purpose of distribution to the public, and against

the distribution of such duplicates to the public. ” Article Il.

U S membership Comments ——. — —. —

N o Basic principles established under

the Berne Convent Ion

1 Principle of national treatment

2. Principle of automatic protection

(with no formalities)

3 Principle of Independence of

protection

4 Minimum rights

N o

Yes The primary purpose of the UCC was

to join the United States and the

Latin American countties with the

countries of Europe, Asia, and Africa

in a Single multinational agreement.

Like the Berne Convent Ion, the UCC

IS based on national treatment and

minimum rights. Unllie the Berne

Convention, the UCC has several

formalities, such as a notice

requlirement

Yes
Agreement Revisions

Inter American Copyright Convent Ions

The Montevideo Convention (1889)

Non e

The Mexico City Convent Ion (1 902)

Non e

The RIO de Janeiro Convent Ion (1 906)

Non e

The Buenos Aires Convention (1910)

Non e

The Havana Convention (1928)

Non e

The Washington Convention (1946)

Non e

The Convent Ion Relating to Distribution

of Program-Carrying Signals

Transmitted by Satellite (1974)

Non e

Patent and Trademark Agreements:

The Paris Convent Ion for the Protect Ion

of Industrial Property (1 883)

1900: Brussels

1911 Washington

1925 The Hague

1934 London

1938 Lisbon

1967 Stockholm

Table 8-1 .—International Intellectual Property Agreements—Continued

Protected subject matter U.S. membership Comments

This Convent Ion obliges Contracting States to protect the expres- N o The Buenos Aires Convent Ion

S ion of Iiterary and artistic works which include books, writings,

pamphlets of al I Kinds, whatever may be the subject of which they

treat and whatever the number of their pages, dramatic or dramaticomusical works choreographic and musical compositions with or

W ithout words, drawings paintings scuIpture engravings

photographic works astronomical and geographical globes. plans

sketches or plastic works relating to geography geology or

topography archiItecture or any other science and finalIy alI

productions that can be published by any means of Impress Ion or

reproduction Article II

of I

1910 remains the basic Pan

N o American copyright Instrument

The Convent Ion obliges Contracting States to take adequate and Yes

effective measures to prevent the distribution on or from its territory

of any program-carrying signal by any distributor for whom the signal

emitted to or passing through the satellite IS not Intended."

During the past 20 years there has

N o

been a clear trend away from these

Yes

regional copyright conventions I n

favor of worldwide agreements

N o

Consequently in many Instances

the UCC has replaced the PanN o

American conventions as th e

operative agreement

The protection of industrial property has as Its object patents, utility Yes

models industrial designs, trademarks, service marks, trade names

indications of source or appelIations of origin. and the repression of

unfair competition.

Industrial property shall be understood in the broadest sense and

shall apply not only to industrial and commerce proper but Iikewise

to agricultural and extractive Industries and to all manufactured or

natural products for example. wines, grain, tobacco leaf fruit cattle.

minerals, mineral waters, beer, fIowers, and flour

Patents shall Include the various kinds of Industrial patents

recognized by the laws of the countries of the Union such as patents

of importation patents of [improvement, patents and certificates of

addition etc." Article I

The Patent Cooperation Treaty (1 978)

Non e The Treaty facilitates the filing of the applications for patents on the Yes

same Invent Ion in member countries by providing among other

things for centralized fiIing procedures and a standardized

application format

SOURCE Off Ice of Technology Assessment

●
218 ● Intellectual Property Rights in an Age of Electronics and Information

—

Table 8-2.— Membership in the Berne Convention, the Universal Copyright Convention,

and the Paris Convention for the Protection of Industrial Property

Country Berne UCC

Algeria . . . . . . . . . . . . . . . . . . . .

Andorra. . . . . . . . . . . . . . . . . . . .

Argentina . . . . . . . . . . . . . . . . . .

Australia. . . . . . . . . . . . . . . . . . .

Austria . . . . . . . . . . . . . . . . . . .

Bahamas . . . . . . . . . . . . . . . . . .

Bangladesh . . . . . . . . . . . . . . . .

Barbados . . . . . . . . . . . . . . . . . .

Belgium . . . . . . . . . . . . . . . . . . .

Belize . . . . . . . . . . . . . . . . . . .

Benin . . . . . . . . . . . . . . . . . . . . .

Brazil . . . . . . . . . . . ... . . . . . . .

Bulgaria . . . . . . . . . . . . . . . . . . .

Burkina Faso . . . . . . . . . . . . . . .

Burundi . . . . . . . . . . . . . . . . . . . .

Cameroon. . . . . . . . . . . . . . . . . .

Canada . . . . . . . . . . . . . . . . . . . .

Central African Republic . . . . .

Chad . . . . . . . . . . . . . . . . . . . . . .

Chile . . . . . . . . . . . . . . . . . . . . . .

Colombia . . . . . . . . . . . . . . . . . .

Congo . . . . . . . . . . . . . . . . . . . . .

Costa Rica. . . . . . . . . . . . . . . . .

Cuba . . . . . . . . . . . . . . . . . . . . . .

Cyprus . . . . . . . . . . . . . . . . . . . .

Czechoslovakia . . . . . . . . . . . . .

Democratic Kampuchea . . . . .

Denmark . . . . . . . . . . . . . . . . . . .

Dominican Republic . . . . . . . . .

Ecuador . . . . . . . . . . . . . . . . . . .

Egypt . . . . . . . . . . . . . . . . . . . . .

El Salvador. . . . . . . . . . . . . . . . .

Fiji . . . . . . . . . . . . . . . . . . . . . . . .

Finland . . . . . . . . . . . . . . . . . . . .

France . . . . . . . . . . . . . . . . . . . .

Gabon . . . . . . . . . . . . . . . . . . . . .

Germany, Democratic

Republic of. . . . . . . . . . . . . . .

Germany, Federal

Republic of . . . . . . . . . . . . . .

Ghana . . . . . . . . . . . . . . . . . . . . .

Greece . . . . . . . . . . . . . . . . . . . .

Guatemala . . . . . . . . . . . . . . . .

Guinea . . . . . . . . . . . . . . . . . . . .

Haiti . . . . . . . . . . . . . . . . . . . .

Holy See... . . . . . . . . . . . . . . .

Hungary . . . . . . . . . . . . . . . . . . .

Iceland . . . . . . . . . . . . . . . . . . . .

India . . . . . . . . . . . . . . . . . . . . . .

Indonesia . . . . . . . . . . . . . . . . . .

Iran . . . . . . . . . . . . . . . . . . . . . . .

Iraq . . . . . . . . . . . . . . . . . . . . . . .

Ireland. . . . . . . . . . . . . . . . . . . .

Israel . . . . . . . . . . . . . . . . . . . . . .

Italy . . . . . . . . . . . . . . . . . . . . . . .

Ivory Coast . . . . . . . . . . . . . . .

Japan . . . . . . . . . . . . . . . . . .

Jordan. . . . . . . . . . . . . . . . . . . . .

Kenya . . . . . . . . . . . . . . . . . . . . .

SOURCE -Office of Technology Assessment

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

Paris

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

Country

Korea, Republic of . . . . . . . . .

Laos . . . . . . . . . . . . . . . . . . . . . .

Lebanon . . . . . . . . . . . . . . . . . . .

Liberia. . . . . . . . . . . . . . . . . . . . .

Libya . . . . . . . . . . . . . . . . . . . . . .

Liechtenstein. . . . . . . . . . . . . . .

Luxembourg. . . . . . . . . . . . . . . .

Madagascar . . . . . . . . . . . . . . . .

Malawi . . . . . . . . . . . . . . . . . . . .

Mali . . . . . . . . . . . . . . . . . . . . . .

Malta. . . . . . . . . . . . . . . . . . . . . .

Mauritania . . . . . . . . . . . . . . . .

Mauritius . . . . . . . . . . . . . . . . . .

Mexico . . . . . . . . . . . ..., ...,

Monaco . . . . . . . . . . . . . . . . . . . .

Morocco . . . . . . . . . . . . . . . . . . .

Netherlands . . . . . . . . . . . . . . . .

New Zealand . . . . . . . . . . . . . . .

Nicaragua. . . . . . . . . . . . . . . . . .

Niger. . . . . . . . . . . . . . . . . . . . .

Nigeria . . . . . . . . . . . . . . . . . . . .

Norway . . . . . . . . . . . . . . . . . . . .

Panama. . . . . . . . . . . . . . . . . . . .

Pakistan . . . . . . . . . . . . . . . . . . .

Paraguay . . . . . . . . . . . . . . . . . .

Peru . . . . . . . . . . . . . . . . . . . . . . .

Philippines . . . . . . . . . . . . . . . . .

Poland . . . . . . . . . . . . . . . . . . . .

Portugal . . . . . . . . . . . . . . . . . . .

Romania. . . . . . . . . . . . . . . . . .

Rwanda. . . . . . . . . . . . . . . . . . . .

San Marine. . . . . . . . . . . . . . . .

Senegal . . . . . . . . . . . . . . . . . . .

Singapore . . . . . . . . . . . . . . . . . .

South Africa . . . . . . . . . . . . . . .

Soviet Union ..., . . . . . . . . . . .

Spain.. . . . . . . . . . . . . . . . . . . . .

Sri Lanka . . . . . . . . . . . . . . . . . .

Suriname . . . . . . . . . . . . . . . . . .

Sweden . . . . . . . . . . . . . . . . . . . .

Switzerland . . . . . . . . . . . . . . . .

Syria ..., . . . . . . . . . . . . . . . . . .

Tanzania. . . . . . . . . . . . . . . . . .

Thailand . . . . . . . . . . . . . . . . . . .

Togo . . . . . . . . . . . . . . . . . . . . .

Trinidad and Tobago . . . . . . .

Tunisia . . . . . . . . . . . . . . . . . . . .

Turkey . . . . . . . . . . . . . . . . . . . . .

Uganda . . . . . . . . . . . . . . . . . . . .

United Kingdom . . . . . . . . . . . .

United States . . . . . . . . . . . . . . .

Upper Volta . . . . . . . . . . . . . . . .

Uruguay ..., . . . . . . . . . . . . . .

Venezuela, . . . . . . . . . . . . . . . . .

Viet Nam . . . . . . . . . . . . . . . . . .

Yugoslavia . . . . . . . . . . . . . . . . .

Zaire . . . . . . . . . . . . . . . . . . . . . .

Zambia . . . . . . . . . . . . . . . . . . . .

Zimbabwe . . . . . . . . . . . . . . . . . .

Berne UCC Paris

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x
Ch. 8—Impact of New Technologies on the International Intellectual Property System . 219

— —

erty agreements. This harmonization was possible because each of the national systems

shared a common set of goals. In general, nations have advanced four major rationales to

justify intellectual property protection. These

have generally been accepted in most countries, but nations weigh them differently.5

Based on these justifications, three traditions of intellectual property law have evolved.

These include: the droit d’auteur system, which

places the emphasis on the principles of natural justice; the Anglo-Saxon or copyright system, which is based on economic arguments;

and the socialist system, which places the emphasis on socialist doctrine and the importance

of the author in terms of his social role. There

are, however, considerable variations among

different countries that follow the same system.6 Although both the justifications for and

the actual systems of protection may differ

from nation to nation, overall international

agreement is possible because the end result

or goal is the same–to protect intellectual

property.

Principle of National Treatment

The second shared characteristic of these international agreements is the principle of national treatment. In practice, this principle was

adopted to achieve two goals: 1) to facilitate

international judicial interpretation; and 2) to

“First, the principle of natural justice says that the author

is the creator of the work, which is the expression of his personality, and therefore he should decide whether and how his work

is commercialized and prevent any injury and mutilation of his

intellectual offspring. The royalties he receives are the wages

for his intellectual work, Second, the economic justification for

protection is based on the argument that the investment in creating works, as well as in disseminating them to the public, would

not be undertaken unless creators have a reasonable expectation of recouping investments and earning a reasonable profit.

The third justification for protection is based on the argument

that creative works are a considerable national asset, and therefore it is in the public interest to encourage and reward creativity

as a contribution to the national culture. The fourth is based

on a social argument that the dissemination of works to many

diverse sectors of the public improves social cohesion and advances the society. Stephen Stewart, The Law of International

Copyright and Neighboring Rights (London: Butterworth & Co.

(Publishers) Ltd., 1983), pp. 3-6.

‘Stephen Stewart, The Law of International Copyright and

Neighboring Rights (London: Butterworth & Co. (Publishers)

Ltd., 1983), pp. 6-11.

unify laws among countries that offer differing levels of protection.7

National treatment facilitates international

judicial interpretation because it requires that

judicial decisions be made within the country

where the rights holder seeks protection, regardless of his nationality. As a result, judgments are more consistent and more certain;

the courts can more effectively interpret their

own laws as opposed to those of other nations.

Second, many nations adhere to national

treatment because they believe it leads to better political relations and unifies levels of protection among countries. Nations believe that

this will occur because rights owners in countries of low-level protection, who receive higher

levels of protection in other countries, will

press their governments to raise their domestic levels of protection. Thus, it is believed that

national treatment will give rise to a more unified and higher common level of protection

among nations.

Minimum Rights

All international intellectual property agreements also establish a common set of minimum

rights that may be claimed in all adhering countries, regardless of national legislation. Although convention countries are not required

to grant minimum rights to their own nationals, all foreign member country nationals are

entitled to these minimum rights. These minimum rights attempt to ensure that national

treatment does not lead to any imbalances in

levels of protection among nations. Without

them, national treatment, which exclusively

calls for equal treatment of foreigners and nationals within a convention country, could not

prevent large discrepancies in levels of protection among countries.8 Consequently, mini-

‘Ibid., p. 39.

“The principle of national treatment without minimum

rights might produce a serious imbalance which States would

find unacceptable. For exampIe:

If countries A and B were members of a [international] convention which provides only for national treatment and has no minimum rights and country A grants performance and broadcasting

rights as well as a reproduction right, the effect would be that

the nationals of country B would enjoy performance and broadcasting rights in country A, but nationals of country A would

[continued on next page)
220 ● Intellectual Property Rights in an Age of Electronics and information

mum rights work in conjunction with national

treatment to achieve the greatest possible uniformity of intellectual property protection

among countries.9

Minimum rights also provide a flexible mechanism for unifying and increasing levels of international protection as needed. Starting with

a small number of minimum rights, a convention can add others as new rights are required

and as the level of international agreement

rises. For example, beginning with the translation right, the Berne Convention later added

the rights of public performance and broadcasting, the droit moral (moral rights), and the

— —.—.— —-

(continued from pre~’ious page)

not enjoy these rights in country B because the nationals of country B do not enjoy them either. This could produce a serious disequilibrium which would be unacceptable to country A.

Ibid., pp. 40-41.

“A history of copyright and neighboring rights bears this out . . .

When the Universal Copyright was negotiated 60 years after [the

13erne Convention], the difference in the level of protection with

rights covered by the convention became less marked, and thus

less stringent measures to insure against unacceptable differences

in the level of protection were required.

Ibid., p. 40.

cinematographic right. The Universal Copyright Convention (1952 text) originally provided only for the translation right; its revised

version (1971 text) added the reproduction

right, the broadcasting right, and the public

performance right. ’”

The harmonization of different national intellectual property systems, the principle of

national treatment, and minimum rights have

enabled the periodic revision of international

conventions, which has given the international

system the flexibility needed to adapt over

time to technological change and changing attitudes about intellectual property protection.

However, with the development of many new

ways of creating, reproducing, and exploiting

intellectual works, the international intellectual property system is currently experiencing a number of new and perhaps more serious stresses. Questions arise, therefore, as to

whether U.S. domestic policy and participation in the existing international system can

deal with such changes.

— — .

“’[bid., p. 40.

STRESSES ON THE INTERNATIONAL INTELLECTUAL

PROPERTY SYSTEM

Recent technological developments are creating pressures on the international intellectual property system. Such developments and

their effects include:

1.

2,

3.

4.

the increasing flow of information and

information-based products and services

among nations;

the growing economic importance of information and related products and services, both within and between nations;

the increasing cultural and political significance of information and related products and services;

the emergence of new information-based

products and services that do not correspond to traditional categories of protection;

5. the increasing difficulty of enforcing intellectual property rights at the international level; and

6. the growing convergence of international

intellectual property issues with other international issues.

Greater in magnitude than those of the past,

today’s technological developments pose novel

difficulties that challenge the relative stability of the international system. Such developments affect not only the international legal

system, but also international economic and

political relations. Consequently, these developments may affect the U.S. role in the international intellectual property system as well

as domestic intellectual property policy. A

brief description of these developments and
Ch. 8—Irnpact of New Technologies on the Intemational Intellectual Property System “ 221

their potential implications for U.S. international and domestic policies are provided

below.

Increasing Flows of Information

and Information-Based Products

and Services Between Nations

Technological advances in and the growing

convergence of information and communication technologies have greatly increased the

flow of information and information-based

products and services across national borders.

Increases in international trade, as well as the

development of satellite, broadcast, fiber optics, and other telecommunication technologies, have combined with more powerful information storage, processing, and distribution

technologies to bring about international exchanges of intellectual property. As illustrated

in figure 8-1, these developments have led to

greater international exchanges of information

and technology and international interdependence.

Although exact measurements of computerized data flows are difficult to attain, many

inquiries reveal that their rate of growth

exceeds the growth rate of nonvoice communications. 11 The growing number of installed terminals, telecommunication facilities, database

searches, and computer services all reflect the

increasing flow of information.

For example, the number of network terminating points (points of connection between

user equipment and telecommunication transmission facilities) in Western Europe increased

from 393,000 in 1979 to 832,000 in 1983 and

is projected to reach 1,620,000 in 1987. The

total number of bits sent per average working

day grew from 1,310 billion in 1979 to 3,970

billion 1983 and is expected to reach 9,820 billion in 1987. In North America and Western

Europe, the number of data searches increased

Cees *J. 1iamelink, Translational Data F’lows in the Information ,4ge (Sweden: Studentlitteratur AH, Chartwell-Bratt

i,td., 1984), p. 44.

“M. Renedetti, “Ejurodata ’79: The Growth of Data Communications in W’estern Europe, paper for the I B I Conference

on ‘1’ranshorder Flow Policies, Rome, June 1980.

from 3.3 million in 1973 to 12.5 million in 197613

and the number of users of database services

increased from 10,000 in 1965 to 2 million in

1978. 14 Exports by U.S. information services

companies increased by 9 percent between

1982 and 1983, and are expected to continue

to increase by 9 percent annually through

1987.15 The U.S. software industry also reported

an increase in exports that represented 30 percent of total sales by 1982.16 In addition, the

use of satellite technology is greatly increasing the electronic exchange of entertainment

programs internationally. Sky Channel, for example, provides by satellite many European

cable systems with programs intended for the

entire European market. 17 Estimates place the

1985 transatlantic flow of television programs

at approximately 20,000 to 30,000 hours annually. 18

Other indications of international information exchanges are reflected in increases in

international trade of computers and telecommunication equipment, as well as by the growing international exchange of patents, scientific information, technology, and cultural

products. ” For example, between 1978 and

1982, U.S. exports and imports of computers

and equipment increased by 21.2 and 29.8 percent, respectively .20 U.S. exports and imports

———-————

‘ ‘Paul B. Silverman, “international Telecommunications as

a Tool for Technology Transfer, paper for the Technolog~ E xchange ’78, Atlanta, February 1978.

“P.]. van Velse, “Aspects of a European Information Industry, paper for the Commission of the European Communities, Luxembourg, September 1979.

“US. Department of Commerce, International Trade Administration, “A Competitive Assessment of the U.S. information Services Industry’ (J$’ashington, DC: (J. S. Government

Printing Office, 1984), p. 35.

“’U.S. Department of Commerce, International Trade Administration, “A Competitive Assessment of the U.S. Software

Industry’ (Washington DC: U.S. Government Printing office,

1984), p. 35.

“Michael Schrage, “Murdoch Reaches for Sky in European

TV Battle, ” The tlrashington Post, Nlar. 3, 1985, p. F, 1, 6, 7.

IKKalba Bowen Associates, The Economist: Connections:

U’orid Communications Report, No. 32, May 24, 1985, p. 8.

“For a detailed analysis of these trends, see U.S. Congress,

Office of Technology Assessment, Information Technology

R&D: C1-iticd Trends and Issues, OTA-CIT-268 (Washington

DC: U.S. Government Printing Office, February 1985).

“’U.S. Department of Commerce, International Trade Administration, “High Technology Industries: Profiles and Outlooks: The Computer Industry” (Washington DC: U.S. Government Printing office, 1983), p. 24.
222 ● Intellectual Property Rights in an Age of Electronics and Information

Figure 8-1 .—Shrinking of Our Planet by Humans’ Increased Travel and Communications

Miles per hour

- 150,000

- 17,000

- 2,000

- 1,500

- 1,000

- 500

- 100

- 50

“ 25

- 5

Year - Represents population growth

Stages in human communication

r 1

I

Word of mouth, drums, smoke, relay runner,

drawings and hand printed material prior to 1441 I

Mechanized printing

,

I

Use of electro-magnetic communicationstelephones, radio, and television

“intelligent” telecommunications networks

through computerization-virtually worldwide

SOURCE: John McHale, World Facts and Trends (New York: Collier Books, 1972), p 3, as cited in Magda Cordell McHale, Facts and Trends: The Changing Information

Environment: An Information Chartbook (Rome Intergovernmental Bureau for Informatics, 1985), p 2.

of telecommunication equipment increased

from 1977 to 1983 by 22.1 and 35.3 percent,

respectively .21 Between 1966 and 1981, the

number of U.S. patents granted to foreign nationals increased from 13,722 to 26,546.22 The

U.S. use of foreign scientific and technical liter-

—.——-—— 21U.S. Department of Commerce, International Trade Administration, “High Technology Industries: Profiles and Outlooks: The Telecommunications industry” (Washington DC:

U.S. Government Printing Office, 1983), p. 21.

‘

zNational Science Board, National Science Foundation, SU”-

ence Indicators-1982 (Washington DC: U.S. Government Printing Office, 1983), p. 206; and Office of Technology Assessment

and Forecast, U.S. Patent and Trademark Office, “Indicators

of the Patent Output of U.S. Industry IV (1963 -81),” 1982.

ature increased 6 percent between 1973 and

1980;23 the U.S. technology transfer exports

(patents and management or consulting fees)

equaled approximately $3,034 million in 1973.24

U.S. exports of cultural products (motion pictures, television programming, prerecorded entertainment, published materials) have also

grown dramatically over the last few years: for

example, the foreign revenues for U.S. motion

———. —

‘Sh-ational Science Board, National Science Foundation,

Science Indicators-1982 (Washington DC: U.S. Government

Printing Office, 1983), p. 12.

“Marc Uri Porat, “Global Implications of the Information

Society, ” Journal of Communications, winter 1978, p. 78,
Ch. 8—impact of New Technologies on the International Intellectual Property System ● 223

picture studios rose from $820 million to $1,420

million from 1978 to 1983.25

Policy Implications

The increasing flow of information and information-based products and services are

breaking down national boundaries, thus challenging the traditional theories of international

relations, which are based on the nation-state.26

With the erosion of national sovereignty, events

taking place in one country will increasingly

be felt in others. Consequently, intellectual

property decisions, that were once considered

exclusively domestic concerns, will now have

to be made with international considerations

in mind.

Currently, U.S. participation in international

intellectual property fora is relatively limited.

No longer a party to the United Nations Educational and Cultural Organization (UNESCO),

the United States might not have as much

political leverage in the Universal Copyright

Convention (UCC), which is administered by

UNESC0.27 Although the U.S. withdrawal

does not preclude the United States from observing UCC activities, it does prevent the

United States from participating in the

UNESCO General Conference, which reviews

and approves the various budgets and administrative bodies of UNESCO, including the

Copyright Division. As a result, the U.S. abilit y to influence other nations in its favor might

be weakened. Because the United States is no

longer funding UNESCO activities, a reduc-

-.——

“CBS, inc., “Trade Barriers to U.S. Motion Picture and

Television, Prerecorded Entertainment, Publishing and Advertising Industries, ” September 1984, p. 10.

“The theory of the nation-state or the state-as-the-only -actor approach was first advanced by Arnold Wolfers. According

to his theory, the most important characteristic of States is

their sovereignty, which is considered indivisible and absolute.

The model further implies that because States do not recognize

any higher authority, they are consistently in an international

state of conflict and competition. Consequently, there is almost

a complete separation between politics within nations and politics between nations. Arnold Wolfers, ll~scm~ m(i Collfi~or8-

.tion: Essays in International Politics (Baltimore: Johns Hopkins University Press, 1962).

‘-The increasing politicization that polarized UNESCO was

a major impetus of the U.S. decision to withdraw from UNESCO

in late 1984. Seymour Finger, “Reform or Withdrawal, ” Foreign Service Journal, vol. 61, June 1984, pp. 18-23.

tion in funding for studies on emerging copyright issues which are traditionally sponsored

by the UCC might also occur. Moreover, the

United States might lose some of its ability

to influence decisions about which substantive

issues such studies will address. For example,

recent U.S. efforts to convince the UCC Intergovernmental Committee to undertake studies

on the copyrightability of computer software

have not yet been successful.

Magnifying the problems arising out of the

U.S. withdrawal from UNESCO is the fact that

the United States is not a member of the only

other major international copyright convention, the Berne Convention. Although, over

time, the United States has amended its domestic copyright laws to be more compatible

with those of the Berne Convention, several

major attributes of U.S. copyright law impede

U.S. ratification of the Berne Convention.

These attributes include, for example, the formalities required to obtain protection under

U.S. copyright law, such as registration and

those enumerated in the manufacturing clause.28

As a nonmember of the Berne Convention, the

United States can only observe Berne policy

decisions; it cannot directly influence the development of policy concerning international

protection of new technologies.

Given the increasing internationalization of

intellectual property issues, the United States

may want to take greater steps to influence

their resolution. There are several options the

United States might pursue to strengthen its

presence in international intellectual property

organizations. First, the United States might

consider rejoining UNESCO. Because UNESCO

houses not only the governing body of the

Universal Copyright Convention, but also

other agencies that oversee related matters of

international information and communications

policy, joining UNESCO might place the United

States in a more advantageous position from

“Statement of Ralph Oman, Register of Copyrights, Assistant Librarian for Copyright Services, Library of Congress, Hearing on S. 1822 and S. 1938 Bills to Make Permanent the Manufacturing Clause of the Copyright Act, before the Subcommittee

on Patents, Copyrights and Trademarks, Senate Committee on

the Judiciary, Jan. 21, 1986, p. 35.
224 ● Intellectual Property Rights in an Age of Electronics and Information

which to influence the decisionmaking process of such agencies, Rejoining UNESCO,

moreover, might relieve much of the resentment harbored by many developing countries

for the United States and its historical lack

of international participation in the international intellectual property system.

Rejoining UNESCO, however, is not without political and economic tradeoffs. Additional funding, for example, would be required if

the United States were to become a member

of UNESCO. In addition, the United States

would most likely need to make further political and perhaps economic concessions to address the concerns of the developing nations.

A second option to strengthen U.S. participation in the international intellectual property system would be to ratify the Berne Convention. This would benefit U.S. international

copyright relations in several ways. First, the

administrator of the Berne Convention, the

World Intellectual Property Organization

(WIPO), would provide a more favorable forum for dealing with international intellectual

property issues because it specializes only in

intellectual property rights and it is considered to be less politicized than UNESCO. Second, the Berne Convention provides the highest levels of international copyright protection.

Third, ratification of the Berne Convention

would also provide the United States with the

opportunity to influence major policy development with regard to new technologies. Finally, joining the Berne Convention would

show other nations, particularly developing nations, that the United States is indeed very

committed to the protection of international

intellectual property rights and that it is cognizant of the growing need for its system of

intellectual property rights to operate within

an international context.29 For these reasons

and others, there is wide agreement among

those dealing with intellectual property issues,

particularly at the international level, that a

‘

sDonald Quigg, Acting Assistant Secretary and Commissioner of Patents and Trademarks, testimony on “U.S. Adherence to The Berne Convention, ” before the Subcommittee on

Patents, Copyrights, and Trademarks, Senate Committee on

the Judiciary, May 16, 1985.

number of benefits would accrue to the United

States if were to adhere to the Berne Convention.30

At the same time, there are several tradeoffs associated with U.S. ratification of the

Berne Convention. The major disadvantage of

signing would be the legislative adjustments

needed to bring the present U.S. copyright law

into compliance with the Berne Convention.

Although Congress has over the years sought

to make U.S. law more compatible, several legal adjustments are still required. These include the need to remove copyright formalities embodied in the U.S. law—such as notice

and deposit, compulsory licenses, and the manufacturing clause— and the need to add moral

rights. 31 The Department of State’s Ad Hoc

Working Group on U.S. Adherence to the

Berne Convention, which is made up of representatives of the copyright community, is currently exploring how these adjustments can

be made while preserving traditional U.S. laws

and practices as much as possible.

Growing Importance of Information

and Information-Based Products and

Services to National Economies and

International Trade and

Competitiveness

Historically, all nations have viewed the creation of intellectual works as having great cul- —. -. .——.

“’For example, at the Sept. 12, 1984, meeting of the Department of State’s International Copyright Advisory Panel, the

private sector representatives from all different parts of the intellectual property community were unanimous in their support for U.S. adherence to the Berne Convention. Moreover, all

of the witnesses who testified before the Subcommittee on Patents, Copyrights, and Trademarks, Senate Committee on the

Judiciary, expressed their support for U.S. adherence to the

Berne Convention. Hearing on “U.S. Adherence to The Berne

Convention, ” before the Subcommittee on Patents, Copyrights,

and Trademarks, Senate Committee on the Judiciary, May 16,

1985.

“’’The importance of maintaining the attributes of U.S.

copyright law, such as deposit, registration, and recordation

provisions can scarcely be questioned. For these provisions have

served a most important public function; they have enabled the

Library of Congress to become the most important repository

for U.S. cultural expression as well as for the rest of the world. ”

Donald Curran, Associate Librarian of Congress and Acting

Register of Copyrights, Copyright Office, testimony before the

Subcommittee on Patents, Copyrights, and Trademark, Senate Committee on the Judiciary, May 16, 1985.
— — .- .-

Ch. 8—Impact of New Technologies on the International Intellectual Property System ● 225

tural and social significance. Recently, however, intellectual products are becoming an

increasingly important component of national

and international economies .32 A recent study

on the size of the copyright industries reflects

the same trend. These industries, which rely

on the exploitation of the legal protections embodied in the copyright law, showed growth

in sales from $6.2 million, or 2 percent of the

gross national product (GNP), in 1954 to $140.9

billion, or approximately 5 percent of the GNP,

in 1982.33 An additional $11.3 billion would be

added if semiconductor chips were included.

Estimates of the U.S. labor force involved in

the copyright industries suggest that more

that 2.2 million workers are affected by trade

in intellectual property .34 The U.S. Department

of Commerce also estimates that in 1983, the

United States enjoyed a $4.7 billion favorable

balance of payments in the licensing and assignment of patent rights, trademarks, and

copyrights. 35

Information and information-based products

and services are not only valuable economic

commodities in and of themselves; their use

also increasingly affects the performance of

other economic sectors. The application of information technology is responsible for vast

increases in productivity y in manufacturing industries, offices, financial services, and scienSeveral major studies completed over the last several

years document this trend. Daniel Bell was one of the first to

describe the changing role of information in society: “And if

capital and labor are the major structural features of industrial

society, information and knowledge are those of the postindustrial society. Daniel Bell, The Corning of Post Industrid

Societ~r (New York: Basic Books, 1976), p. xiii. A quantitati~re

stud~’ b~’ Marc Porat found that by 1967, the primar~r and secondary production, processing, and distribution of informationbased products and services constituted approximately 46 percent of the G N P and that nearly half of the labor force is engaged with informational activities. Marc Uri Porat, Office of

Telecommunications, U.S. Department of Commerce, “The Information I+:conomy: Definition and Measurement” (Washington DC: U.S. Go}’ernrnent Printing Office, 1 977).

“Michael H. Rubin, *’The Copyright Industries in the

United States: An Economic Report Prepared for the American Copyright Council, ” 1985, p. 1.

“U.S. Copyright Office “The Size of the Copyright Industries in the IJnited States, ” Subcommittee on Patents, Copyrights, and Trademarks, Senate Committee on the .Judiciary,

December 1984.

‘ Flileen Ilill, *’Commerce Department Seeks Greater Protection for U.S. Intellectual Property Rights, ” Business America, Mar. 18, 1985, p. 3.

tific research.36 Because they have become not

only an important component in the U.S. economy, but also a significant productivity factor in many industrial sectors, information and

information-based products and services have

become an extremely crucial element in the

U.S. economy and its overall international competitiveness. 37

Just as information and information-based

products and services are of increased value

to national economies, they are also becoming

more important to the world economy. Recent

evaluations have found that this complex of

information industries is already the third

largest in the world economy. In 1980, each

of the industrialized nations spent approximately 4 or 5 percent of its GNP on information-based products and services.38 Figure 8-2

illustrates the large number of sectors in which

many nations are using information technologies. Another estimate notes that the world

information market equaled approximately

$350 billion or 18 percent of world trade in

1980.39

Policy Implications

Given the growing importance of information and information-based products and services to the U.S. economy, its export markets,

and thus to its international competitiveness,

intellectual property rights are acquiring greater significance. Policy makers are now recog-

. —

“One economist documented these trends by showing that

the introduction of information technology has made work more

specialized and efficient, which in turn has led to greater productivity. Thus, the analysis showed that the quantity of real output produced by each production-sector worker in the U.S. economy was 6.4 times greater in the year 1970 than in 1900. Charles

Jonscher, “Information Resources and Economic Productivit~”, ”

Information Economics and Public Policjr, vol. 1, No. 1, 1983,

p. 21.

‘

qThe President’s Commission on Industrial Competiti\”eness, Committee on Research, Development, and Manufacturing, Appendix D, 4’Preserving America’s Industrial Competitiveness-A Special Report on the Protection of Intellectual

Property Rights, ” October 1984.

1“Edward W’. Ploman and 1.. Clark Hamilton, Copyright: 1nte]lectual Propert.v in the Information Age (London: Routledge

& Kegan Paul, 1980], p. 217.

‘L’Cees J, Iiamelink, I%msnational Data Flows in an Information ,4ge i Sweden: Studentlitt.eratur Ab Chartwell-Bratt I.td.,

1984), p. 23.
226 • Intellectual Property Rights in an Age of Electronics and Information

Figure 8-2.—Computer Utilization: Selected Countries, 13 Sectors

France

(1978)

Mexico I

nizing the importance of factoring intellectual

property protection into bilateral and multilateral trade relations. Similarly, international

trade concerns are looming larger in international intellectual property relations. Such

growing linkages may call for greater attention to these relationships and new ways of

coordinating and addressing the issues to

which they give rise. Thus, the United States

might need to reassess its intellectual property policy at the national and international

levels to accommodate these new linkages.

:.. , .,

:

The United States has already taken some

steps toward recognizing the protection of intellectual property rights as a major trade

issue. The recent passage of the Trade and

Tariff Act of 1984 (Public Law 98-573), for example, allows the President to take into account nations’ laws and practices to adequately

protect intellectual property rights as a condition for receiving the trade preferences

granted under the Generalized System of Preferences Program (GSP).40 In addition, the Car-

‘“The Trade and Tariff Act of 1984 contains five provisions

(continued on next page)
—

Ch. 8—Impact of New Technologies on the International Intellectual Property System “ 227

Figure 8-2.— Computer Utilization: Selected Countries, 13 Sectors—Continued

The Netherlands

(1980)

Philippines

(1980)

Spain

(1978)

Switzerland

(1978)

Taiwan

(1978)

+

● I I 1. ●

Venezuela

(1979)

= Mini computers 1

1’ Key — - 1

– Small computers

-1 ●

—

— = Medium computers

= Large computers

~ I

1 J

SOURCE U S Department of Commerce, International Trade Administration, Computers and Peripheral Equipment — Various Countries (Washington, DC U S Govern.

ment Printing Office, 1980), as cited in Magda Cordell McHale, Facts and Trends: The Changing Informatfin Environment: An informatron Char/book (Rome

Intergovernmental Bureau for Informatics, 1985), p 32

ibbean Basin Economic Recovery Act (Public

Law 98-67) makes the protection of U.S. copyrighted broadcast works a condition for Caribbean nations to receive U.S. aid.

A number of other strategies are also available to strengthen trade opportunities for U.S.

intellectual property products. One such option is to prevent imports of illicit copies of

U.S. products or products illicitly manufactured with U.S. patented processes. The proposed Process Patent Amendment of 1985 (S.

1543 and H.R. 1069), for example, would make

it a violation of patent law to use, sell, or import any product made overseas that is produced by an unlicensed patent process.

related to intellectual property protection. Many of the countries that are eligible for GSP benefits are also those countries

which do not adequately protect intellectual property rights.

These countries include, for example, Argentina, Bangladesh,

Brazil, Chile, Colombia, Costa Rica, Egypt, Ecuador, Guatemala, India, Indonesia, Korea, Mexico, Pakistan, Peru, the

Philippines, Portugal, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela, and Yugoslavia.
228 ● Intellectual Property Rights in an Age of Electronics and Information — ——

Another recently proposed option is to include information products and services within

the General Agreement on Tariffs and Trade

(GATT). This option has broad support for several reasons. First, including intellectual property products in the GATT could provide international enforcement mechanisms in the

form of dispute settlement mechanisms and

trade sanctions as final retaliatory mechanisms

for dealing with infringements—mechanisms

that are not currently provided in international

intellectual property agreements. Second, unlike many international intellectual property

agreements, the GATT has a broad representation of the industrialized and developing nations as well as a history of consensus-building

among its member states. Third, the GATT

takes into account the economic development

needs of the developing countries, allowing

them differential treatment as a means of assisting their development.

There are, however, some negative aspects

to such approaches. Linking the granting of

trade preferences or foreign aid to the protection of intellectual property rights might provoke political discord between the United

States and developing nations. Including intellectual property products within the GATT

also conflicts with many developing countries’

notions of information and information-based

products and services and might lead to political unrest and various forms of retaliation.

Increasing Cultural and Political

Significance of Information and

Information-Based Products

and Services

Historically, there have been political tensions between nations whose role as producers of intellectual property allowed them

greater access to such products and nations

that imported intellectual property products,

and had only limited access to them. When the

United States was still a relatively young and

developing country, for example, it refused to

respect international intellectual property

rights on the grounds that it was freely entitled to foreign works to further its social and

economic development.

Developing nations make the same argument today. Many believe they should be exempt from measures protecting intellectual

property created outside their borders. They

argue that access to information is vital to their

development. Championing this viewpoint, developing nations were able to get revisions in

the Berne Convention at Stockholm in 1967

and in the Universal Copyright Convention in

1971. Moreover, the influence of these countries has been felt at meetings of the United

Nations Conference on Trade and Development (UNCTAD) and at the recent meeting to

revise the Paris Industrial Property Convention.41

As information and information-based products and services become more important to

social and economic development, questions

of information access, which were formerly

quite distinct from political considerations, are

acquiring greater political significance.42 Because both developed and developing nations

view intellectual property protections as a major mechanism for regulating and controlling

the flow of and access to information and information-based products and services, there

is growing political pressure on the international intellectual property system.43

A case in point is the information gathered

by remote sensing satellites. In 1972 the United

States launched the Land Remote Sensing Satellite (Landsat) as part of a broader resource

“For example, the provisions for developing nations that

were added to the Universal Copyright Convention in 1971 include exemptions that fall into three categories: 1 ) translation

rights subject to compulsory licensing; 2) reprint rights subject to compulsory licensing; and 3) compulsory licensing in general. Subcommittee on Patents, Copyrights, and Trademarks,

Senate Committee on the Judiciary, hearing on “Oversight on

International Copyrights, ” Sept. 24, 1984, pp. 61-62.

4’Rita Cruise O’Brien and G. K. Helleiner, “The Political

Economy of Information in a Changing International Economic

Order, ” International Organization, vol. 34, No. 4, Autumn 1980,

p. 446.

“These access tensions, for example, have given rise to discussions of a New World Information Order in which developing nations call for freer access to technical and educational materials as well as a redress of the imbalances in the international

flow of news and cultural products and a New World International Economic Order which calls for greater controls over and

access to technology transfer to Third World nations. Both of

these orders are intended to strengthen the self-sufficiency of

developing nations.
———

Ch. 8—impact of New Technologies on the International lntellectual Property System ● 229

monitoring and assessment system .44 Uncopyrightable raw data on all countries generated

by this series on the Earth Resources Satellite Program are disseminated to governments,

firms, or individuals at very low prices. As

Landsat is currently being transferred from

government ownership to the private sector,

data that have been processed and analyzed

(by private sources), and thus are copyrightable, such as field-by-field analyses of croplands, blight, drought, and mineral resources,

are available at a much higher price. Because

less developed nations have difficulty paying

these prices, or lack the computer technologies

needed to process and interpret the data themselves, they often cannot gain access to such

data. As a result, they believe that they are

potentially at a disadvantage in world agricultural commodity markets, where private firms

and wealthier governments can afford and use

the data to make more well-informed, strategic decisions:

The importance of information lies in its

role as a central factor in decision-making, including all matters related to development.

Information is a precondition for identifying

alternatives, reducing uncertainties about

their implications, and facilitating their implementation. As such, information is a critical resource, not least for enhancing the negotiating capabilities of developing countries

in the pursuit of clearly defined objectives,

in particular in dealing with translational corporations.45

Many governments of developing countries

also view information-processing and communication technologies as means to achieve major societal goals. Likening these technologies

to a change in the “entire nervous system of

social organization, many governments consider the establishment of information infrastructures to be crucial for development.46

“For a detailed analysis of international remote sensing satellite issues, see U.S. Congress, Office of Technology Assessment, Remote Sensing and the Private Sector: Issues for Discussion– A Technical Memorandum, OTA-TM-I SC-20

(Washington, DC: U.S. Government Printing Office, March

1984).

“United Nations Center for Transnational Corporations,

Transborder Data Flows: Access to the International On-1ine

Database Market (New York: United Nations, 1983).

“Simon Nora and Alain Mine, The Computerization of Societj’ (Cambridge, MA: MIT Press, 1980).

These nations want to use information and

communication technologies for such things

as: national integration; administrative effectiveness; the delivery of formal and informal

education; teacher training; agricultural information; medical and health care services; region-specific cultural programming; and coping with natural disasters.47 Many developing

countries believe, therefore, that international

intellectual property protection, which can act

as a regulator of information flows, might inhibit such use and act as a barrier to development.

For these same reasons, many developing

countries are wary of certain product patents.

They contend that royalty payments required

by patents should be relaxed for products that

are necessary for development, and in some

cases, human survival.48 Many industrialized

nations oppose this point of view. Having incurred large costs in the research and development of products, they believe they are entitled to recoup their investments by selling

in foreign markets.

One product that caused such a problem is

the patented pharmaceutical product Tagamet

(generic name, cimetadine, an anti-ulcer drug),

developed by the U.S. company SmithKlineBeckman. By the time the company was ready

to market its product in Argentina, 48 percent

of its market had already been undercut by a

local firm selling the product at a much lower

price. Due to Argentina’s lack of patent protection for pharmaceuticals, the local companies could take the product and sell it at a lower

price because they did not have to recoup development costs or pay royalty fees. Smith-

“Jorg Becker, Information Technolom’ and a iVew International Order (Sweden: Studentlitteratur A13, Chartwell-Bratt

Ltd., 1984), pp. 109-111.

‘“Because many developing nations believe they need to acquire technology from the advanced nations, they tend to retain patent, trademark, and copyright laws because they provide some security that helps to continue to attract foreign

enterprise. However, the intellectual property protection is frequently modified. They may offer, for example, compulsory

license requirements, curbs on the manner in which the royalties are paid, exclusion of certain products or subject matter

from protection, or official examination of the terms on which

foreign rights owners establish their own local operations or

grant licenses to local enterprises. W.R. Cornish, Intellectual

Propert-v: Patents, Cop-vright, Trademark, and Allied Rights

(London: Sweet & Maxwell, 1981), p. 17.
230 ● Intellectual Property Rights in an Age of Electronics and Information

Kline-Beckman claimed it lost approximately

$50 million in revenues because of the lack of

patent protection in many developing nations.49

Growing political tensions between nations

are also occurring with regard to intellectual

property rights for plants. The United States

and the other industrialized nations have no

native primary crops. As a result, Western nations have traditionally used plant varieties

from the Third World to genetically engineer

new and better seeds for farm crops. Because

many of the developing nations do not have

the technology for seed development, they are

generally forced to buy many of these genetically engineered seeds from the industrialized

nations. Political tensions between nations

arise because developing nations believe that

the industrialized nations are exploiting the

Third World’s natural resources. They attribute the problem to the granting of intellectual

property rights:

How is it that we farmers [from the Middle

East] spent 10,000 years cultivating and

breeding our plants, then someone else from

the West works on it for 10 years, and only

then is it called “intellectual property” and

becomes patentable?50

Although most tensions arising out of intellectual property rights have been primarily between industrialized and less developed nations, political issues related to such rights

have recently begun to emerge between developed nations as well. A case in point involves

the Strategic Defense Initiative (SDI) research

program. Among other goals, political comity

and support among nations for defense are major goals of the SDI research program. For this

reason, the United States is seeking other nations’ cooperation and participation in the SDI

research program.

“Gerald Mossinghoff, President of the Pharmaceutical Manufacturers Association, testimony ‘on the BenefiCiw Countv

I+actices, before the General System of Preferences Subcom- mittee of the Trade Policy Committee, June 24, 1985.

‘OPhillip Hilts, “Battles Sprout Over World Seed Supply:

Bureaucrats and Nations Grapple With Charges of Neglect and

Genetic 1mperkilism,” The Washington Post, Nov. 4, 1985, p.

A3.

However, one of the major impediments to

gaining the support of other nations is the issue of ownership of technology. For example,

the United Kingdom made it clear to the

United States that it would not participate in

the SDI program unless the terms for the

rights to the technology were stipulated at the

outset of the research. The United States, however, believes that this would be incompatible

with the Defense Department’s regulations,

which do not allow blanket patent and technology transfer guarantees and require consideration on a case-by-case basis. Thus, intellectual property rights are the source of some

political pressures among nations and may actually preclude international political cooperation and participation in the SDI program.51

Policy Implications

There are no simple solutions to the political issues raised by intellectual property rights.

Although U.S. economic interests would most

likely be served better by strict enforcement

of intellectual property protections in other nations, political relations may also be a consideration. Many U.S. intellectual property products, for example, help promote U.S. culture

abroad:

Books have unique qualities enabling them

to provide foreigners substantive perceptions

and insight into American society and government policies which they can get no other

way. . . [T]hey smooth the path for the pursuit of our foreign policies. It has been said

that next to people, books are our best ambassadors of international enlightenment and

goodwill.52

— .

5’Karen DeYoung, “British, American Officials Hit Snags

on SDI Cooperation: Allies at Odds Over Contract Terms, Ownership of Technology, ” The Washington Post, Oct. 26, 1985, A5.

“Curtis Benjamin, U.S. Books Abroad: Neglected Ambassadors (Washington, DC: U.S. Library of Congress, 1983), p.

72. Recognizing the importance of books to increased understanding of the United States, the U.S. Government through

the U.S. Information Agency distributes books worldwide in

57 languages; by 1971 it had published and disseminated 19,220

editions totaling 157,200.000 copies. Nicholas Henry, ~p~’ght,

Information Technology, Public Policy, Part 1: Copyright-Public

Policies (New York: Marcel Dekker, Inc., 1967), p. 5.
Ch. 8—Impact of New Technologies on the International Intellectual Property System ● 231

Similarly, copyrighted musical works, audiovisual works, sound recordings, and patented

technical works also further international understanding and an appreciation of U.S. culture, and so might aid U.S. relations with both

developing and industrialized nations.

Although many consider it unfair to expect

producers of intellectual property to absorb

large losses in international markets in order

to foster international relations, the cultural

and political significance of these products

might require striking a new balance between

producers and importers of intellectual property products. Political and cultural considerations as well as economic concerns might need

to be taken into account when adjusting the

international intellectual property system.

These considerations might also need to be factored into U.S. domestic intellectual property

policy and international trade and political

relations.

Recognizing how important U.S. cultural

and educational products are to its relations

with other nations, the United States has established several programs within the U.S. Information Agency (USIA). These programs are

designed to promote international understanding by providing developing and industrialized

countries with American films, radio programs, television programs, music, books, and

cultural programs at low or no cost. These programs, however, have been greatly reduced

over the last few years. The USIA-sponsored

book publishing program, for example, which

includes translation programs and low-priced

book programs, was reduced from 6,621,000

copies in 1956 to 525,000 copies in 1980.53 As

a result, many people have criticized the U.S.

Government for failing to meet the Third

World’s cultural and educational needs. One

former U.S. ambassador, for example, asserted

that the U.S. Government’s recent neglect of

its overseas book, educational, and cultural

programs denies our foreign policy “one of our

greatest sources of strength as a nation.”54

“’Curtis Benjamin, U.S. Books Abroad: Neglected Ambassadors (Washington, DC: Library of Congress, 1984), p. 91.

“’’’Selling America in the Marketplace of Ideas, ” New York

Times Magazine, Mar. 20, 1983.

Another U.S. diplomat pointed out that other

industrialized nations, such as France, the

United Kingdom, and West Germany, devote

a greater proportion of their national budgets

to public distribution of information products

for diplomatic purposes than does the United

States.”

The United States has several options for

addressing the political issues raised by new

technologies. If the United States wishes to

address the informational needs of developing

countries, for example, it might increase USIA

information distribution programs, and include

provisions for the distribution of information

in other international development programs

for education, agriculture, medicine, transportation, etc. Moreover, USIA might implement

new programs to help nations to develop information and communication infrastructures,

so they can utilize information in electronic

forms such as databases, videotapes, and software programs:

Information access is easier to transfer to

the developing world than was agriculture or

industrial know-how. While it is not possible

to put the Third World on an equal footing

with the First World in the next ten years,

it is possible to communicate the needed expertise now. The best mathematicians in the

world could create expert systems and make

them available to the poorest countries

through existing satellite networks and earth

stations, relayed by telephones to low-cost

terminals. Medical diagnosis and training or

engineering design could also be redistributed

throughout the world at a unit cost within

national budgets.56

Another option that the United States might

pursue would be to earmark funds that were

traditionally allocated for foreign aid for the

purchase of intellectual property products.

This would give developing countries access

to information and information-based products

and services and at the same time instill re5’Allen Hansen, Jr., USIA Public Diplomacy in the Computer Age (New York: Praeger Press, 1984).

“Jerome Glenn, “Helping Countries Help Themselves:

Keys to Third World Development, ” The Futurist, December

1985, pp. 33-35.
232 ● Intellectual Property Rights in an Age of Electronics and Information

.-

spect for the protection of intellectual property rights.

Although these options address the growing political issues relating to intellectual property rights, they might also conflict with U.S.

trade and economic views of intellectual property. For if the United States contributes many

of its information-based products and services

to developing countries, it cannot receive the

international market value of such highly

sought after products and services. This, in

turn, could have a negative effect on the U.S.

balance of payments.

Emergence of New Information-Based

Products and Services That

Do Not Correspond to Traditional

Intellectual Property Protections

Although rooted in different philosophical

traditions, the intellectual property systems

of different nations have been harmonized over

the years through the international intellectual property system. This cooperation, made

possible by a shared set of goals as well as by

national treatment, led in the past to general

agreement among nations on what constituted

protectable subject matter, infringement activity, and the like. This process of reaching international agreement is generally slow, depending on years of interplay between national

and international laws and policies.57

The unprecedented rapid and large-scale development of new information and informationbased technologies, which is illustrated in figure 8-3, has disrupted this formerly stable system. Such rapid and large-scale technological

change has forced nations to respond faster

and perhaps more dramatically in interpreting and legislating intellectual property protection. Some nations have enacted intellectual property legislation to protect emerging

technologies, while other nations have not.

These divergent reactions have led to great inconsistencies among nations, which, in turn,

“This slow and elastic process of unifying national intellectual property law and policies is cited as one of the most important aspects of the international intellectual property conventions.

have made agreement at the international level

more difficult.

Intellectual property protection for computer software is one often-cited example of the

differing levels of protection nations have

granted a new technology:

The debate on both the possibilities and appropriate form for protection of software has

now been continuing for nigh on 15 years.

. . . Despite the harmonization of national legislation . . . we are still faced with a whole

gamut of divergent solutions ranging from

the full recognition of the patentability of

software and its protection under copyright,

through various intermediary solutions, to a

radical refusal of any protection for computer

software. 58

Because the United States was one of the

first countries where computer software became a large and important market, it was here

that the debate over its protection first took

place. 59 Like many other industrialized nations,

the United States explored the possibilities of

protecting software by drawing analogies between the characteristics of software and other

intellectual properties that are protected by

existing legal frameworks, such as copyright,

patent, and trade secrets. After many heated

debates and commissioned studies, the United

States, in a 1980 amendment to the 1976 Copyright Act, explicitly granted copyright protection for software.60

— .——

5MKolle, “Computer Software Protection–Present Situation

and Future Prospects, Copyright 13, 1977, p. 70.

“In 1982, the worldwide revenues from software amounted

to $13 billion and is projected to quadruple by 1987. U.S. companies garner approximately 70 percent of the market. United

States Trade Representative, “USTR Seminar on International

Copyright Issues in Computer Software, ” Sept. 24, 1984.

‘The United States implicitly extended copyright protection to computer software in the Copyright Act of 1976, 17 U.S.C.

jj 101-810. The National Commission on New Technological

Uses of Copyrighted Works (CONTU), created by Congress to

revise comprehensively the copyright laws of the United States,

stated in its final report that “it is clear that. . . those who have

admini:~tered the portions of the 1909 act concur in the position that programs are copyrightable. The Copyright Act was

amended in 1980 to expressly state that computer programs

were to be included as copyrightable works: Section 101 of the

Act was amended by addition of the word “computer program, ”

and a definition of that term; Section 117 was amended by the

addition of certain limitations on exclusive rights pertaining

specifically to computer programs. The U.S. courts have also

recognized copyright protection for software.
Ch. 8—Impact of New Technologies on the Irrternational Intellectual Property System ● 233

Figure 8-3.— The Speed of Change: Intervals Between Discovery and Application in Physical Science

SOURCE John McHale, World Facts and Trends (New York Collier Books, 1972) p 3, as cited in Magda Cordell McHale Facts and Trends The Changing Information

Environment: An Information Chartbook (Rome Intergovernmental Bureau for lnformatics 1985) p 4

Although most nations have not explicitly

amended their copyright laws to include software, some either consider it to be protectable under copyright law through judicial interpretation and/or are actively pursuing copyright protection.61 These countries include Austria, Canada, Colombia, France, Finland, the

Federal Republic of Germany, Italy, India, Japan, Korea, Mexico, the Netherlands, South

Africa, Spain, Sweden, and the United Kingdom.”

——— —

‘ ‘Currently-, Australia, Hungary, the Philippines, and Taiwan have amended their copyright laws to include computer

software as protectable subject matter.

‘“United Nations Educational, Scientific, and Cultural Organization (UN F; SC()), World Intellectual Property Organization

(WI PO), Group of Experts on the Copyright Aspects of the Protection of Computer Programs, Michael S. Keplinger, “A Survey and Analysis of N’ational I.egislation and Case Law, hlarch

1985; and Michael S. Keplinger, “Authorship in the Information Age: Protection for Computer Programs Under the Berne

and the Universal Copyright Conventions, Copyright, March

1985, pp, 119-128.

Among those nations that are considering

protection for software, there is a wide variety of schemes envisioned. Some nations would

offer such protection, but with limitations. A

white paper prepared for the Canadian Government, for example, proposes to limit copyright protection for object code (machinereadable language) to 5 years.63 Other nations

have declared that they will not protect software under the copyright law, although they

may grant it some type of sui generis protection. Other nations may not protect software

at all. Brazil, for example, is considering legislation that would establish a sui generis form

of protection that would require compulsory

licensing of software to Brazilian companies

and compulsory registration of both source and

‘ Consumer and Corporate Affairs and Department of Communications, Government of Canada, ‘‘From Gutenburg to Telidon: A Guide to Canada’s Copyright Revision Proposals" (Ottawa: Ministry of Supply and Services, 1984).
234 ● Intellectual Property Rights in an Age of Electronics and Information

object codes. The proposed protection, moreover, would be for a very short duration. Such

varied approaches to protecting—or not protecting—software and other rapidly changing

technologies might impede attempts to reach

an international agreement on software protection. 64

The introduction of reprographic technologies offers another example of how new technology is complicating the harmonization of

national intellectual property law at the international level. The increasing use of these technologies has undermined owners’ rights to collect remuneration for the reproduction of their

works. To cope with these problems, many nations have legislated new rights enabling creators to collect compensation for the use of

their works. The Federal Republic of Germany,

for instance, has dealt with the problem by

amending its copyright law to include a compulsory license that allows authors to collect

equitable remuneration for the commercial reproduction of their works. In contrast, France

has introduced a tax on the sale and importation of all reprographic copying machines in

its 1976 Finance Act. Part of the collected revenues from the tax are paid to the copyright

owners. This law applies only to French copyright holders, even though France is a member of both international copyright conventions.

Although both of these solutions aim to ensure rights owners remuneration, they are legally inconsistent with one another, and thus

will cause difficulty for international agree-

— — —

“The fact that WIPO’S 1978 proposed draft Treaty for the

Protection of Computer Software (which includes rules for the

minimum protection of software that are closely related to those

of copyright and unfair competition) has not been ratified illustrates the problems of finding an adequate protection for software that can be agreed on internationally. The draft Treaty

proposed that in view of the large degree of uncertainty generally related to the existence and form of protection under copyright, that a special system of protection of software similar

to copyright should be set up at national and international levels.

The draft Treaty, moreover, calls for the international deposit

of software. Some individuals believe, however, that Article 11

of the Berne Convention is applicable for the international protection of software. Cynthia L. Mellema, “Copyright Protection for Computer Software: An International View, Syracuse

Journaf of International Law and Commerce, vol. 11, summer

1984, p. 90.

ment. The West German compulsory license,

although under the rubric of copyright law,

would be incompatible with the solution

enacted by the French. The more serious difficulty, however, arises with solutions like that

adopted by France. Because the right to compensation is introduced under legislation outside of the copyright law, the principle of

national treatment, on which the entire international intellectual property system is built,

is seriously undermined.65 The principle of national treatment is challenged because the compensation for the reproduction right does not

arise from a copyright, and thus foreigners cannot collect compensation for use of their works.

In general:

If that device is generally used by governments when dealing with the new uses of

copyright material arising from new technology and new means of communication, the

fundamental principle of national treatment

and with it the [international] copyright conventions based on it, could be seriously eroded

in the near future. 66

Another problematic situation arises from

applying patent law to activities in outer space.

Domestically, the National Aeronautics and

Space Administration (NASA) has adopted a

— —

“Another example of how a right to remuneration has been

taken out of the copyright sphere can be seen in the rights many

countries have granted to enable creators to receive remuneration from home taping activities. In the case of home taping,

a levy on recording equipment or blank tape can be treated as

royalty to be divided among copyright holders as in West Germany or Austria. However, it can also be treated largely as a

tax, as in Sweden, where 90 percent goes to public funds and

10 percent goes to the rights owners (authors, performers, and

phonogram producers). Public lending rights (although an indirect response to the introduction of reprographic technologies),

which entitle authors of literary works to receive a royalty when

their books are borrowed from a library, have also caused difficulties for international harmonization. For example, in the Federal Republic of Germany this right is granted in their copyright law, and therefore as the Federal Republic of Germany

is a member of both the Berne and UCC Conventions, foreigners are entitled to remuneration if their books are borrowed.

The Scandinavian countries and the United Kingdom, however,

which also grant a public lending right, have chosen to do so

by separate legislation outside of the copyright laws and therefore are not bound to grant the right to foreigners; although

like the Federal Republic of Germany, they are also members

of both conventions, Stephen Stewart, The Law of Intematiomd

Cop~”ght and Neighboring Rights (London: Butterworth & Co.

(Publishers) Ltd., 1983), pp. 42-43, 282.

‘Ibid., p. 43.
Ch. 8—Impact of New Technologies on the International Intellectual Property System • 235

.

clear policy of providing maximum protection

for intellectual property rights to encourage

the use of and commercialization of NASAsupported and developed technology. However, as more research, particularly international cooperative research, is performed in

space, it may become more difficult to determine which national legal jurisdiction of patent protection applies to it. For example, sections 102 and 104 of the U.S. Code 35 state

that the factors used to determine patentability under U.S. law or to establish priority in

international conflicting claims to invention

include where an invention was conceived, reduced to practice, or used. In addition, under

the U.S. patent law patents protect use or manufacture only in the United States. As more

U.S. and international research and development is performed in space, the question arises,

therefore, as to how to obtain and enforce U.S.

patent rights in space.67

Policy Implications

The speed and scale of technological change,

now and in the future, together with the rapid

development of national and international law,

are likely to heighten the pressures for the development of international intellectual property law.68 As technological change prompts

more need for rapid international consensus,

greater international action and coordination

will become necessary. Consequently, the

United States might have to participate to the

‘“’’The Applicability of U.S. Patent Laws in Outer Space, ”

Telecom Highlights, June 19, 1985, p. 4; and Barbara Luxenberg (Special Assistant to the Assistant Secretary and Commissioner of Patents and Trademarks, U.S. Department of Commerce), “Protection Intellectual Property in Space: Policy

Options and Implications for the United States, ” presented to

the Georgia Institute of Technology Conference, 1985, International Space Policy: Options for the Twentieth Century and

Beyond, May 16, 1985.

‘After approximately a century without any major copyright reform, the reform of national copyright laws to adjust

the law to advancing technology has speeded up considerably

in the last three decades. For example, new copyright acts passed

in France in 1957, the United Kingdom, 1956; India, 1957; the

Scandinavian countries, 1959/1960; Germany 1965; Australia,

1968; Japan, 1971; the Soviet Union, 1973; and the United

States, 1976; and many Latin American countries, 1970s are

evidence of this trend. Stephen Stewart, The International La w

of Copyright and Neighboring Rights (London: Butterworth

& Co. (Publishers) Ltd., 1983), p. 281.

fullest possible extent in international intellectual property fora so that it can both influence international decisions and keep abreast

of national and international developments.

The United States, moreover, might need to

take greater account of how its domestic intellectual property legislation could affect or

be affected by the international system.

As discussed above, the extent of U.S. participation in international intellectual property

organizations is relatively limited because of

its withdrawal from UNESCO and its abstinence from the Berne Convention. This lack

of participation might seriously impede the

United States from monitoring developments

in international agreements. Moreover, it may

also weaken the U.S. ability to influence decisions about which rights might be incorporated

into the international agreements with respect

to new technologies.

In addition to its lack of international participation, recently proposed and already legislated U.S. intellectual property policies might

be inconsistent with international intellectual

property norms. The recent passage of the

Semiconductor Chip Protection Act of 1984

(Public Law 98-620), for example, created a sui

generis protection for semiconductor chips. Although this new type of protection maybe well

suited for the functional nature of chips, there

is a trade-off with respect to its consistency

with the system of international agreements.

Because the Semiconductor Chip Protection

Act of 1984 is a sui generis approach and does

not fall under the rubric of copyright or patent law, there is no international agreement

under which the protection of chips can be

organized at the international level. Moreover,

section 902 of the act states that foreigners

may only receive protection if their nation also

protects mask works. This reciprocity clause

is inconsistent with the principle of national

treatment which requires all nations to provide foreigners with the same protection as

their citizens. Exacerbating these problems,

some nations, such as the United Kingdom,

disagree with the sui generis approach, considering chips to be protected under copyright
236 ● Intellectual Property Rights in an Age of Electronics and Information

——

law.69 To date, only one other nation, Japan,

has legislated a sui generis protection for semiconductor chips.

The International Software Protection Act

of 1985 (S. 339, 99th Congress) is another example of a proposed policy that might cause

problems for the present system. This bill

would amend the U.S. copyright law to protect a foreign nation’s computer software only

to the extent that such a nation protects

software-the so-called “rule of the shorter

term. ” It also stipulates that, if a nation protects software for a period of less than 25 years,

the U.S. will suspend all protection for that

nation’s software. Like the reciprocity clause

of the Semiconductor Chip Protection Act, this

conflicts with the principles of national treatment called for in the international intellectual

property agreements.

The recently proposed renewal of the manufacturing clause also illustrates how a U.S. intellectual property policy might negatively effect U.S. international intellectual property

relations. First introduced in the 1891 Copyright Act, this clause required that literary

works be printed in the United States in order

to enjoy U.S. copyright protection. The general purpose of the manufacturing clause was

to protect those who feared that granting unrestricted copyright protection to foreign (specifically British) authors would enable foreign

publishers to dominate the U.S. book market.

Recognized by many as a type of “xenophobic trade barrier” the manufacturing clause has

been weakened over time, and most recently

was set to expire in July 1986 (Public Law 97-

215). 70 However, Congress is currently considering legislation that would extend the manufacturing clause or make it permanent (S. 1938,

S. 1822, H.R. 3465, H.R. 3890, 99th Congress).

The manufacturing clause has created several difficulties for U.S. international intellectual property relations. Because it imposes formalities (the requirement of U.S. publication)

“R. Hart, “Legally Protecting Semiconductor Chips in the

UK, ” European Intellectual Property Review, vol. 9, 1985, pp.

258-263.

“’Benjamin Kaplan, An Unhurried View of Copyright (New

York: Columbia University Press, 1967), p. 124.

on works of foreign origin, it impedes U.S. adherence to the Berne Convention. For to join

the Berne Convention, member nations cannot impose formalities as a condition of copyright. The manufacturing clause has also been

the subject of complaints of unfair trade practices by the European Economic Community

(EEC), and found to be an import restraint that

is inconsistent with Article XI of the General

Agreement on Tariffs and Trade (GATT) .7’ Because it restricts the protection of foreign

works and precludes the United States from

ratifying the Berne Convention, this clause

might also lead other nations to believe that

the United States is disingenuous in its attempts to convince other nations to ratify international intellectual property conventions.

If the United States proceeds with policies

that are incompatible with either international

agreements or other nations’ domestic laws

and practices, it might jeopardize its ability

to incite other nations to protect U.S. intellectual property products. For unlike many other

items of international trade, the financial returns from intellectual property products are

largely dependent on other nations’ laws and

enforcement actions. Therefore, the United

States must ensure other nations’ cooperation

and support for the international protection

of intellectual property rights. A coercive approach or the imposition of U.S. policies on

other nations might not necessarily serve to

elicit other nations support for the international protection of intellectual property, as

one copyright analyst points out:

Of course it would be pure folly to expect

all nations of the world, including the new

ones, to introduce at the present stage the

same copyright regime as we and other wellendowed old-timers are-or, in the case of the

Soviet Union, should be–willing to accept.

We should recall that in 1891 that this country, claiming to be a have-not, provided no

legal protection whatever for the published

works of foreigners. When our legislation of

— 1891 finally did grant rights to such works,.

“’Ralph Oman, Register of Copyrights, Library of Congress,

testimony on “Bills To Make Permanent the Manufacturing

Clause of the Copyright Act, ” before the Subcommittee on Patents, Copyrights, and Trademarks, Senate Committee on Judiciary, .Jan. 21, 1986, p. 7.
—

Ch. 8—Impact of New Technologies on the International Intellectual Property System ● 237

—

it was on the condition, in the case of books

among certain other productions, that manufacture be carried out in the United States

. . . . But I have brought in the manufacturing clause to suggest by example that harmonization is bound to have its difficulties

and, beyond that, to propose that we [the

United States] ourselves should take another

step toward international pacification.72

Ratifying the Berne Convention and rejoining UNESCO are possible to options to bring

U.S. law into line with international intellectual property law. As previously discussed,

these options would have both positive and

negative effects on the U.S. position in the international intellectual property system.

Another option to address the legal issues

raised by new technologies would be to establish a critical review of how proposed legislation would affect and be affected by the international system; accordingly, legislation might

be modified to that effect. However, similar

to the negative outcomes associated with joining the Berne Convention, conforming U.S.

laws and practices to international intellectual

property norms might threaten the integrity

of traditional U.S. intellectual property laws

and practices.

Increasing Difficulty of Enforcing

Intellectual Property Rights Caused

by Emerging Information and

Communication Technologies

Traditionally, nations granted intellectual

property rights on the assumption that they

could, in fact, be enforced. In the past, this was

true; copyright holders could more easily collect for uses and detect infringements of their

works. This was the case because uses of creative works were easily monitored, and infringements easily detectable, and because the geographic scope of use was generally confined

within national boundaries.

“’Benjamin Kaplan, “An Unhurried View of Copyright (New

York: Columbia University Press, 1967), pp. 123-124.

While facilitating the international exchange

of intellectual property, new communication

and information technologies have also undermined the traditional ways of enforcing intellectual property rights. The same technological advances contributing to economic growth,

trade, and international access have also made

it easy and inexpensive to reproduce and pirate intellectual property .73 Moreover, these

technologies, such as satellites, cable, photocopying, recording audio and video devices,

computers, and electronic storage, retrieval,

and distribution systems, are more powerful

than their predecessors, engendering problems

of enforcement that are much larger and more

international in scope.

The level of legal protection for intellectual

property in many nations also contributes to

international piracy of U.S. copyrighted works.

The problems U.S. copyright owners face abroad

with respect to these conditions can be classified into three categories:

1. nonexistent (ineligibility) copyright protection in a foreign country;

2. inadequate protection in a foreign country; and

3. ineffective copyright protection in a foreign country .74

The growing problem of international enforcement is exemplified in the apparent rapid

increase of international piracy of protected

works. Many U.S. industries have reported

large losses due to foreign private copying,

commercial piracy, and counterfeiting of their

intellectual property products.75 The U.S. In-

“’International Intellectual Property Alliance, “International Intellectual Property Alliance: U.S. Government Trade Policy: Views of the Copyright Industries, 1985, p. 10.

“’Subcommittee on Patents, Copyrights, and Trademarks,

Senate committee on the Judiciary, “Oversight on International

Copyrights: How To Protect the Nation’s Creativity by Protecting the Value of the Intellectual Property, ” Sept. 25, 1985,

p. 86.

“Although piracy and counterfeiting each constitute theft

of intellectual property, there are small differences in their meaning. In addition, private copying, which is not clearly defined

as a legal or an illegal practice under most nations’ laws, also

has a potential impact on the sales of intellectual property products. Piracy refers to unauthorized reproduction for commercial gain of literary, musical, artistic, and other copyright works.

Because pirates do not pay royalties and bear no development

costs, they can easily sell their products more cheaply than the

(continued on next page)
238 . Intellectual Property Rights in an Age of Electronics and /formation

ternational Trade Commission estimates U.S.

domestic and foreign sales losses due to patent and copyright infringements at between

$6 billion and $8 billion per year.76 Figure 8-4

shows the level of infringing activities and

some frequently counterfeited products. The

International Anti-Counterfeiting Coalition

and the U.S. Customs Service place losses due

to the infringement of intellectual property

rights closer to $20 billion annually .77 Another

survey undertaken by the International Intellectual Property Alliance of the losses due to

piracy of U.S. copyrighted records and tapes,

motion pictures, and books in 10 selected nations estimates annual losses at $1.3 billion

(see table 8-3). A poll of the motion picture and

television, prerecorded entertainment, and

publishing and advertising industries also revealed that 100 percent of the executives surveyed cited intellectual property rights infringements abroad as a major barrier to sales

of their products in international markets78 (see

table 8-4).

Although these estimates provide a general

approximation of the extent of the piracy problem, there are relatively few data on specific

industries in individual countries and on the

actual amounts of revenue lost due to private

copying, commercial piracy, and counterfeiting. Evidence of private copying and piracy

(continued from previous page)

rights owners. Counterfeiting refers to unauthorized duplication of a product’s trademark to give a similar appearance of

a specific product. In addition to directly undercutting the original rights owner’s market, counterfeiters by producing lower

quality imitations of products may also damage the products

quality reputation and further undercut the original market.

Although not illegal, private copying generally refers to home

copying of intellectual property products solely for individual

consumption. It has resulted from the ready availability to the

consumer from 1964 onwards of magnetic tape reproduction

equipment coupled with blank cassettes, videotape recorders

coupled with blank cassettes, personal computers coupled with

blank software, etc. See Gillian Davies Private Copying of Sound

and Ad”oviswd Recordings (Oxford: ESC Publishing Limited),

1984.

“U.S. International Trade Commission, “The Effects of

Foreign Product Counterfeiting on U.S. Industry” (Washington, DC: U.S. International Trade Commission, January 1984).

“Eileen Hill, “Intellectual Property Rights: Commerce Department Program Seeks Greater Protection for U.S. Intellectual Property Rights, ” Business America, Mar. 18, 1985, p. 4.

““CBS, Inc., “Trade Barriers to U.S. Motion Picture and

Television, Prerecorded Entertainment, Publishing and Advertising Industries, ” September 1984, p. iii.

is generally gathered indirectly: by measuring

the increase of sales and availability of hardware that permits easy and inexpensive copying; the increase of sales of blank audio and

video tapes; the decreasing sales of published,

audio, and video works; the decreasing number of journal subscriptions in different countries; the widespread availability of unauthorized copies of American creative works; or the

level of ineffectiveness or inadequacy of protection offered in different countries. These

measurements, however, do not directly indicate what percentage of the purported piracy

is of U.S. products. In other instances, when

overall estimates of revenues lost to piracy are

presented, the methodology or definitions of

harm used to extrapolate such figures are often

inconsistent throughout the calculations or are

not readily apparent. For example, much of the

survey data on the effects of unauthorized

copying on producers must be carefully interpreted in light of the way in which harm is

defined:

Two possible definitions [of harm] are suggested. Under the first, harm is measured by

the reduction in profits of the producer below their level prior to a new unauthorized

use. Under this definition, harm does not occur if the unauthorized use leaves profits from

all previous uses unaffected. . . Under a second definition, harm occurs if the new use reduces profits below the level they would have

reached had the producer been able to exploit

the market served without authorization. . .

Clearly, these alternative definitions can give

very different answers to the question of

whether an unauthorized use has harmed the

property owner. The distinction between

them must be kept in mind when examining

the various claims of harm.79

The definitions of piracy also vary greatly

from nation to nation, and they are generally

dependent on each country’s intellectual property laws and on international norms. It would

seem, therefore, that because American products garner a relatively large percentage of foreign markets, foreign piracy of U.S. intellec-

“Stanley Besen, “Economic Issues Relating to New Technologies and Intellectual Property, ” contract prepared for OTA,

Dect!mber 1984, pp. 45-55.
Ch. 8—Impact of New Technologies on the International Intellectual Property System “ 239 — . —.—— — — - ——.— —

Figure 8-4.—The Level and Location of International Counterfeit Activity of U.S. Products

1

Un

L

Semiconductors

Canada I

.uxury goods Aircraft Machine Electronic \ y~~ ’

ited States parts parts

{

uxury goods Sporting

Mexico goods

porting goods

Brazil

Most active Moderate ❑

, / Light Minima l

,/

SOURCE International Trade Commission. as cited in Business Week, Dec. 16, 1985

tual property products is also sizable. These

uncertainties notwithstanding, the major available statistics on piracy and counterfeiting in

the publishing, recording, motion picture, and

software industries are summarized below.

The Publishing Industry

According to publishing industry officials,

the introduction of technologies such as photocopying, and new electronic storage and

print technologies has led to vast international

piracy and private copying of texts and literary works.80 Compounding this is the marriage

80Literar~ works are defined in § 101 of the 1976 Copyright

Act as “. . . works other than audiovisual works, expressed in

of communication technologies with electronic

information storage and retrieval systems,

which has led to more and faster international

words, numbers, or other verbal or numerical symbols or indicia, regardless of the nature of the material objects, such as

books, periodicals, manuscripts, phonorecords, film, tapes, disks,

or cards, in which they are embodied. ”

Internationally, literary works are protected under the UCC

of which the United States is a member: “Each Contracting

State undertakes to provide adequate and effective protection

of the rights of authors and other copyright proprietors in literary, scientific, and artistic works, including writings, musical,

dramatic, cinematographic works, and paintings, engravings,

and sculpture. Article I, Universal Copyright Convention,

Paris, 1971. Literary works enjoy a higher international level

of minimum protection under the Berne Convention of which

the United States is not a member.
240 • Intellectual Property Rights in an Age of Electronics and /formation

❑

m

m

al

c

‘3

:
— -—

Ch. 8—Impact of New Technologies on the International Intelectual Property System Ž 241 —

exchanges of printed works, The third factor

contributing to piracy is the lack of adequate,

effective, or indeed, any legal protection for

U.S. literary works in many nations.

The Association of American Publishers,

Inc. (AAP) estimates that the industry loses

$1 billion each year to piracy of English-language books worldwide. Of this, AAP estimates that U.S. works account for 70 percent.

The AAP also suggests that estimates of lost

revenues would be greater if calculated on the

basis of U.S. legitimate prices instead of on

the basis of estimated revenues earned by pirates. The publishing industry has also completed a country-by-country analysis of the

piracy of published or literary works.” Although the AAP does not calculate direct evidence of actual harm to the industry, its report indicates that piracy is more common in

some nations than in others. The majority of

the piracy reported takes place in developing

or newly industrializing nations. For example,

over 27 U.S. publishers reported evidence of

piracy of their materials in Taiwan:

‘ .4ssociation of American Publishers, Inc., “Piracy of CopJTrighted Material: A Report Prepared at the Request of the U.S.

Department of State,” 1985.

An estimate of at least 560 titles from reference, professional, trade, personal computer

and college textbooks have been pirated in

Taiwan with approximately 48,000 pirate copies in English and Chinese. . . [in addition]

Taiwan is illegally exporting pirated books

to Australia. The books are business and computer-related and are published by well-known

American publishers.”

In addition to pirating of domestic sales, Taiwan as well as other A SEAN countries pirate

products to export to other nations.83 Approx-

—

‘“ Ibid~, ‘p~6.

“ASl?AN (Association of Southeast Asian Nations) countries are Brunei, Indonesia, Malaysia. the Philippines, Singapore, and Thailand.

“In January 1983, the Taiwanese police seized a container

bound for Nigeria, purportedly carrying water filter cups and

crash helmets. Hidden inside were 54,000 copies of five British

titles that had not been authorized by the copyright holders

for export from Taiwan. The cargo was valued at $48,000. (Its

selling price in Nigeria would have been at least $250,000). After long and expensive litigation the penalty for this offense

was 1 year’s imprisonment, but the sentence was suspended.

The infringing cargo was destroyed, but no printing plates were

confiscated and only a small fine was assessed for false declaration. If 20 to 40 such shipments are smuggled out of Taiwanese

ports each month, then the export value of these shipments at

pirate prices would amount to a figure between $60 million and

$120 million per year. ” Association of American Publishers,

Inc., “Detailed Information on Worldwide Piracy of Copyrighted

Material and the Copyright Laws and Penalties, ” June 11, 1985,

pp. 19-20.
242 . Intellectual Property Rights in an Age of Electronics and Information

Table 8-4.—Countries and Regions That Infringe Copyrights of U.S. Motion Picture and Television,

Prerecorded Entertainment, Publishing, and Advertising Industries

Copyright infringement

.— .

Algeria. . . . . . . . . . . . . . . .

Andean Pact . . . . . . . . . . . . .

Argentina . . . . . . . . . . . . . . .

Australia . . . . . . . . . . . . . . .

Austria. . . . . . . . . . . . . . . . .

Belgium. . . . . . . . . . . . . . . . .

Brazil . . . . . . . . . . . . . . . . . . .

Canada . . . . . . . . . . . . . . . . .

Caribbean Region . . . . . . . .

Chile . . . . . . . . . . . . . . . . . . .

Colombia . . . . . . . . . . . . . .

Denmark . . . . . . . . . . . . . . . .

Dominican Republic . . . . . .

Eastern Block. . . . . . . . . . . .

EEC . . . . . . . . . . . . . . . . . .

Egypt . . . . . . . . . . . . . . . . . .

Finland . . . . . . . . . . . . . . . . .

France. . . . . . . . . . . . . . . . . .

Germany, Federal

Republic of . . . . . . . . . .

Greece. . . . . . . . . . . . . . .

Hong Kong . . . . . . . . . . . . . .

India. ..., . . . . . . . . . . . . .

Indonesia . . . . . . . . . . . . . .

Iran ., . . . . . . . . . . . . . . . . .

Iraq ., . . . . . . . . . . . . . . . . . .

Israel ., . . . . . . . . . . . . . .

Italy . . . . . . . . . . . . . . ..., . .

Jamaica . . . . . . . . . . . . . . . . . —.-— — —— .

I

[1

11

[ 1

—-— ..— —

Japan . . . . . . . . . . . . . . . . . . .

Kenya . . . . . . . . . . . . . . . . . .

Korea . . . . . . . . . . . . . . . . . . .

Lebanon . . . . . . . . . . . . . . . .

Malaysia . . . . . . . . . . . . . . . .

Mexico . . . . . . . . . . . . . . . . .

Netherlands . . . . . . . . . . .

New Zealand . . . . . . . . . . .

Nigeria . . . . . . . . . . . . . . . . .

Norway . . . . . . . . . . . . . . . . .

Pakistan . . . . . . . . . . ..., . .

People’s Republic

of China . . . . . . . . . . . . . .

Peru . . . . . . . . . . . . . . . . . . . .

Philippines . . . . . . . . . . . . . .

Portugal . . . . . . . . . . . . . . . .

Saudi Arabia. . . . . . . . . . . . .

Singapore . . . . . . . . . . . . .

South Africa. . . . . . . . . . . . .

Spain . . . . . . . . . . . . . . . . . . .

Sweden . . . . . . . . . . . . . . . . .

Switzerland . . . . . . . . . . . . . .

Syria . . . . . . . . . . . . . . . . . . .

Taiwan. . . . . . . . . . . . . . . . . .

Tanzania . . . . . . . . . . . . . . .

Thailand . . . . . . . . . . . . . . .

United Kingdom. . . . . . . . . .

Venezuela . . . . . . . . . . . . . . .

—

I

1

■

[1

■

[ 1

9

■

■

■

■

■

■

■

■

L

■

[1

■

■

■

■

■

■ -- Primary problem country or region identified by interviewed executive

= Primary problem country or region identified in literature reviewed

SOURCE Columbia Broadcasting Co., lnc, “Trade Barriers to US Motion Pictures and Television, Prerecorded Entertainment, Publishing and Advertising Industries," 1984

imately 16 American publishers reported in- and other costs-not to mention royalties—

fringement activity in Korea: that original publishers do pay. They provide

books to stores on consignment, making it It is estimated that pirates sell at least $100 easy for retailers. They also sell directly from million of books annually, and sales are ris- catalogs. One such catalog distributed in Ko- ing each year. Importers’ sales are an esti- rea, entitled Il Won Books Information, lists mated $5 million to $8 million annually, but over 8,000 pirated books.84

are plunging. Foreign book pirating flourishes

because it is legal. This country hasn’t signed Other countries where American publishers

any international copyright convention and have discovered infringements include Argenlocal law does not protect copyrights of for- —“Ass~ciation of American Publishers, Inc., “Pir~cy of eign publishers. Korean publishers can copy Co~yrightedMaterial:A Report Prepared attheRequest of the

books without paying advertising, promotion U.S. Department of State,” 1984, pp. 2-3.
Ch. 8—Impact of New Technologies on the International Intellectual Property System ● 243

tina, Australia, Brazil, Chile, China, Colombia,

Costa Rica, the Dominican Republic, Ecuador,

Egypt, West Germany, Greece, Holland, Hong

Kong, India, Indonesia, Iran, Iraq, Jamaica,

Japan, Malaysia, Mexico, Nigeria, Pakistan,

Panama, Peru, the Philippines, Saudi Arabia,

Singapore, Thailand, Venezuela, and the Soviet Union.85

The Recording Industry

As in the publishing industry, recording

companies report widespread international infringements of sound recordings. The introduction of broadcasting and of less expensive,

high-quality duplicating hardware have led to

increased international piracy, counterfeiting,

and private copying of sound recordings.86

Another major contributing factor to this

piracy is the lack of adequate or effective protection for U.S. audio works in many countries.

Half of the member countries of the United

Nations, for example, do not yet recognize the

reproduction right in sound recordings. Many

of the nations that do not provide adequate

protection for U.S. literary works are also those

that do not protect U.S. sound recordings.87

..— . ——

“’Association of American Publishers, Inc., “Piracy of

Copyrighted Material: A Report Prepared at the Request of the

U.S. Department of State, ” 1984.

“ Under U.S. law sound recordings were first explicitly protected by a 1971 amendment (Public Law 92-140, 85 Stat. 391)

and under § 101 of the 1976 Copyright Act are thus defined:

“material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by

any method now known or later developed, and from which the

sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.

Internationally, sound recordings are protected under the 1971

Convention for the Protection of Producers of Phonograms

Against Unauthorized Duplication of Their Phonograms of

which the United States is a member. The 1961 International

Convention for the Protection of Performers, Producers of

Phonograms and Broadcasting Organizations, better known as

the Rome Convention, protects sound recordings internationally, as a neighboring right. The United States, however, is not

a member of this Convention.

“-These countries include Argentina, Bolivia, Brazil, Chile,

Cyprus, Egypt, Greece, India, Indonesia, Italy, Korea, Kuwait,

Lebanon, Malaysia, Mexico, Morocco, Nigeria, the Netherlands,

Panama, Peru, Philippines, Portugal, Saudia Arabia, Singapore,

Taiwan, Thailand, Tunisia, Turkey, and Venezuela. Statement

of the Recording Industry of America, Inc., before the U.S. Department of State International Copyright Panel, “The Piracy

of Copyrighted Sound Recordings in Foreign Countries, ’ Mar.

22, 1985, pp. 2-8.

Because many of the developing and newly

industrializing countries do not afford adequate protection for U.S. sound recordings,

these countries also are the sites of the majority of piracy and counterfeiting of these works.

Singapore is an excellent example of the

magnitude of the problem, where it is estimated that 70 million counterfeit and pirate

sound recordings were exported in 1984. This

incredible total, plus an additional 15 million

counterfeit units produced in Singapore for

internal consumption, accounted for 90 percent of sound recordings manufactured or

sold in Singapore last year. A large percentage of the unlawfully duplicated products was

U.S. owned. This situation exists despite

energetic efforts of the IFPI (International

Federation of Phonogram and Videogram

Producers) to combat the problem.88

Several Latin American countries are also responsible for large numbers of pirated and

counterfeited U.S.-owned audio works:

In Panama, as much as 80 percent of the

musical tape market is dominated by counterfeit and pirate goods. In Peru, the percentage of illicit tape recordings is approximately

70 percent. Bolivia and Chile both report that

approximately 50 percent of the tape recordings manufactured and sold there are counterfeit or pirate, The huge Mexican market

had a 40 percent penetration of counterfeit

and pirate tapes in 1982—equaling approximately 11 million units of $30 million in lost

sales.89

In addition to citing specific problems in

different nations, the Recording Industry of

America, Inc. (RIA) has reported overall statistics on the extent of foreign piracy and counterfeiting of U.S. sound recordings. The estimated total sales of counterfeit and pirated

U.S.-owned sound recordings overseas in 1982

was, according to the RIA, well over $250 million. Based on worldwide market shares for

‘Statement of the Recording Industry of America, Inc., before the U.S. Department of State International Copyright

Panel, “The Piracy of Copyrighted Sound Recordings in Foreign Countries, Mar. 22, 1985, p. 2.

**Statement of the Recording Industry of America, Inc., before the U.S. International Trade Commission, “The Impact

of Foreign Product Counterfeiting on the U.S. Recording Industry,” Sept. 19, 1983, p. 10.
244 Ž Intellectual Property Rights in an Age of Electronics and Information ——

different nations’ music, it is probable that approximately 50 percent of the estimated $515

million in counterfeit and pirate sales outside

of the United States in 1982 relates to recordings originally created and owned by U.S. recording companies, performers, lyricists, and

composers. 90

The Motion Picture Industry

Like the publishing and recording industries,

the motion picture industry is also experiencing international private copying, piracy, and

counterfeiting of U.S.-owned audiovisual works.91

The Motion Picture Association of America,

Inc. estimates, for example, that worldwide

losses due to film and video piracy are now approaching $1 billion per year.92 In addition to

the lack of adequate legal protection of audiovisual works in many nations, the major factor leading to international infringements of

U.S.-owned audiovisual works is the introduction and increased use of information and communication technologies. Used individually or

together, videocassette recorders (VCR), satellites, and cable technologies have been referred to by some analysts as an electronic

triad, or the unholy trinity, for copyright

holders of motion pictures.93

— — — —.—

“Statement of the Recording Industry of America, Inc., before the U.S. Department of State International Copyright

Panel, “The Piracy of Copyrighted Sound Recordings in Foreign Countries, ” Mar. 22, 1985, p. 1, 6.

“Motion pictures and other audiovisual works are a protectable subject matter under the U.S. Copyright Law and were

defined under the 1976 Act in § 101 as “. . . works that consist

of a series of images which are intrinsically intended to be shown

by the use of machines or devices such as projectors, viewers,

or electronic equipment, together with accompanying sounds,

if any, regardless of the nature of the material objects, such

as films or tapes, in which the words are embodied. ”

Internationally, motion pictures and audiovisual works under Article 1 of the Universal Copyright Convention (1952 and

1971 texts) of which the United States is a member: “Each Contracting State undertakes to provide adequate and effective protection of the rights of authors and other copyright proprietors

in literary, scientific and artistic works, including writings, musical, dramatic and cinematographic works, and paintings, engravings and sculpture. ” Audiovisual works are also protected

internationally under Article 2 of the Berne Convention for Literary and Artistic Works of which the United States is not a

member.

“Motion Picture Association of America, Inc., “Film and

Video Piracy: Manual for Investigators and Prosecutors, ” 1984,

p. 3.

‘{Edward W. Ploman and L. Clark Hamilton, Copyright: 1n-

—

The relatively recent advent of satellite technology has had the greatest impact on international video piracy.94 Although terrestrial

broadcasting has permitted some spillover into

other countries of U.S. copyrighted materials,

the scope of the satellite footprints is much

greater and allows other nations greater unauthorized access to U.S. works.95 Although

technical advances are improving the accuracy

of the satellite beams, it will never be possible

to shape the beams so precisely that they follow the contours of a given country.” Consequently, U.S. satellite signals are poached by

owners of earth station receivers or by cable

systems, which retransmit them to relatively

tellectmd Property in An Information Age (London: Routledge

& Kegan Paul, 1980), p. 153.

The various forms of film and video piracy can be grouped

into three main categories: 1 ) film to tape transfers, 2) duplication of legitimate prerecorded videocassettes and videodisks,

and 3) videotaping off television. Additional types of film and

videcl piracy include the unauthorized distribution of film prints,

the unauthorized public performance of a legitimately owned

film print or videocassette or disk, and the unauthorized interception of subscription TV programming. Motion Picture Association of America, Inc., “Film and Video Piracy: Manual for

Investigators and Prosecutors, ” 1984, p. 6,

“’Copyrighted programs carried via satellite are protected

internationally by the Convention Relating to Distribution of

Programme-Carrying Signals Transmitted by Satellite of 1974.

On Oct. 12, 1984, the United States ratified this Convention

without any amendment to domestic law. Commonly referred

to as the Brussels Satellite Convention, it obligates contracting states to take adequate measures to prevent the unauthorized

distribution of programming carried by satellite on or from their

territories. The Convention leaves each state free to choose its

own method of implementation, including designation of the

specific beneficiaries of protection. The Convention, however,

exempts signals that are intended for direct reception from satellite by the general public; these broadcast satellite signals are

generally already regulated under the copyright or neighboring rights regimes of most nations. It also does not apply to

individual reception of satellite signals for purposes of private

viewing. Because there are currently only nine contracting states

to this Convention, the international effectiveness of this treaty

remains questionable.

“’Satellite footprints are defined as “the area of the earth’s

surface in which satellite transmissions can be received. . . Note

that a footprint is a fluid concept and not a static one. Its size

will depend on the technical characteristics of the receiving dish

and environmental conditions. Therefore, a particular satellite

transmission will have one footprint when 10-foot earth-based

dishes are being used and another one when 3-foot dishes are

being used. ” Motion Picture Export Association of America,

Inc., “MPEAA Memorandum on the Uses of Satellite Technology, ” 1984, p. 9.

‘Edward W. Ploman and L. Clark Hamilton, Copyright: Zntellect ual Property in An Information Age (London: Routledge

& Kegan Paul, 1980), p. 155.
Ch. 8—Impact of New Technologies on the International Intellectual Property Systern “ 245

large audiences without compensation to U.S.

copyright holders.

Canada, for example, takes advantage of its

geographic proximity to the United States and

the availability of American satellite signals:

Canadian cable systems under court decisions

have no copyright liability under Canadian

law for their stock in trade, their distribution

to their paying subscribers of copyrighted

works contained in the broadcast signals,

both Canadian and American, which they capture from the air.97

Piracy of American signals is also a widespread problem in Central America. Costa Rica

and the Dominican Republic, for example,

pirate large amounts of U.S.-owned programming:

The most compromising form of piracy in

this country [Costa Rica] is the unauthorized

retransmission of cable TV signals. These signals carry a wide variety of copyrighted material. Cable Color, a pirate cable system located in the capital city of San Jose, has a

subscriber count of approximately 10,000,

while a similar cable TV system, Supercanal,

transmits to 3,000 subscribers. Television Receive Only (TVRO) dishes as well as unauthorized public performances also present a serious problem to the American motion picture,

cable, and television industries.

The theatrical and television markets for

feature films and television programming

continue to be severely affected by the signal theft practiced by cable TV Dominican

and Telecable National. These two pirate cable TV systems cumulatively service 20,000

subscribers in the capital city of Santo

Domingo, as well as the second largest Dominican city, Santiago. Television Receive

Only dishes can be found in large numbers

throughout the city.98

Many Caribbean nations are also responsible

for pirating U.S. programming by satellite.

Jamaica is a prime example:

————

‘ CBS, Inc., “Statement of CBS Inc. Before the Canadian

Parliamentary Standing Committee cm Communications and

Culture, ” April 1985, pp. 1-2.

“Motion Picture Association of America, Inc., “Brief Description of Film Piracy, for U.S. Department of State International Copyright Panel, Mar. 22, 1985, pp. 1-2.

As with nearly every other island in the Caribbean, there is wholesale video and signal

piracy in Jamaica. . . Many homes and commercial facilities such as hotels have Television Receive Only dishes that intercept satellite signals without authorization. One of

these has been operated by the Jamaica

Broadcast Company, a government-owned

operation that has intercepted motion picture

programming and rebroadcast it to the entire island without charge. The impact of such

practices is self-evident.99

In many countries, the widespread consumer

use of videocassette recorders has joined inadequate or ineffective legal protection in

promoting increased piracy of American audiovisual works. These pirated copies are, in turn,

sometimes rebroadcast on cable or local broadcasts. Many of the countries where piracy of

literary and musical works is rampant also are

responsible for widespread video piracy.

Several ASEAN countries, for instance, are

major centers of piracy of U.S. audiovisual

works. In addition to pirating for domestic

sales, many of these nations export large

amounts of pirated and/or counterfeited copies.

Both Korea and Indonesia are well known for

these activities:

Due to the absence of adequate and effective copyright legislation in relation to foreign works, the videocassette piracy problem

in Korea is serious. Pirated copies of American films are widely available and service a

550,000 VCR population in South Korea. Many

of these are reputed to come from U.S. military bases in the country. Some hotels are

using videocassettes for in-house entertainment without licensing agreement, and there

is unauthorized use of American films by

broadcast television stations. . . .

In a country with 600,000 videocassette

recorders, the piracy of American motion pictures is 100 percent. This is due to the absence

of adequate and effective copyright legislation which, in turn, inhibits legitimate market entry. ’no

Motion Picture Association of America, Inc., "Brief Description of Film Piracy, for U.S. Department of State International Cop}’ right Panel, Mar. 22, 1985, p. 3.1

‘ “’Motion Picture Association of America, Inc., “Brief Description of Film Pirac~r, for CJ, S. Department of State International Copyright Panel, Mar. 22, 198.5, p. 3.
246 . Intellectual Property Rights in an Age of Electronics and Information

Other countries where video piracy occurs include Brazil, Canada, Costa Rica, Cyprus, the

Dominican Republic, Egypt, France, Hong

Kong, Indonesia, Israel, Italy, Jamaica, Korea, Malaysia, Mexico, the Netherlands, Nigeria, Pakistan, Panama, Peru, the Philippines,

Saudi Arabia, Singapore, South Africa, Spain,

Sweden, Taiwan, Thailand, Turkey, United

Kingdom, Venezuela, and West Germany.101

The Software Industry

Because few major studies of the problem

have been undertaken, there are few data on

the extent of foreign piracy of U.S. software

products. 102 This is so largely because software

is a relatively new industry, and also because

microcomputers are much less widely used

abroad than in the United States. 103 Recently,

however, the International Intellectual Property Alliance undertook a major study on the

extent of international piracy of U.S. software

products. This study found that the U.S. software industry is losing significant annual sales

because of copyright violations in Brazil ($35

million), Egypt ($3 million), Korea ($20 million),

Malaysia ($7 million), the Philippines ($4 million), Singapore ($20 million), Taiwan ($34 million), and Thailand ($2 million).104

Given the precedent of foreign piracy of other

U.S. intellectual property products and the ex-

“’lElizabeth Greenspan, “Film and Video Piracy, ” International Media Law, 1983.

‘

()’Published anecdotal evidence of foreign software piracy is

also rare. Some examples, however, have been cited by the AAP:

“Pirated software [in Taiwan] is sold for 1 percent of the U.S.

list price, or $3.50 for a best-selling U.S. software product like

VISICALC or WordStar or others that sell for approximately

$350 in the United States. Often the pirate gives away 5 or 10

pieces of software with a Pineapple (or pirated Apple) computer. Pirated computer books may also be included in this package. ” Other countries where software piracy occurs include Brazil, Greece, Korea, and Singapore. Association of American

Publishers, “Piracy of Copyrighted Material, ” a Report Prepared at the Request of U.S. Department of State, ” Mar. 22,

1985.

‘(’’’The Software Publishers Association informally estimates

that for every legitimate copy of U.S. software abroad there

are approximately 5 to 10 pirated copies, telephone conversation, July 8, 1985.

‘“’ International Intellectual Property Alliance, “Piracy of

U.S. Copyrighted Works in Ten Selected Countries: A Report

by the International Intellectual Property Alliance to the United

States Trade Representatives, ” August 1985.

pected growth of foreign demand for computers and computer products, the piracy of software abroad may soon become a larger concern

to U.S. software manufacturers. Consequently,

over the long term more in-depth analysis and

documentation can be expected. With such information, U.S. software manufacturers might

more effectively deter international piracy.

Policy Implications

Although these statistics can only measure

the harm from private copying and piracy indirectly, they make it clear that piracy is a more

serious problem at the international level than

at the domestic level. Because of the increasing importance of information-based products

and services to the U.S. economy and international trade, deterring foreign piracy of U.S.

intellectual property products will most likely

become a high priority for the United States.

As new technological developments erode traditional enforcement mechanisms and permit

greater international dissemination of such

products, the United States will need to seek

to improve enforcement of U.S. intellectual

property rights abroad. Moreover, given the

inadequacy of enforcement abroad, the United

States might want to pursue ways of ensuring that countries strengthen their legal protection and enforcement mechanisms for both

foreign and domestic works.

Currently, the United States is taking some

action to ensure adequate protection. It is, as

previously discussed, using the granting of

trade preferences as an incentive for the establishment of legal protection and increased enforcement efforts to protect intellectual property products. Moreover, the United States has

begun a series of bilateral discussions with

other nations concerning international enforce

ment. These include discussions with Japan

on the protection of software under Japanese

copyright law; discussions with Canada on the

issue of protecting cable retransmissions of

U.S. broadcast programming; and discussions

with Caribbean nations on the unauthorized

interception and retransmission of U.S. satellite-transmitted motion pictures and other

programming. These meetings have proved
Ch. 8—impact of New Technologies on the International Intellectual Property System ● 247

successful: Japan has decided to protect software under copyright; Canada is considering

the copyright status of cable retransmissions;

and the Jamaican broadcasting authorities are

beginning negotiations.105

The United States is also initiating educational seminars on intellectual property rights

for industry and government representatives,

local attorneys, and educators of developing

countries. In early 1985, for example, U.S. delegations from the Copyright Office, the Patent

and Trademark Office, and the Department of

State went to Indonesia, Malaysia, and Thailand to present lectures on crucial international

intellectual property legal issues and the need

to provide adequate and effective laws and enforcement mechanisms to deter infringement.

These have been particularly useful because

each of these nations is considering revisions

to its copyright laws and is examining how to

best protect new technologies, such as computer software.106 In addition, the U.S. Government has recently begun to offer training

programs for patent, copyright, and trademark

administrators of other nations.

There are also other options the United

States might pursue to mitigate international

piracy. The United States, for example, could

more actively participate in international intellectual property for a, the positive and negative aspects of which have already been discussed.

To complement these efforts, the United

States could also encourage U.S. industry,

both producers and users of intellectual property products, to participate more actively in

international associations that fight international piracy. Such associations include, for example, the International Federation for Phonogram and Videogram Producers (IFPI), the

Federation Against Software Theft (FAST),

‘

f

’

r

’Michael Kirk, Assistant Commissioner for External Affairs, United States Patent and Trademark Office, Department

of Commerce, testimony on “Copyright Enforcement, before

the Subcommittee on Patents, Trademarks, and Copyright, Senate Committee on the Judiciary, Apr. 17, 1985, p. 7.

‘ “’For a good case study of U.S. bilateral efforts to reduce

piracy in a nation, see “Protection From Commercial Counterfeiters in Taiwan for U.S. Firms, ” Law and Policy in International Business, vol. 16, No. 2, 1984.

and the Federation Against Copyright Theft

(FACT). 107

The United States might also expand current talks with developing countries on intellectual property law and piracy of U.S. products. These seminars, which might be either

bilateral or sponsored through a multilateral

agency, could provide developing countries

with information on how to construct adequate

and effective intellectual property laws and enforcement mechanisms. They might also be

used to outline the importance of protecting

intellectual property rights for developing nations as international trade partners, as well

as for the growth of their domestic intellectual

property industries.

A more coercive option would be to impose

trade sanctions or other retaliatory measures

on nations that do not enforce U.S. intellectual property rights. This option, however, entails trade-offs in terms of the political discordance that such sanctions might provoke

between developing nations and the United

States. Some trade experts, for example, warn

“that with no international consensus on how

to defend intellectual property rights, any attempt to impose U.S. views on others could

jeopardize efforts to improve agricultural and

manufacturing trade. ’’108

Growing Convergence of International

Intellectual Property Issues With

Other International Issues

Nations have come to view information and

information-based products and services as

components for improved productivity and

‘“7A current example of industry efforts to reduce international piracy of U.S. prcducts is Ashton Tate’s cooperation with

the International Trade Administration, the Association of Data

Processing Service Organizations (ADAPSO), Lotus Development Corp., MicroPro International, and other software companies to develop a series of seminars on intellectual property

rights and regulations for exporting software. They are also

considering the establishment of ‘{an industry-financed war chest

to provide funds to fight piracy through Iegal channels as weII

as through public education.“ “Ashton-Tate Fights at Home

and Abroad, ’ Download, March 1986, pp. 11-12.

‘“’Bruce Stokes, “Intellectual Piracy Captures the Attention of the President and Congress, ” National Journal, Feb. 22,

1986, pp. 443-445.
248 . Intellectual Property Rights in an Age of Electronics and Information

international competitiveness, international

trade, and as a means to achieve major societal goals. As a result, international intellectual

property issues are increasingly tied to international competitiveness, trade, development,

and political issues. These linkages, together

with the growing convergence of communication and information technologies, are creating new intersections between international

intellectual property issues and other international issues, such as space and telecommunication issues.

The convergence of information and information-based products and services and communication technologies is largely due to the

overall goal shared by many nations to build

information infrastructures for both social and

economic development.109 As information and

information-based products and services are

increasingly used with electronic communication systems, the communication policies that

govern such systems intersect with intellectual property policies. Thus, products and services that have traditionally been regulated

separately are now used in new combinations:

Current changes in technology are producing new patterns, with traditional services being combined into unexpected hybrid shapes

and uses, in defiance of the established categories. . . Cable systems can be combined

with terrestrial broadcasting, and either one

or both of these with satellite systems. The

combination of technical systems corresponds to an integration of services: television and facsimile combine in telefacsimile;

the data bases used for electronic photocomposing can also be used for information retrieval. The combination of television and

telephone is at the origin of the videophone,

and these, together with computerized data

systems, result in teletext and videotex services. In fact, certain videotex services already

represent a combination of telecommunications, computer, broadcasting, print, and information systems.110

‘@In an information society, such that it is envisioned, there

will be a greater interdependence between information and communication technologies as nations seek to construct what the

French Government calls “the entire nervous system of social

organization. ” Simon Nora and Alain Mine, The Computerization of Society (Cambridge, MA: MIT Press, 1980).

““Edward W. Ploman and L. Clark Hamilton, Cop~ight:

lnt.elkctuaf Property in an information Age (London: Routledge

& Kegan Paul), p. 151.

Because of these new combinations, new uses

and distribution channels are developing that

may have been unanticipated by the legal system. Consequently, two traditionally unrelated

legal or regulatory regimes are now in contact

with each other. Conflicts may arise when these

regimes have mutually exclusive policy objectives.

A case in point is the unavoidable satellite

spillover or footprints that cut across national

frontiers. While this spillover is not materially

different from spillover in terrestrial broadcasting, it is, however, much greater in scope and

subject to different legal protections and regimes. Under the Radio Regulations of the International Telecommunications Union (ITU),

space is considered common property, for example, which cannot be owned by individuals,

corporations, or governments.111 Although

such regulations recognize the privacy of transmissions, there are no enforcement mechanisms or remedies for the violation of rights.

Not finding this spillover acceptable and wanting to enforce their rights, rights owners have

insisted on extended protection. Their demands, however, conflict with the internationally agreed upon principle of the law of the commons, which has developed in the context of

space and telecommunications law. Thus, efforts to protect the intellectual property embodied in satellite signals may need to be handled in widely differing legal and regulatory

contexts. 112

Also exemplifying the multifaceted nature

of intellectual property issues is the increasing number of institutions that deal with such

issues. At present, the World Intellectual Property Organization deals with the administration of rights; the United Nations Educational,

Scientific, and Cultural Organization oversees

international information flows for the benefit of education, science, and culture, and develops communications policies for the development of infrastructures; the International

Telecommunications Union allocates frequency

“’see Article N28/7 of the Radio Regulations, also the Final

Acts of the World Administrative Radio Conference—Broadcasting Satellites, 1977.

“’Edward W. Ploman and L. Clark Hamilton, Copyright:

Intelkctual Property in the Information Age. (London: Routledge & Kegan Paul, 1980), p. 155.
— —

Ch. 8—Impact of New Technologies on the International Intellectual Property System ● 249

bands and promulgates technical standards in

the area of telecommunications; the United Nations Centre on Translational Corporations

oversees transborder information-related services; and the United Nations Conference on

Trade and Development and the General Agreement on Tariffs and Trade regulate the trade

of some information-based products and services.113

Policy Implications

Because the present set of international legal and regulatory regimes and institutions are

generally linked to a particular technology, new

combinations of older technologies might, like

new technologies, create inconsistencies between traditionally separate policies and institutions. To deal with such cross-cutting

issues, the international protection for intellectual property may need to be considered in

a larger social, legal, and technical context. The

United States, therefore, might want to develop an integrated approach or policy to deal

with the cross-cutting nature of international

issues. In addition, it may need to improve the

coordination among domestic agencies that are

responsible for international and intellectual

property issues.

Currently, there is no agency in the U.S. Government that has centralized responsibilities

for dealing with the cross-cutting international

intellectual property issues. Instead, various

Federal agencies perform different and separate functions with respect to international intellectual property rights. ’l’

The Department of State plays a lead role

in coordinating other Federal agencies and representing the United States at multilateral and

bilateral intellectual property negotiations.

Both the Patent and Trademark Office and the

Copyright Office are responsible for monitoring international legal developments, representing the United States in their respective

——

“‘Gregorio Garzon Clariana, “Legal Framework for International Information, ” Translational Data Report, vol. 8, No. 2,

pp. 101-107.

“’These agencies are each described in more detail in Chapter 9, “The Federal Role in the Administration of Intellectual

Property Rights. ”

—

international conventions, and advising Congress and the Administration on developing

international intellectual property policy.

The National Telecommunications and Information Agency (NTIA) plays an important

role in the protection of copyrighted material

transmitted outside the United States via telecommunication technologies. It also participates in negotiations of international agreements on the use of satellites for rebroadcast

materials.

For trade-related international intellectual

property issues, the U.S. Trade Representative plays a major role. Its responsibilities include monitoring foreign nations’ efforts to

protect intellectual property and then, according to such an analysis, recommending whether

such nations should be eligible to receive trade

preferences. The International Trade Administration also monitors international enforcement of intellectual property rights and provides this information and counseling on

export opportunities and problems to the business community. The U.S. International Trade

Commission is an independent quasi-judicial

agency that determines whether unfair trade

acts related to imports, which often involve

patent, trademark, or copyright infringements,

are harmful to U.S. industries.

The U.S. Information Agency takes primary

responsibility for culturally oriented intellectual property policy. It oversees the distribution of U.S. intellectual property products such

as films, books, and music to other nations for

the promotion of better understanding the

United States and its citizens.

Recognizing the fragmentation of policy

responsibilities for international intellectual

property issues within the Federal Government, several policy coordination groups for

intellectual property policy have been recently

formed. These groups include the Cabinet

Council on Commerce and Trade (Working

Group on Intellectual Property), the Trade Policy Committee (Subcommittee on Intellectual

Property), and the Senior Interagency Group

on Communication and Information Policy

(Working Group on Copyright and Intellectual

Property).
250 . Intellectual Property Rights in an Age of Electronics and Information — —

These efforts to coordinate area good start

towards recognizing the many issues involved

in international intellectual property policy.

However, given the increasing legal, social, political, and economic factors affecting intellectual property rights, the current U.S. Government organization for international intellectual

property issues might make it very difficult

to address these multifaceted issues in a comprehensive fashion.

To deal with these cross-cutting issues, the

United States might establish a governmental

agency responsible for both domestic and international intellectual property rights. This

agency would subsume all the administrative

responsibilities of the Copyright Office, the

Patent and Trademark Office, and the responsibilities of other agencies involved with intellectual property rights. Internationally, it

would represent the United States on all matters that relate to intellectual property rights.

Such an agency would also have centralized

in-house capabilities to analyze the effects of

new technological developments on the international intellectual property system and the

U.S. position in relation to the system. Using

this analysis, it could advise Congress on possible domestic and international intellectual

property strategies.

At the same time, the establishment of such

an agency has several drawbacks. The consolidation of responsibility for intellectual property rights, for example, would take expertise

on intellectual property rights from agencies

that need it, such as the Department of Commerce and the Library of Congress. Similarly,

consolidation might also inhibit existing access to expertise on legal, trade, and foreign

policy, made possible by multi-agency involvement. Finally, such a proposal would probably

meet resistance from the agencies themselves.

IMPLICATIONS FOR FUTURE U.S. INTERNATIONAL

INTELLECTUAL PROPERTY POLICY

As described throughout this chapter, the

United States is undertaking and considering

many options to address international intellectual property issues. Table 8-5 summarizes

some of the major policy strategies available

to the United States for dealing with many of

the international intellectual property issues

brought about by new technologies. It further

gives major examples, issues or stresses that

would be addressed, and suggests both positive and negative outcomes of such strategies.

There is no single, clear-cut strategy that the

United States could adopt to comprehensively

address all of the international intellectual

property issues engendered by new technologies. A policy strategy designed to deal with

international trade and enforcement issues,

such as those already legislated (sections of

the Trade and Tariff Act of 1984 and the Caribbean Basin Economic Recovery Act), for example, fails to address any of the international

political issues presented by new technologies.

Strategies designed to focus on political issues,

moreover, do not readily address international

intellectual property trade issues.

In fact, many policy strategies designed to

address specific issues may exacerbate other

stresses on the international intellectual property system. Treating intellectual property, for

example, solely as international trade issues

could provoke problems of international political relations, even to the point of inciting

retaliation from other nations; but focus on international political relations might foreclose

export opportunities for the U.S. domestic intellectual property industry. Similarly, treating international intellectual property issues

as separate from other international policies

might lead to conflicts with international information and communication policies and

other foreign policies.

Although many of the policy strategies for

addressing international intellectual property

issues are not mutually exclusive, the United
for Addressing International Intellectual Property Issues

Pol iCY actio n

Ratify the Berne Convent Ion

for the Protection of

Literary and Artistic Works

Rejoin United Nations

Educational and Cultural

Organization (UNESCO)

Negotiations, education –

seminars, and training

programs on intellectual

property rights for

other nations

Bilateral intellectual property

agreements with nations that

are not members of any

international Intellectual

property agreements

Legislation with specific

international reciprocity

clauses

Table 8-5.—Policy Options

Examples

Issues or stresses

to be addressed

Internationalization

of intellectual

property

Political

Legal

Enforcement

Internationalization

of intellectual

property

Political

Legal

Enforcement

property could organize seminars and train -

iIng programs for foreign officials responsible for the administration of Intellectual

property rights, such as those already

undertaken in Indonesia, Malaysia, and

Thailand.

Where countries are not members of international Intellectual property conventions, the

United States could establish specific

bilateral Intellectual property agreements,

such as those already established with

Romania, South Africa. and Thailand.

Domestic Iegislation that would make specific

intelIectual property rights in the United

States available to foreign nationals only if

their nation granted comparable rights to

U S nationals, such as those reciprocity

clauses in the Semiconductor Chip Protection Act (Public Law 98-620) and the proposed International Computer Softwar e

Protect Ion Act of 1985 (S. 399, 99th

Congress)

Legal

Enforcement

Legal

Enforcement

Possible positive outcomes Possible negative outcomes

U.S. would appear more genuine in its support Disrupts traditional U S intel -

for international Intellectual property pro- Iectual property laws and

tection, and consequently it might be more practices, such as registraeffective in convincing other nations to tion and deposit

enact legal and enforcement measures for

Intellectual property protection and to ratify

International intellectual property agreements

U.S. might have more political strength from

which to Influence International Intellectual

property policy development.

U.S. would appear more genuine in its support U S would need to make ecofor international Intellectual property pro- nomic and political concestection, and consequently it might be more sions particularly to address

effective in convincing other nations to the concerns of developing

enact legal and enforcement measures for nations

Intellectual property protection and to ratify Requires additional funding

international intellectual property agreements

U.S. might have more political strength from

which to influence International Intellectual

property policy development

U.S. might Increase its ability to Influence the

number and subjects of studies on copyright and new technologies undertaken by

the UCC

Provide other countries with an understand- Requires additional funding

ing of the importance of protecting intellectual property rights.

Promote international harmonization of nations’ domestic Intellectual property laws

Permit the establishment of Intellectual prop- Disrupts Integrity of traditional

erty relations with countries that are cur- system of international lntelrently not members of any international In- Iectual property ageements.

tellectual property agreements

Provide leverage to induce other nations to Disrupts integrity of traditional

enact adequate and/or enforce international system of international

intelIectual property rights Intellectual property

agreements
Table 8-5.— Policy Options for Addressing International Intellectual Property Issues—Continued

Issues or stresses

Policy action to be addressed

Trade preferences contingent

on nations’ laws and efforts

to enforce International

Intellectual property rights

Examples—

Where countries receive trade preferences

and/or foreign aid and do not have adequate

laws or enforcement measures for the protection of Intellectual property, the United

States could make the receiving of such

benefits contingent upon the improvement

of Intellectual property laws and enforcement efforts, as called for in the Trade and

Tariff Act of 1984 (Public Law 98-573) and

in the Caribbean Basin Economic Recovery

Act (Public Law 98-67).

Information-based products and services

Possible positive outcomes

Provide leverage to induce other nations to

enact adequate legal protection and/or enforce International Intellectual property

rights

Possible negative outcomes

Provokes new difficulties for

U.S. international political reIations

Trade and Economic

Enforcement

Trade sanctions against

nations which do not

respect international

Intellectual property rights

Trade and Economic

Enforcement

Provide a retaliatory mechanism against nations that do not have adequate legal protection and/or do not adequately enforce international intellectual property rights.

Provokes new difficulties for

U.S. International political reIations and/or retaliation

from other nations, particuIarly from developing

nations

could be included in international trade

agreements that have trade sanction penalties already in place, such as in the General

Agreement on Tariffs and Trade (GATT),

Imposition of trade penalties on nations that

import goods that infringe U.S. intellectual

property rights, such as the penalties called

for in the Process Patent Amendment

(S.1543 and H R. 1069, 99th Congress).

Increased funding with focus on–developing

countries’ specific needs for information -

based products and services, such as those

Strengthen U.S. Governmentsponsored information

distribution programs

Political Promote International political and cultural

understanding.

Provide incentives for countries to respect international Intellectual property rights.

Requires additional funding

distibution programs sponsored by the

U S information Agency (US! A), the Peace

Corps, and the Library of Congress.

Funding for developing countries specifically

earmarked for the purchase of information -

based products and services.

Foreign aid to nations for

purchase of Intellectual

property products

Political Promote International political and cultural

understanding.

Provide incentives for countries to respect international Intellectual property rights.

Promote the development of domestic intellectual property industnes in other nations.

Provide a forum for better coordination among

the governmental agencies responsible for

various aspects of international intellectual

property protection

Requires additional funding.

Permanent coordinating body

for all government

agencies involved with

intellectual property issues

Standing coordinating body that would consist of representatives from all agencies involved with Intellectual property rights Issues, such as the working groups of the

Cabinet Council on Commerce and Trade,

the Trade Policy Committee, and the Interagency Group on Communications and Information Policy

Institutional Complicates decisionmaking

process for International intellectual property policy by

decentralizing Individual

agencies’ policymaking

responsibilities

Establishment of government

agency for Intellectual

property

Institutional Provide a mechanism for presenting a more

united U.S. position on international intel.

Loss of direct access to expertise or Intellectual property

protection needed by individual government agencies

Combining under the jurisdiction of one governmental agency alI of the responsibilities

for the administration of Intellectual property rights, includlng all International intellectual property policies,

Iectual property issues.

Provide a mechanism to centralize expertise

on foreign policy and Intellectual property

within the Federal Government.

SOURCE Office of Technology Assessment
Ch. 8—Impact of New Technologies on the International Intellectual Property System ● 253

—

States must recognize the trade-offs involved

in choosing one policy strategy over another,

or the possibility that two policy strategies

might conflict. Given such potential policy conflicts, the United States will need to make fundamental decisions about how it wishes to view

intellectual property (for example, as an item

of trade, an item to enhance its foreign diplomatic relations, etc.) and design its overall international intellectual property policy strategies accordingly. Such decisions are likely to

become more important in light of the enhanced

role of the new technologies in economic and

social development. Decisions about international intellectual policy, moreover, will need

to be made in conjunction with many other

aspects of U.S. foreign policy—from international issues of defense, trade, and foreign aid

to issues of international information and communication policy.
Chapter 9

Federal Role in the

Administration of Intellectual

Property Rights
— .———— —

Contents

Pag e

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

Development of U.S. Intellectual Property Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Goals for Granting Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Federal Role in the Administration of Intellectual Property Rights . . . . . . . . . . . . . . 259

Early Development of the Governmental Institutions for the Administration of

Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

Present Institutional Arrangements for the Administration of Intellectual

Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

Patent and Trademark Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

Copyright Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

Copyright Royalty Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264

Other Supporting Agencies Within the Federal Government . . . . . . . . . . . . . . . . . . . . 265

Federal Courts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

Non-Federal Agencies: Collecting Societies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Emergence of New Technologies and Their Implications for the Present Federal

Institutional Arrangements for the Administration of Intellectual

Property Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

Rapidity of and Uncertainty With Respect to, Changes in Information and

Communication Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

Growing Demand for Nontraditional Copyright Solutions Requiring a Regulatory

Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272

Need for Greater Understanding of and Information About the Processes By Which

Intellectual Properties Are Created, Published, Distributed, and Used . . . . . . . . . . 273

Development of Technologies That Do Not Correspond to Traditional Intellectual

Property Categories, and the Creation of Sui Generis Intellectual Property

Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Growing Convergence of Intellectual Property Issues With Other

International Issues.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

Growing Convergence of Intellectual Property Issues With Other Information

Policy Issues.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

Implications for Future Institutional Arrangements for the Administration of

Intellectual Property Rights. ........, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

No Action: Leave Major Decisions to the Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

Encourage the Use of Collecting Societies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

Strengthen and Increase the Responsibilities of Existing Agencies . . . . . . . . . . . . . . 281

Establish a Central Federal Intellectual Property Agency . . . . . . . . . . . . . . . . . . . . . . 282

Considerations for the Choices of Institutional Arrangements . . . . . . . . . . . . . . . . . . . 282
Chapter 9

Federal Role in the Administration

of Intellectual Property Rights

FINDINGS

Assuming that the granting of exclusive

property rights to individuals would automatically lead to the creation and public dissemination of information, the Nation’s first legislators ascribed to government a relatively

inactive role in the intellectual property system. Accordingly, the Federal role and corresponding institutions have evolved to perform

minimal regulatory functions. The system was

designed to be self-enforcing; the government

institutions granted rights, registered works,

and the individual creators and users were responsible for protecting their rights and enforcing them through the courts.

Today, however, the emergence of new information and communication technologies is

placing new demands on governmental institutions responsible for the administration of

intellectual property rights. The question

arises, therefore, of whether existing Federal

institutional arrangements for the administering intellectual property rights, as initially

designed, can adequately cope with new technological developments and the new responsibilities that may be placed on them.

To manage these stresses, Congress has several options that it could pursue. These options

range from leaving the agencies as they exist

to completely restructuring them. Before considering institutional arrangements for the

administration of rights, however, Congress

must first make overall decisions about the intellectual property system itself. Congress

must determine which goals it wishes to promote, which laws and practices to establish,

and how to balance competing interests in light

of the effects of new technological developments. It must also determine whether the role

of government in the intellectual property system should be regulatory or nonregulatory.

Only after such decisions are made, can Congress begin to construct institutional arrangements for the administration of intellectual

property rights.

INTRODUCTION

The granting of intellectual property rights

can be viewed as a public policy tool designed

to achieve policy goals. Historically, governments have granted intellectual property

rights to meet different policy goals. Such

goals, for example, have included economic development or industrial policy, regulation of

trade, censorship, promotion of public learning, and the development of a national culture.

The particular role governments play in intellectual property systems depends to some extent on the goals the policy is designed to

foster.

Early in the evolution of the United States,

the Founding Fathers clearly viewed intellectual property policy as a means to promote the

progress of science and the useful arts, and to

disseminate such knowledge to the public,

They believed, moreover, that public dissemination of information would help to meet the

other overriding societal needs of the time—

to develop an industrial base, create a national

literature, and maintain the level of knowledge

among citizens required to sustain a democratic polity.

Assuming that the granting of exclusive

property rights to individuals would automatically lead to the creation and public dissemination of information, the Nation’s first legislators ascribed to government a relatively

257
258 ● Intellectual Property Rights in an Age of Electronics and Information

—

inactive role in the intellectual property system. This role corresponded to their preference

for a free market approach, and alleviated their

fears of overly centralized government. Accordingly, the Federal role and corresponding

institutions have evolved to perform minimal

regulatory functions. The system was designed

to be self-enforcing; the government institutions granted rights, registered works, and the

individual creators and users were responsible for protecting their rights and enforcing

them through the courts.

Today, however, the emergence of new information and communication technologies is

placing new demands on governmental institutions responsible for the administration of

intellectual property rights. In reaction to the

development of new technologies, for example,

policymakers have passed legislation that calls

for government to take on new or increased

responsibilities. This raises the question, there

fore, of whether existing Federal institutional

arrangements for administering intellectual

property rights, as initially designed, can adequately cope with new technological developments and the new responsibilities that may

be placed on them.

To examine the current Federal role in the

intellectual property system and how it may

change in response to new technology, this

chapter will:

1.

2.

3.

4.

describe the development of the goals and

rationale for the Federal role in the intellectual property system and under what

conditions it worked effectively;

characterize the current Federal institutional arrangements for dealing with intellectual property issues;

describe how technological developments

may be stressing such arrangements; and

explore the implications for future institutional arrangements.

DEVELOPMENT OF U.S. INTELLECTUAL PROPERTY POLICY

Goals for Granting Intellectual

Property Rights

In the United States a unique set of social,

political, economic, and technological factors

gave rise to a specific set of policy goals that

intellectual property rights were designed to

achieve. These factors, moreover, shaped the

design of the Federal role in the administration of intellectual property rights. ’

During the early history of the United

States, the Founding Fathers adhered to the

belief in the right of the individual to own property and pursue his intellectual interests.2 The

‘See ch. 2 for a discussion of how different historical circumstances influenced governments’ use of intellectual property

rights to achieve varying economic, political, and social goals,

‘John Locke, for example, was one of the most influential

philosophers on the Framers of the U.S. Constitution. Locke

stated, for example, that “Every man has a property in his own

person. The labor of his body and the work of his hands we may

say are properly his." Garry Wills, Inventing America: Jefferson Declaration of Independence (New York: Doubleday &

Co., Inc., 1978), pp. 229-239; and Bruce Bugbee, Genesis of American Patent and Copyright Law (Washington, DC: Public Affairs Press, 1967), pp. 84-125.

early legislators also recognized the importance of a democratic polity, which required

public dissemination of knowledge to function

adequately. 3 Because the United States was

a developing country, its policy makers also

wished to stimulate industrial growth, particularly in light of the burgeoning industrial revolution taking place in England.4

The Framers of the U.S. Constitution recognized that the granting of intellectual property rights was one way to achieve such basic

social, political, and economic ideals. They believed that granting these rights would pro-

‘These beliefs originated from the ideas of John Locke and

Jean Rousseau. See, for example, John Locke, Second Treatise

on Civil Government, 1690, and Jean Jacques Rousseau, Socia) Contract, 1762. Gordon Wood, The Creation of the American Republic, 1776-1787 (North Carolina: University of North

Carolina Press, 1969), pp. 53-65; and Bruce Bugbee, The Genesis of American Patent and Copyright Law (Washington, DC:

Public Affairs Press, 1967), pp. 84-125.

‘Hunter Dupree, Science in the Federal Government: A History Policies and Activities to 1940 (Cambridge, MA: The

Belknap Press of Harvard University Press, 1957); and Bruce

Bugbee, Genesis of American Patent and Cop~ight Law (Washington, DC: Public Affairs Press, 1967), pp. 84-125.
Ch. 9—Federal Role in the Administration of Intellectual Property Rights “ 259

vide incentives for creators or industries to

produce and disseminate works, which would

promote public education and industrial

growth. To provide an initial framework for

this policy, the Framers included the clause

in the U.S. Constitution:

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.

(Section 1, Article 8, clause 8.)5

In The Federalist, James Madison clearly

establishes the overall purpose of granting

rights to individuals, which was the automatic

promotion of the public good:

The utility of this power will scarcely be

questioned. The copyright of authors has been

solemnly adjudged, in Great Britain, to be a

right of common law. The right to useful inventions seems with equal reasons to belong

to the inventors. The public good fully coincides in both cases with the claims of individuals. The States cannot separately make effectual provision for either of the cases, and

most of them have anticipated the decision of

this point, by laws passed by the insistence

of Congress.6

A later, more definitive interpretation of this

overall purpose—the stimulation of the creation and dissemination of information to the

public—was stated in a legislative report on

the Copyright Act of 1909:

The Constitution does not establish copyrights, but provides that Congress shall have

“The inten~e~ goals of this clause become very apparent

when the original two proposals concerning intellectual property which were proposed during the Constitutional Convention are examined:

Madison’s proposals envisioned a national legislature with the

authority to ‘To secure literary authors their copy rights for a

limited time, To establish a University, To encourage by premiums and provisions, The advancement of useful knowledge and

discoveries’; The other set of proposals was offered by Charles

Pickney, and included the following contemplated powers: ‘To

grant charters of incorporation, To grant patents for useful inventions, To secure to Authors exclusive rights for a . certain time, To establish public institutions, rewards, and immunities for the promotion of agriculture, commerce, trades, and

manufactures.

Bruce Bugbee, The Genesis of American Patent and Copyright

Law (Washington, DC: Public Affairs Press, 1967), p. 126.

‘Alexander Hamilton, James Madison, and John Jay, The

Federalist Papers, No. 43 (New York: The New American Library of World Literature, Inc., 1961), pp. 271-272.

the power to grant such rights if it thinks best.

Not primarily for the benefit of author, but primarily for the benefit of the public, such rights

are given. Not that any particular class of citizens, however worthy, may benefit, but because the policy is believed to be for the benefit of the great body of people, in that it will

stimulate writing and invention to give some

bonus to authors and inventors.’

Federal Role in the Administration of

Intellectual Property Rights

The Federal role in the administration of

rights evolved in a way that clearly reflected

the goals of the U.S. intellectual property system. Similar to the development of the goals

of intellectual property rights, political, economic, and technological factors influenced the

type of role that Congress designed for the government in the administration of such rights.

First, Adam Smith’s ideas of a free market,

non-interventionist approach that could provide economic incentives and an efficient mechanism for markets and economic growth were

increasingly accepted.8 Reacting against the

English Government which used excessive regulatory controls, Americans also favored the

Jeffersonian notion of a government with as

few regulatory functions as possible.’ Additionally, the major technology of the time, the

printing press, allowed the granting of rights

to lead automatically to the dissemination of

information. This was so because works had

to to be published in order to enjoy protection.

Moreover, in the absence of inexpensive reproduction technologies of today, publishers could

more accurately estimate the returns on their

investments and, thus had more direct economic incentives to publish works. Rights

7House Report No. 2222, 60th Cong., 2d sess., as cited in

Alan Latman and Robert German, Copyright for The Eighties

(Charlottesville, VA: Michie, Bobbs-Merrill, 1981), p. 12.

“Charles Beard, An Econonu”c Interpretation of the Constr

tution of the Um”ted States (New York l%= press, 1965); and

Adam Smith, The Wealth of Nations, 1776 (New York: The Modern Library, 1937).

‘Alexander Hamilton, James Madison, and John Jay, The

Federalist Papers, No. 39-46 (New york: The New American

Library of World Literature, Inc., 1961), pp. 240-300; and Julian

Boyd (cd.), The Papers of Thomas Jefferson (Princeton, NJ:

Princeton University Press, 1950).

58 – 922 :1 – 86 – 10
260 ● Intellectual Property Rights in an Age of Electronics and Information

owners could also enforce their rights themselves because infringements were relatively

easy to detect.

Under these circumstances, the early legislators believed that the intellectual property

system could function adequately with minimal government intervention if left to its own

devices:

When printing was the only information

technology of any significance, eighteenth century policy makers conceived of an arrangement for knowledge-dissemination and compensation in society that was elegant in its

absence of centralization and administration.

Lawyers set up the machinery for granting exclusive rights to copy to those who wrote and

to those who controlled the presses; Adam

Smith’s “invisible hand” took care of the details. As Madison noted, copyright provided

an efficient means of achieving the constitutional goal of promoting science and the useful arts because it was one of the fortuitous

policies in which the ends of the individual citizen and the goals of the collectivity could be

made synonymous. Copyright, in short, was

not a bad idea at the time.10

Consequently, the legislators of the Patent

and Copyright Acts of 1790 designed a relatively inactive role for the Federal Government

in the intellectual property system. These Acts

clearly delineated the exclusive rights to be

granted and the conditions under which they

would be granted, and established the role of

government as simply a register of works seeking protection. The acts also required creators

who wanted to protect their works to publish

them in local newspapers. The registration

function, like the publication requirement,

closely corresponded to the goals of intellectual property policy. For the repositories of

submitted works and the publication of those

works in public institutions were primarily for

the public to access and learn from, thus fulfilling the original intent of the granting intellectual property rights.

The institutional arrangements for registering works were also created by the legislation

“Nicholas Henry, Copyright, Information Technology, Public Policy (New York: Marcel Dekker, 1967), pp. 56-57.

of 1790.11 The Patent Act established a Patent

Board, which was made up of the Secretary

of State, Secretary of War, and the Attorney

General. Referring to themselves collectively

as the “Commissioners for the Promotion of

Useful Arts, ” the members of the board were

empowered to issue a patent for any device or

process “if they shall deem the invention sufficiently useful or important. The statute also

established a Register of Patents, to be kept

by the Secretary of State.12 The Copyright Act

required the local District Courts (nearest to

where the person seeking protection lived) and

the Secretary of State to register and serve

as depositories of creative works.13 And the

courts, of course, served to interpret any problems rights owners or users might have enforcing their rights.14

Early Development of the Governmental

Institutions for the Administration of

Intellectual Property Rights

Since 1790, several factors have affected the

evolution of the governmental institutions set

up to administer intellectual property rights.

These include the increasing number of crea-

— —

“Before such institutional arrangements were established,

Congress was responsible for granting both copyrights and patents on a case-by-case basis. Increases in numbers of creators

seeking protection for their works was a major impetus for Congress to establish institutions to register and deposit works.

‘

iBruce Bugbee, Genesis of Patent and Copyright Law

(Washington, DC: Public Affairs Press, 1967), p. 149.

“’’The copyright law of 1790 stated that an author desiring

protection thereunder was to deposit a copy of his work with

the clerk of the District Court where he lived, but he was also

required to send a second copy of his production to the LT. S.

Secretary of State within six months. The clerk of the District

Court was to record this work according to a detailed form

prescribed in the statute, and could charge a sixty-cent fee for

this service. Duplicates under seal could be issued at sixty cents

each, and the grantee was required to publish, within two

months, a copy thereof in at least one newspaper for a four week

period–an interesting carry over of a feature which the Senate

had dropped from the general patent bill prior to its passage.

Bruce Bugbee, The Genesis of Patent and Cop~”ght Law (Washington, DC: Public Affairs Press, 1967), p. 147.

14, ,

. . The courts at the beginning construed the Act (the

Copj’right Act of 1790] very strictly and hence the author was

obliged to proceed with the utmost caution along the tortuous

copyright route lest any slip prove his undoing. ” Alan Latman

and Robert German, Copyright for The Eighties (Charlottesville, VA: Michie, Bobbs-Merrill, 1981), p. 5.
Ch. 9—Federal Role in the Administration of Intellectual Property Rights ● 261

tors seeking protection for their works and the

growing number of types of works that Congress has included as protectable subject matter under intellectual property law.

In response to such changes, Congress has,

over time, transformed the original institutions

into larger, more distinct governmental agencies with increased responsibilities, administrative or otherwise. In spite of these modifications, these government agencies responsible

for intellectual property rights have remained

largely nonregulatory, their role being to register and deposit works, and to disseminate

knowledge to the public.

Copyrights

Like the patent system, the copyright system of 1790 was amended soon after its creation. The major change expanded the types of

subject matter to be protected under U.S. copyright law. Such expansion of the law to cover

new types of works added increasing responsibilities to the Federal institutions which registered works.15

Reflecting such increases, the Federal copyright institutions grew in size and administrative functions. In 1859, the responsibility of

registering works was transferred to the Department of the Interior. Then in 1870, when

Congress was enacting patent legislation, it

undertook a major reform of the copyright system. Congress assigned the registering of

copyrights and the depositing of works to the

Library of Congress, which had been established in 1800. Under this statute, the Librarian of Congress received and maintained all

copyright records and deposit copies, which

the District Courts had held under the old, decentralized system. In 1897, a separate Copyright Office was established within the Library

of Congress, where it remains today. Much like

“Over time, legal protection, for example, has been extended to include: designs, engravings, and etchings (1802); musical compositions (183 1); dramatic compositions (1856); photographs and negatives (1865); statues and models (1870); all

writings of an author (1909); motion pictures (1912); sound

recordings (1972); original works of authorship (1976); computer

software (1980); and mask works (sui generis protection) for semiconductor chips (1984).

the changes made in the patent system, the

transfer of the registration and deposit function to a centralized library clearly reflected

the wish to promote public dissemination of

intellectual creations.16

Patents

A few years after the Patent Board was established in 1790, the large numbers of patent applications became too time-consuming

for the board members whose primary responsibilities were as members in the Cabinet.17 To

remedy this situation, Congress, in 1789,

dropped the requirement that inventions be

sufficiently useful or important to receive a patent, and replaced the examination process performed by the Cabinet members with simple

registration. In 1802, Congress enacted legislation that created a Patent Office as a distinct

division within the Department of State.18

Dissatisfaction with this process and the increasing number of applications for patents led

to legislation in 1836 that enlarged and elevated the status of the Patent Office to a separate bureau within the Department of State.

The statute also authorized the President to

appoint a Commissioner of Patents, who in

turn was to appoint a full-time staff of examiners and other clerks and assistants. It also

reinstated the process of examining patent applications for novelty, utility, and invention.

As under the laws of 1790 and 1793, applications were to be submitted with specifications,

drawings, and when necessary, models. The

statute further directed the Commissioner to

display the models in a gallery open to the public, thus further promoting the public dissemination of knowledge.

— —

“’The Thomas Jefferson Building of the Library of Congress, for example, was established by the Copyright Act of

1870 to house the growing collections that were being acquired

as a result of the copyright deposit system.

“For example, under the Patent Act of 1790, approximately

57 patents were granted: 3 in 1790,33 in 1791, 11 in 1792, and

10 in the early weeks of 1793. Bruce Bugbee, Genesis of American Patent and Copyright Law (Washington, DC: Public Affairs Press, 1967), p. 149.

‘“Bruce Bugbee, Genesis of American Patent and Cop~ight

Law (Washington, DC: Public Affairs Press, 1967), p. 150.
262 • Intellectual Property Rights in an Age of Electronics and Information

In 1849, the Patent Office was transferred nally, in 1925, the Patent Office was placed

to the newly created Department of the In- in the Department of Commerce, where it reterior. In 1870 the Commissioner of Patents mains today.

was authorized to register trademarks.19 Fi-

“The Supreme Court held such legislation to be unconstitu- registration of trademarks was permissible under the power to

tional because trademarks did not cover a product of author- regulate commerce. Gustavus A Weber, The Patent Offi”ce (Balship or invention. Subsequently, the Supreme Court found that timore, MD: The Johns Hopkins University Press, 1924).

PRESENT INSTITUTIONAL ARRANGEMENTS FOR THE

ADMINISTRATION OF INTELLECTUAL PROPERTY RIGHTS

Although the U.S. intellectual property laws

have been revised many times since 1790, the

basic institutional arrangements have, with

minor changes, remained intact—performing

minimal, indirect regulatory functions. These

institutions administer basic laws, register and

deposit works, and provide support services.20

They have, moreover, shown a remarkable resiliency to technological change, thus far.

In adjusting to technological development,

many of the institutions have undergone similar changes. First, each of the institutions has

increased in size, reflecting the growing number and types of works to be protected. Second, each has begun to use information technologies to perform more efficiently. Third, to

‘“Donald Curran, Acting Register of Copyrights, for example, speaking before the Patent, Trademark, and Copyright Section of the American Bar Association, said that “the Federal

Government does not now in any but the most tangential way

‘‘regulate’ the copyright industries. . . ‘‘ Information Hotline,

vol. 17, No. 10, November 1985, p. 4.

Regulation can be defined as:

Federal laws or rules which impose government standards and

significant economic responsibilities on individuals or organizations outside the Federal establishment. . . Regulation is carried out by Federal agencies through such means as setting or

approving prices, rates or fares, profits, interest rates, and wages;

awarding licenses, frachises, certificates, and permits; or establishing and enforcing standards of behavior such as worker safety

rules, air quality levels, public disclosure of financial information, or prohibitions of price, racial, religious, or sexual discrimination.

Although almost all government activities involve a rule or a

regulation, there are varying degrees of regulation. The administration of intellectual property rights, for example, relies on

the law to define property rights and lets those who possess

them negotiate their value either in the marketplace or in a private, decentralized fashion. A more regulatory approach would

rely on public authorities to directly determine and allocate the

value of intellectual property. Domestic Council Review Group

on Regulatory Reform, “The Challenge of Regulatory Reform:

A Report to the President” (Washington, DC, 1977), p. 47.

deal more effectively with the growing internationalization of intellectual property issues,

all of the institutions individually and jointly,

have increased their international activities.

Fourth, in reaction to the increasing complexity of new technologies (particularly cable) that

have given rise to new stakeholders, a new

agency has been established that departs from

the traditional role of government regarding

intellectual property rights.21 And finally, the

courts have become increasingly burdened

with cases involving more complex technical

issues. A brief characterization of the principal

institutional actors involved with the administration of property rights and some of the

current issues they face are provided below.

Patent and Trademark Office

The U.S. Patent and Trademark Office (PTO)

is located within the Department of Commerce.

Similar to the Copyright Office, PTO has no

jurisdiction over questions relating to enforcement of patents, nor over matters that concern the promotion or the utilization of patents.

PTO's major function is to administer the patent laws as they relate to the granting of patents. It examines applications for patents to

— —

“The functions have become more regulatory in the sense

that the government is actively deciding the value of royalties

for intellectual works. The first time that an exception was made

to the traditional copyright approach was in the Copyright Act

of 1909 which required copyright proprietors of musical works

to license their use in mechanical recordings for a royalty of

2 cents. Since 1909, three other exceptions have been made for

cable retransrnissions, musical recordings used in juke boxes,

and noncommercial broadcasters use of music and other creative works.
. —— -——

Ch. 9—Federal Role in the Administration of Intellectual Property Rights ● 2 6 3

ascertain whether the applicants are entitled

to patents under the law and grants the patents when they are so entitled. PTO also

administers the trademark laws and reviews

trademark applications to determine whether

they meet statutory criteria for registration.22

Furthering the goal of increasing public access to knowledge, PTO also publishes issued

patents and various publications about patents

and patent laws. It also maintains public search

rooms for the public to use to examine issued

patents and records and supplies copies of

records and other papers on demand.

In addition to the examining groups, PTO has

a number of sections, divisions, and branches

that perform various other services, such as

receiving and distributing mail, receiving new

applications, handling sales of printed copies

of patents, copying of records, inspecting drawings, and recording assignments.23

PTO has grown tremendously since it was

first established. At present, it has approximately 3,100 employees, of whom about half

are examiners and technical and legal staff.

over 100,000 patent applications are received

annually. Because of the large number of applications, there is a 25-month backlog of

440,000 cases. To remedy this situation, PTO

is in the process of automating its search files.

The goal is to complete automation by the early

1990s.24

Copyright Office

The U.S. Copyright Office is located in the

Library of Congress. As noted earlier, its location is important to both the Library and the

Copyright Office, representing a symbiotic

relationship between the two. The Copyright

—. —

“’U.S. Department of Commerce, Patent and Trademark Office, “General Information Concerning Patents: A Brief introduction to Patent Matters’ [ Washington, DC: U.S. Government

Printing Officer 1984), p. 5.

“U.S. Department of Commerce, Patent and Trademark Office, “General Information Concerning Patents: A Brief introduction to Patent Matters” (Washington, DC: U.S. Government

Printing Office, 1984), p. 5.

“Discussion with Donald Quigg, Acting Commissioner of

Patents, March 1985.

.

Office, through its deposit requirement, collects copies of all the works it receives which

it then makes available to the Library of Congress’ collections. This function, sometimes referred to as “America’s cultural policy, ” has

been critical in developing the Nation’s storehouse of intellectual material.25 The Library

of Congress in turn supplies the Copyright Office with administrative support. This cooperative arrangement has existed for over 150

years and helps to accomplish a major goal of

intellectual property protection—the dissemination of knowledge to the public.26

The divisions of the Copyright Office are

organized by function. In addition to the

Register’s Office, there are six operational divisions:

1.

2.

3.

4.

5.

6.

the Acquisitions and Processing Division

—which performs the general housekeeping and accounting work of the office and

the enforcement of the mandatory deposit

provisions of the copyright law;

the Examining Division—which determines whether the requirements of the law

have been met for materials submitted for

registration;

the Cataloging Division—which catalogs

all copyright registrations and recorded

documents;

the Information and Reference Division

—which provides the public with general

information on copyright, conducts searches

for the public in the Copyright Office catalogs, and produces on request certified

copies of office records;

the Records Management Division—

which maintains the records of the Copyright Office; and

the Licensing Division—which deals with

payments made to the office under the

compulsory licensing provisions of the law

‘

r

’ Discussion with Donald Curran, Acting Register of Copyrights, March 1985.

‘

hFor an interesting discussion of the relationship between

the Copyright Office and the Library of Congress, see Donald

Curran,-’’The Copyright Office and the Library of Congress, ”

remarks of Donald Curran, acting Register of Copyrights to

the American Bar Association, Section Patent, Trademark, and

Copyright Law, Washington, DC, July 9, 1985.
264 ● Intellectual Property Rights in an Age of Electronics and Information

that relate to coin-operated phonorecord

players (jukeboxes) and cable systems.27

The number and types of works registered

have grown enormously since the Copyright

Office was established. For example, between

1790 and 1869 a total of 150,000 works were

registered. Today, approximately 500,000

works are registered annually with the Copyright Office. 28 The staff of the Office has grown

to 561 with an annual budget of $16.2 million.29

In addition to expanding its organization with

increased registrations, the Copyright Office

has recently begun to use information technologies to automate many of its functions. This

has greatly improved its efficiency, particularly in the registration process.

Copyright Royalty Tribunal

The Copyright Royalty Tribunal (CRT) is the

most recently established government agency

that deals with intellectual property rights. It

was established by the 1976 Copyright Act as

an independent agency within the legislative

branch. CRT was created to administer several compulsory licenses that Congress, partly

in response to new technological developments,

also set forth in the 1976 act. A compulsory

license permits the use of copyrighted material under certain circumstances without the

permission of the copyright owner, provided

a government-set payment is made to the copyright owner. Such licenses are:

●

●

●

retransmissions by cable systems of distant broadcast signals by television and

radio stations;

the use of musical records in jukeboxes

for profit;

the use of music and certain other creations by noncommercial broadcasters; and

“’’86th Annual Report of The Register of Copyrights,

1983” (Washington, DC: Library of Congress. 1984), p. 1.

“’86th Annual Report of the Register of Copyrights, 1983”

(Washington, DC: Library of Congress. 1984), pp. 32, 34.

“Appendix to the Budget of the United States Government

for Fiscal Year 1986.

Ž the use of music on phonorecords.30

CRT has six responsibilities for the administration of the four compulsory licenses:

1..

2.

3.

4.

5.

6.

adjust the compulsory license rate for retransmission by cable systems of distant,

non-network broadcasts by television

stations;

determine the distribution of fees deposited with the government by cable

systems;

determine the compulsory license paid to

the Register of Copyrights for the performance of non-dramatic musical compositions by jukebox owners;

determine the distribution of fees deposited with the government by jukebox

owners;

adjust the mechanical compulsory license

rate on the sale of non-dramatic musical

works embodied in phonorecords (these

fees are paid to copyright owners without

government involvement, via the Harry

Fox Agency); and

determine reasonable terms and rates for

public broadcasting entities’ use of musical, pictorial, graphic, and sculptural

works (these fees are paid without government involvement) .31

Five appointed commissioners are responsible for holding hearings to determine rates

and distribute royalties.

Because CRT performs functions that are

much more regulatory in nature—that is, its

rulemaking proceedings to set royalty rates

and its adjudication function which entails distribution of collected royalties to claimants-it

diverges sharply from the traditional role of

—.— -

“Statement of Wilbur Campbell, Deputy Director, Accounting and Financial Management Division, General Accounting

office before the Subcommittee on Courts, Civil Liberties, and

the Administration of Justice, Committee on the Judiciary, U.S.

House of Representatives, “The Operation of the Copyright

Royalty Tribunal, ” June 11, 1981, p. 3.

31 Statement of Wilbur Campbell, Deputy Director, Accounting and Financial Management Division, General Accounting

Office before the Subcommittee on Courts, Civil Liberties, and

the Administration of Justice, Committee on the Judiciary, U.S.

House of Representatives, “The Operation of the Copyright

Royalty Tribunal, ” June 11, 1981, p. 4.
Ch. 9—Federal Role in the Administration of Intellectual Property Rights ● 265

.—

the Federal Government in the administration

of intellectual property rights. For this reason,

CRT has recently run into some sharp criticisms. 32

Other Supporting Agencies Within

the Federal Government

Department of Commerce

Four offices and agencies within the Department of Commerce support intellectual property activities in various ways. The growing

need for support reflects the increasingly complex technical, political, and economic dimensions of intellectual property rights issues

brought about by technological development.

Such support draws on the industrial, technical, and scientific expertise of the following

agencies.

International Trade Administration. The International Trade Administration (ITA) was

established by the Secretary to strengthen the

U.S. international trade and investment position. ITA provides counseling to members of

the business community on export opportunities and problems. ITA offices abroad help to

identify potential markets. A recent reorganization along lines proposed by the Grace

Commission has brought together industrial

specialists in such areas as computers and

telecommunications with trade promotion

staff to bring more specialized knowledge to

trade negotiations.33 ITA administers the Export Administration Act to ensure that export

activity is consistent with national security

and foreign policy objectives. A current priority is prevention of the illegal transfer of technology. Control of technical data poses enforcement problems because such intangibles as

consulting arrangements and training of foreign nationals are covered. In issuing export

licenses, clearances are routinely required from

the Departments of State and Defense.

—.

“See for example, hearings held before the Subcommittee

on Courts, Civil Liberties, and the Administration of Justice,

Committee on the Judiciary, U.S. House of Representatives,

‘

(The Copyright Royalty Tribunal, ” July 11, 1985.

“President’s Private Sector Survey on Cost Control, “Report on the Department of Commerce” (Washington, DC: U.S.

Government Printing Office, 1983), p. 24.

National Telecommunications and Information Administration. NTIA is the executive

branch agency principally responsible for the

development of domestic and international

telecommunication and information policy.

The agency also manages the various government agencies’ use of the electromagnetic spectrum and has research laboratories for technical support. Because of the close relationship

between telecommunications and intellectual

property and its role in developing information policy, NTIA participates in U.S. Government delegations to international intellectual

property negotiations. NTIA also makes recommendations on legislative and regulatory

issues regarding intellectual property and communication issues.

National Technical Information Service. NTIS

serves as a government clearinghouse for technical information. NTIS issues notices to the

public that a government agency has applied

for a patent. Private organizations and individuals can then determine whether to apply

for a license.

NTIS acts as an agent in support of the patent process for nine departments and agencies.

These are the Departments of Commerce,

Health and Human Services, Interior, Agriculture, Army, Air Force, Transportation, Veterans Administration, and the Environmental

Protection Agency. NTIS makes special promotional efforts to encourage licensing and

also licenses those agencies’ patents.

Office for Productivity, Technology, and Innovation. OPTI, headed by an Assistant Secretary of Commerce, was created to develop

measures to improve the competitive position

of the United States in world markets. The passage of legislation (Public Law 96-517) in 1980

provided nonprofit organizations and small

businesses with the first right of refusal to title in inventions made under government contracts and grants. Authority to implement this

policy was transferred to OPTI from the Office of Federal Procurement Policy of the Office of Management and Budget by Public Law

98-620. A Presidential memorandum issued in

1983 directed agencies to permit all contractors and grantees to take title in inventions
266 ● Intellectual Property Rights in an Age of Electronics and Information

to the extent permitted by law. Implementation of this directive is monitored by OPTI,

which works with agencies in preparing procurement regulations. OPTI is also developing policy to cover the ownership and the use

of technical data arising from federally supported research and development. This is a

highly controversial area with little precedent

for guidance.

Department of Justice

The Antitrust Division of the Department

of Justice includes an intellectual property

section that monitors the interface between antitrust and intellectual property matters. The

section helps develop legislation with potential antitrust implications, such as the recently

passed National Cooperative Research Act,

which removes certain antitrust barriers to cooperative R&D. It also provides the Administration’s position on intellectual property matters to other regulatory agencies, and presents

the Administration’s opinion to the courts, if

requested in a pending case.

The Department of Justice also represents

the Patent and Trademark Office in civil cases

when, for example, it is alleged that the agency

acted improperly in approving or refusing a

patent application. It also represents the Copyright Office in similar circumstances.

Department of State

The Department of State’s international activities in the protection of intellectual property are carried out through its Office of

Business Practices. The Department of State

coordinates U.S. participation in the international intellectual property treaties to which

the United States is a party, such as the Convention for the Protection of Industrial Property and the Universal Copyright Convention.

Within the Federal Government, the Department of State initiates or participates in the

approval of papers circulated among agencies

to achieve coordinated positions in multilateral

and bilateral negotiations on intellectual property issues. To elicit industry viewpoints, the

Department of State has created an Advisory

Committee

Property.

on International Intellectual

Office of the U.S. Trade Representative

The Office of the U.S. Trade Representative

(USTR), created by statute in 1975 in the Executive Office of the President, is responsible

for setting and administering trade policy.

USTR also administers part of the Trade and

Tariff Act of 1984, which refers specifically to

the protection of intellectual property. Under

this act, the President is authorized to determine which developing countries may export

goods to this country duty free, on the basis

of each country’s efforts to protect U.S. intellectual property products as well as other criteria. USTR is also responsible for issuing a

statutorily required annual report to Congress

on trade problems, including a report on nations that are not respecting U.S. intellectual

property rights.

International Trade Commission

The International Trade Commission (ITC)

is an independent quasi-judicial agency that

determines whether unfair acts related to imports harm U.S. industries. Investigations

often involve allegations of patent, trademark,

or copyright infringement. The intellectual

property owner or licensee usually initiates action by making a complaint to ITC. ITC may

then conduct hearings before an administrative law judge. A final decision is rendered by

the Commissioners. The agency is authorized

to issue orders excluding goods from entry

and/or cease-and-desist orders. Exclusion orders

are enforced by the Bureau of Customs. ITC

works closely with the Department of Commerce’s International Trade Administration,

which maintains information on industries that

might be harmed by unfair trade practices.

Policy Coordination

Reflecting the growing number of economic,

political, social, and international factors surrounding intellectual property issues, various

Federal agencies have recently begun to coordinate their efforts to deal with these multifaceted questions. Responsibility for policy co-
Ch. 9—Federal Role in the Administration of Intellectual Property Rights ● 267

ordination on intellectual property is mainly

vested in four interagency coremittees that are

described below.

Cabinet Council on Commerce and Trade. The

Cabinet Council on Commerce and Trade is

chaired by the Secretary of Commerce, who

has appointed the Commissioner of Patents

and Trademarks as Chairman of its Working

Group on Intellectual Property. The basic task

of the Working Group is to coordinate the positions of Federal agencies, especially in developing U.S. positions in foreign negotiations.

Seven agencies of the executive branch are represented on the working group. The Copyright

Office representative also participates in the

meetings.

The working group is concerned with both

international and domestic issues that require

a unified government position. These have included:

1. obtaining a coordinated position for the

Brussels Satellite Convention, which was

subsequently ratified;

2. proposing controls for imports from third

parties that do not respect U.S. trademarks;

3. recommending changes in the Freedom of

Information Act to protect trade secrets;

4. coordinating agencies’ positions on the recently passed semiconductor chip legislation; and

5. assessing needed changes in the “first

sale” doctrine.

Trade Policy Committee. The Trade Policy

Committee is chaired by the U.S. Trade Representative and has a subcommittee on intellectual property chaired by USTR. In compliance with the Trade and Tariff Act of 1984,

it examines international protection of intellectual property as a trade barrier. In trade

matters, the committee’s focus is on bilateral

negotiations. Seven executive branch agencies

are members of the subcommittee.

The subcommittee facilitates cooperation

among agencies in carrying out responsibilities assigned to USTR under the recent legislation. These include:

1.

2.

3.

4.

identifying the kinds of trade barriers

that result from protection of intellectual

property;

identifying the policies and practices of

individual countries that cause serious

problems in the United States;

compiling information in support of bilateral negotiations; and

preparing the annual report to Congress

that highlights problem areas and U.S. efforts underway to improve them.

Senior Interagency Group on Communication

and Information Policy. The Senior Interagency

Group on Communication and Information

Policy was created in 1980 and is co-chaired

by representatives from the Departments of

State and Commerce. Its Working Group on

Copyright and Intellectual Property, which includes representatives from nine government

agencies, is chaired by a representative of the

Department of Commerce’s National Telecommunications and Information Administration.

The task of this working group is to coordinate and exchange information on each of the

agency’s efforts to improve international protection for U.S. intellectual property rights.

The working group has recently been working

to ensure that U.S. programmers receive remuneration for the cable retransmissions of

their material by Canadians and Mexicans. A

separate Working Group on Transborder Data

Flow, chaired by a representative from the Department of State, coordinates U.S. positions

in the Organization for Economic and Community Development (OECD) Committee on Information, Computer, and Communication

Policy.

Federal Coordinating Council for Science,

Engineering, and Technology. The Federal Coordinating Council for Science, Engineering,

and Technology is chaired by the director of

the Office of Science and Technology Policy

(OSTP). Its Working Group on Intellectual

Property is chaired by the Assistant Secretary

of Commerce for Productivity, Technology,

and Innovation. This group addresses issues

that arise in the process of carrying out legislative and administration policy on the owner-
268 ● Intellectual Property Rights in an Age of Electronics and Information

—

ship of intellectual property created during

government-sponsored research and development. Nineteen agencies are represented on the

working group.

This working group is used by the Assistant

Secretary to help coordinate the execution of

responsibilities assigned to Commerce by Public Law 98-620. Guidance is provided to agencies that are drafting Federal Acquisition

Regulations that authorize vesting title to intellectual property in small businesses and nonprofit organizations performing research and

development for the government. Similar efforts are underway pursuant to the Presidential directive that encourages all government

contractors and grantees to take title to the

extent permitted by law. The working group

is drafting guidelines for the disposal of technical data arising from government-supported

research and development, and is preparing

model agreements that include provisions for

intellectual property for use by government

laboratories undertaking cooperative efforts

with private companies.

Federal Courts

From the very beginning of Federal intellectual property protection, courts have played

a central-albeit not highly visible—role in the

implementation of intellectual property laws.

Although the availability of courts for the resolution of private disputes is generally taken

for granted, and not often considered part of

the system, it is clear that access to the Federal judicial system has always been a crucial

element of intellectual property policy. As forums for intellectual property dispute resolution, courts have: 1) developed doctrines defining the scope of protections; and 2) provided

official sanctions for misallocation of rights

and rewards under intellectual property law.

The role of the courts in resolving private

disputes and in developing legal doctrines may

become more central with the advent of new

information and communication technologies.34

The volume of legislation dealing with technological intellectual property is growing rapidly and is likely to be matched by an increasing volume of litigation.35 The economic stakes

involved in the allocation of technological property rights by the courts are large and will assure the availability of extensive resources for

litigation. 36 The resulting surge of scientific and

technological disputes into the judicial arena

is likely to put substantial strain on the institutional resources of the judiciary and to raise

questions about judicial expertise in resolving

34Judicial decisions on the allocation of proprietary rights in

new information technologies and on access to new forms of

communications occupy position of singular importance. What

Justice Cardozo said about the’’ preferred position’ of the First

Amendment–’’that it is the matrix, the indispensable condition, of nearly every other form of freedom’ ‘–may well be said

about access to information and the means of its communication. At a time when the dimensions of advance in these technologies are seen as equal in importance to the advent of the

industrial revolution and when the potential for the monopolization of control they embody surpasses anything organized

societies have known so far, the power of courts to demarcate

rights of ownership in and access to knowledge is the power

to decide whether or not the new information and communication technologies will be used to increase the public dissemination of information. The shortcomings of intellectual property

rights adjudication must be seen against that challenge. See

Palko v. Connecticut, 302 U.S. 319 (1937).

“l~or a comprehensive list of legislation in the 98th Congress dealing with various aspects of the new information technology, see Report, 8th Amual Copyright Law Conference, Mar.

7, 1!385, Washington, DC. The volume of litigation over questions of copyrightability has increased dramatically. Although

the available data on copyright litigation does not distinguish

between traditional copyright disputes and those involving new

technologies, the number of copyright cases filed in Federal

courts increased from 899 in 1976 to 2,226 in 1983. Annual Report of the Director of the Administrative Office of the United

States Courts, 1984.

‘In 1982, an estimated 2.8 million personal computers were

sold in the United States. Another 5 million, for a total of more

than $24 billion in sales, were expected to be sold in 1983, By

the end of the century 80 million personal computers will be

in use. Estimates of total software revenues for 1982 run as

high as $45 billion, by 1987 packaged personal computer software sales alone are expected to reach $4.8 billion. In 1984, gross

revenues from the sale or license of computerized databases surpassed $3 billion. Pamela %rnuelson, “CC)NTU Revisited: The

Case Against Copyright Protection for Computer Programs in

Machine Readable Form,” Duke Law Journal, No. 4, 1984, pp.

705-712.
Ch. 9—Federal Role in the Administration of Intellectual Property Rights c 269

novel and ever more complex scientific and economic issues raised by the regulation of new

intellectual property .37

Non-Federal Agencies:

Collecting Societies

Traditionally, many copyright owners have

licensed use of their literary, dramatic, musical, and artistic works, as well as other forms

of intellectual property, on the basis of transaction contracts worked out between individuals. The introduction of commercial broadcasting technologies, beginning in the 1920s,

gave copyright owners new opportunities for

presenting their works and new difficulties in

collecting fees for use. Copyright owners have

found it increasingly difficult to control or

administer their rights on a case-by-case basis. Users also have faced difficulties in identifying and remunerating creators of works.

As described below, these problems provided

significant pressure for the establishment of

systems of administering rights on an aggregate basis through collecting societies.

Music

The use of a collective system of administering intellectual property rights in the music industry was prompted by two events.

First, the 1909 revision of the Copyright Act

extended to the owners of music copyrights

the exclusive right to authorize the public, forprofit performance of their works. Soon after,

radio extended once-local performances to a

much larger audience. Film and television followed, bringing further increases in the scale

and scope of public musical performances.

——-—.— ——

‘“The practical value of the categorical copyright protection

for computer software, for example, will be determined largely

by judicial decisions on the copyrightability of particular forms

and types of programs and by judicial definition of the scope

of the protections that will be accorded by software copyright.

What copyright owners lacked in the face

of these new opportunities for performance and

profit was an efficient mechanism for collecting the money to which the law entitled them.

To setup such a system, a group of prominent

composers formed the American Society for

Composers, Authors, and Publishers (ASCAP).

Established to collectively license use of musical works and to monitor performances and

infringements of the law, ASCAP was successful in lowering the cost and simplifying the

process of licensing transactions.

A second, much smaller, collecting society

was founded in 1930 by Paul Heinecke. Called

the Society of European Stage Authors

(SE SAC), the organization’s membership was

made up mostly of Europeans. Today, SE SAC

has a large repertoire of American music.

In 1940, a dispute between ASCAP and a

group of broadcasters produced the third music collecting society, Broadcast Music Inc.

(BMI). The broadcasters charged that ASCAP’s

licensing fees were too high, and so split off

to form their own society. BMI supplied its

member broadcasters with music from sources

not controlled by ASCAP. Although the broadcasters resolved their dispute with ASCAP in

1941, BMI continued to operate and is still a

major competitor to ASCAP.

Print

In print publishing, the pressure for a collective approach began to build in the 1950s ,

when authors and publishers saw a threat to

their traditional sources of income from photocopying technologies. Micrography was th e

first such technology, and it was followed in

the 1960s by advances in photocopying techniques and mechanical paper-handling ca -

pacity .

During the process of revising the Copyright

Act, Congress suggested that publishers and

authors might set up a cooperative mechanism

for collecting and disbursing revenues. Upon
270 . Intellectual Property Rights in an Age of Electronics and Information

passage of the 1976 act, a group of publishing

and other associations formed the Copyright

Clearance Center (CCC). Established in 1977,

CCC was designed to monitor and collect from

consumers who want to photocopy copyrighted

works and to distribute revenues to the copyright holders.

Film

With the introduction of cable and satellite

transmission, the film industry followed the

example of the music and publishing industries

and set up a collecting society. Before that

time, the reproduction of film prints was expensive, and profitable exhibition was generally visible, so illicit use was easily discouraged.

But with satellite and cable, the film industry

faced greater difficulties, particularly in foreign countries, in collecting fees for use of their

works.

In response to these new technologies, an

international collecting society called L’Association de Gestion International Des Oeuvres

Audio-Visuelles (AGICOA) was organized in

1982. The society was founded to negotiate use

of films between national collecting societies

and copyright holders, to monitor the use of

films, to collect royalties from those who use

them, and to distribute royalties to copyright

holders around the world.

Collecting Societies in Practice

Generally speaking, the main purpose of collecting societies has been to alleviate the problems of administering individual property

rights by setting up a central clearinghouse

mechanism. Easing the cost and complexity

of licensing is also important; users can obtain

a blanket license to use any of the registered

works.38 Collecting societies, moreover, attempt to serve as forums for negotiations between the various interested parties and try

to educate the general public about intellectual property protection.

‘“In some cases, however, users prefer to pay on a per-use

basis. ASCAP, BMI, and the CCC each offer these types of transactional licenses. AGICOA generally operates on a pay-per-use

basis.

To accomplish these objectives, each collecting society performs similar functions. For example, each has a department responsible for

licensing users of copyrighted works. They try

to identify new users and see that both new

and established users are properly licensed and

pay the required fees. Their responsibilities

also include convincing users that they must

in fact pay user fees; this is sometimes difficult. In some cases, some collecting societies

have resorted to lawsuits to exact payment and

enforce licensing terms.39 Although the blanket license entitles users to access to all of the

society’s works, the fees charged vary according to particular classes of use.40 The negotiation of fees is conducted with various industry groups, such as the American Hotel and

Motel Association, the National Association

of Broadcasters, the Association of American

Publishers, and the Authors League of America. Each collecting society has some mechanism for adjudicating disputes in cases where

users feel the fees are too high.

In addition to maintaining lists of licensees,

the collecting societies have departments that

are responsible for recording and updating the

list of works registered with the society. Most

of the collecting societies maintain these files

in an electronically accessible database. The

staff members in this section also respond to

inquiries from the public, users, or rights

holders.

Because it would be uneconomical to log and

monitor every use of every registered work,

collecting societies generally rely on sample

“ASCAP brings, for example, approximately 400 to 500

such infringement actions every year. Over 99 percent of these

cases are settled before trial.

‘“The musical performance rights societies, for example, use

different methods but similar criteria for deterrnininguser license

fees. The criteria for broadcast users include, for example, advertising revenues and the size of their markets. For nonbroadcast users such as “general establishments, ” the societies use

factors such as the price of a drink, seating capacity, the frequency of music performances, and the type of rendition. Hotel

and motel fees take into account total entertainment expenditures; concert rates depend on admission price and seating capacity; background music users such as Muzak pay a fee based

primarily on the number and character of subscribers.
.—

Ch. 9—Federal Role in the Administration of Intellectual Property Rights ● 271

surveys of use for determining the distribution of revenues to their creator and publisher

members.’] The exact distribution of revenues

to individual rights owners is calculated by formula.42

“’This is usually performed in a special survey department.

Although the music collecting societies and the CCC and

AG ICOA all use different survey methods, the ot’erall intent

of the survey is similar. Upon receipt of the survey data, the

societies identify writers and publishers of the registered works.

Some of the societies report that the use of information technolo~” has greatly improved the efficiency of the survey and

ident}flcation process.

“In the case of the music performance societies, these calculations are made with weighting formulas, whereby different

uses of works earn different amounts of performance credits.

For uses of printed works, the CCC uses rates determined by

each of the copyright holders for calculating its survey data.

Most of the collecting societies have separate international departments that have reciprocal agreements with individual collecting

societies abroad. These agreements provide for

the exchange of revenues that foreign societies collect for American societies’ registered

works. Collecting societies also belong to the

relevant international associations.

After calculating the credits, the music performance rights societies divide 50 percent of their revenues among writers according to the credits they earned and 50 percent to publishers according to the credits they earned. The CCC pays all of its

collected revenues (less overhead) to its publisher members (who

may or may not have agreements to share these revenues with

authors) according to calculations made with the usage survey

data. Automated information systems have also greatly streamlined the remuneration process.

EMERGENCE OF NEW TECHNOLOGIES AND THEIR

IMPLICATIONS FOR THE PRESENT FEDERAL

INSTITUTIONAL ARRANGEMENTS FOR THE

ADMINISTRATION OF INTELLECTUAL PROPERTY RIGHTS

As illustrated above, the Federal institutions

established to administer intellectual property

rights have shown a resilience to technological developments over time. Today, however,

new information and communication technologies are of a new order of magnitude and

scope, and so are placing correspondingly

greater pressure on the entire intellectual property system. The present institutional arrangements were not designed to deal with the many

kinds of problems generated by these technologies. To explore how new technological developments are affecting the viability and effectiveness of the institutions now involved

with intellectual property issues, a brief characterization of such developments and their potential institutional implications is provided

below.

Rapidity of, and Uncertainty With

Respect to, Changes in Information

and Communication Technologies

Technological advances in, and the growing

convergence of, computer and communication

technologies, have combined with the deregulation of the telecommunication industry, to

greatly enhance the public’s access to information products and services. These same two

developments significantly affect the processes

of creating, producing, and using intellectual

properties. As a result, they are likely to have

a somewhat disruptive effect on the nature of

the intellectual property system as it exists

today.

The unprecedented speed and unpredictability of these changes confound efforts to design

legislation that will continue to be relevant and

useful. It was for this reason, for example, that

technological gaps soon developed in the 1976

copyright law and its 1980 amendments were

enacted, although the law itself was specifically designed to take emerging technologies

into account. As illustrated in the case of Apple Computer, Inc. v. Franklin Computer Corp.,

for example, the law failed to address the important question of whether copyright law applied to operating code that is readable for the

most part only by machine, or to information

embedded in hardware. And as the case of Sony

Corp. of America v. Universal City Studios

8–92 2 “~ – 86 – 11
272 ● Intellectual Property Rights in an Age of Electronics and Information

demonstrates, the law failed to anticipate the

rapid growth of the home market for videocassette recorders (VCR) and how this widespread

use of VCRs might affect the intellectual property rights of the film industry. It is not surprising, therefore, the past few years have

brought greater demands on the courts and

many more bills related to intellectual property which seek to accommodate legislation

with changing technologies.

Given the rapidity of, and uncertainty with

respect to, changes in information and communication technologies and their impact on

the intellectual property system, the question

arises as to whether the existing institutions

that were established to address intellectual

property issues are either equipped with or are

capable of developing an ongoing process to

assess and plan for technological change.

Growing Demand for Nontraditional

Copyright Solutions Requiring a

Regulatory Approach

The rapid development of information and

communication technologies, combined with

greater public access to them, has strained

many of the traditional mechanisms for protecting intellectual properties. This growth and

development has also stressed the system by

which creators, producers, and distributors of

intellectual properties are remunerated. For example, because many of these technologies permit decentralized access and require electronic

handling of information, their use can be carried out privately and is, therefore, less subject than in the past to monitoring and control. Moreover, by generating new uses and

users of intellectual properties, these technologies are convoluting the process by which intellectual properties are created, published, distributed, and used. Similarly, they are altering

some of the traditional roles, and relationships

of actors in the intellectual property system.

As a result, many of those involved are seeking new kinds of rights and forms of remuneration.43 Directors, for example, are looking for

ways to receive property rights protection for

their individual contribution to stage and film

production. 44 The Motion Picture Association

of America, moreover, is seeking the right to

be paid a fee by owners of satellite dishes who

receive transmitted broadcasts.45

To overcome some enforcement problems

generated by the new technologies and take

into account the new kinds of claims for rights,

a number of laws and bills have been enacted

or introduced that depart from the traditional

intellectual property scheme and require significant government involvement for their implementation. Under a compulsory licensing

scheme, for example, Section 116 of the 1976

Copyright Act requires jukebox operators to

pay royalties to the copyright owners of nondramatic works. To execute this requirement,

the law obliges the Copyright Office to register and license operators of jukeboxes and the

Copyright Royalty Tribunal (which at the time

was not yet constituted) to determine which

claim for fees are legitimate and allocate royalty payments equitably. Similarly, the proposed Home Recording Act of 1983, designed

to circumvent the problems of enforcement by

compensating copyright owners with a royalty

payment, calls on the Copyright Office to initiate arbitration proceedings to determine the

royalty schedule and requires the Copyright

Royalty Tribunal to determine and allocate the

funds collected among competing claimants.

“’l’his is not the first time that technology has given rise to

new kinds of rights. Looking back at the history of intellectual

pro~wrty laws and practices, one can see that, with the development of new technologies, pressure for the establishment of new

kinc~s of rights emerged. Recording technology, for example,

gaw: rise to the demand for a “mechanical recording right. ”

Unhke traditional rights which were granted to an entire class

of work, such as a book or a motion picture, these new kinds

of rights were designed to remunerate the specific use to which

a w(}rk was put.

440TA Workshop, “The Impact of Technology on the Creative Environment, ” Apr. 24, 1985,

“~% Public Law 94-549, Communications Act Provisions

for Earth Stations.
Ch. 9—Federal Role in the Administration of Intellectual Property Rights ● 273

With the exception of the fledgling Copyright Royalty Tribunal, however, U.S. institutional arrangements for addressing intellectual

property issues were designed, for the most

part, to function within a free market, nonregulatory framework. To the extent that new

legislative initiatives call for a more regulatory

approach to solving intellectual property problems, the question is raised as to whether and

as to how well the existing set of institutions

will be able to take on new roles and adapt to

a new environment.

Need for Greater Understanding of and

Information About the Processes By Which

Intellectual Properties Are Created,

Published, Distributed, and Used

Under the traditional copyright scheme,

there is little need to know the precise economics of the process by which intellectual

properties are created, published, distributed,

and used. For under such a system, property

rights are defined and granted to authors by

law, and the economic value of those rights is

determined and distributed by market forces.

To the extent that intellectual property law

is tending towards a more regulatory approach,

however, more information and a greater understanding of this process will be needed.

The widespread deployment and use of the

new information and communication technologies has complicated the traditional intellectual property process, making it difficult-but

perhaps also more important—to know where

economic value is added, and thus, how to determine economic incentives and rewards.

These technologies, for example, have not only

permitted more people to use intellectual properties in new and different ways, they have also

extended the process and the opportunities

throughout to enhance the value of creative

and innovative works. No longer is there one

“author,” but rather a series of “authors”

whose claims to intellectual property rights

must be sorted out. No longer does one pub-

— .

lisher put out a book, or one producer release

a film, but rather a variety of publishers and

producers whose economic stakes need to be

taken into account.

To resolve the numerous and varied competing intellectual property claims within a regulatory framework, as opposed to within a market framework, wiLl be very difficult. It will

require policy makers to develop an analytic

rationale for the optimum charging of fees and

the economically efficient and socially equitable distribution of rewards. To do so, they

will need to know about all of the parties at

stake in relatively great detail, and also understand their roles in the intellectual property process, and how each might fare under

alternative scenarios. The considerations specified in the Home Recording Act of 1983 for

setting royalties illustrate the kinds of information that might be required to develop such

a rationale. No less than 10 factors are cited,

including:

●

●

●

the value to an individual of the right to

reproduce copyrighted works;

the projected effect of royalty fees on the

structure and financial condition of the

motion picture and audiovisual production

industries and the video recording device

or media importing and manufacturing industries; and

the relative roles of copyright owners and

importers and manufacturers of video

recording devices or media with respect

to creative and technological contribution

to the development of motion pictures and

other audiovisual works.

At present, reliable information of this kind

is not readily available. Given the growing complexities in the intellectual property process,

brought about, in part, by technological developments, it is exceedingly difficult for example, to determine such things as authorship;

the point at which new value is added on to

an existing intellectual property and who has

added it; and what actually constitutes copying or use and, therefore, might require re-
274 ● Intellectual Property Rights in an Age of Electronics

muneration. 46 Accurate estimates of damages

due to infringement of intellectual property

rights are also difficult to obtain. Most of those

available are not only unsystematic in their

approaches; they are also somewhat suspect

insofar as most have been commissioned by

the very parties whose interests are at stake.47

When legislation calls for a regulatory approach instead of a market approach for addressing intellectual property issues, provisions may be needed to increase the analytic

and expert support available to those organizations called on to implement and administer the law. One recent legislative proposal

that moves in this direction is the proposed

Free Market Copyright Act of 1983, which

abolishes the offices of two of the five commissioners attached to the Copyright Royalty Tribunal and requires the Tribunal to appoint a

general counsel and chief economist.

Development of Technologies That

Do Not Correspond to Traditional

Intellectual Property Categories, and

the Creation of Sui Generis

Intellectual Property Legislation

The framers of the U.S. Constitution distinguished between writings and inventions, and

set up separate rules and incentive systems

for each. This distinction was relatively clear

cut as long as the term writing merely described an art, rather than embodying the art

itself. Today, however, this distinction is

harder to maintain as new technologies emerge

that do not clearly fit into either one or the

other category. Because information technologies allow symbols to define a process and

function as part of a machine, for example, they

tend to blur the boundary between writings

and inventions, between ideas and their expressions, and between functions and their repre4hFor a discussion of these problems, see Christopher Burns,

Inc., “The Economics of Information, ” contract report prepared

for OTA, 1985.

“Stan Besen, Econom”c Issues Relating to New Technologies and Intellectual Property, contract report prepared for

OTA, 1985, pp. 45-55.

and /formation

sensations. This blurring of the boundaries has

raised the question of what kind of intellectual

property protection is most appropriate for

these technologies and led to the establishment

of sui generis intellectual property legislation.

Computer software was one of the first of

11 e new information technologies to raise questions of this kind. Controversy surrounded the

issue of the copyrightability of computer software since the mid- 1960s, when the Copyright

Office first began to register programs in their

object code form under its “rule of doubt. ”

Much of the controversy was rooted in the 1909

Supreme Court decision in White-Smith Publishing Co. v. Apollo Co., which held that a

player piano roll was not copyrightable since

it did not embody a system of notation that

could be read and, thus, was not a copy of a

musical composition but rather a part of a

device for mechanically performing music. Because program object code was said to resemble a piano roll in its unperceptability, questions were raised as to whether it could be

copyrighted. After considerable controversy

and litigation, this issue was finally resolved

within the traditional intellectual property

scheme by including computer programs within

the domain of copyright protection.48

Unlike the case of computer software, the

question of how semiconductor chips might

best be protected was resolved not within the

framework of existing intellectual property

law, but rather with sui generis legislation. Under traditional intellectual property law, the

“’The 1980 Amendments to the 1976 Copyright Act, for example, specifically included computer programs, databases, and

works created by the use of computers within the realm of copyright protection. Many of the remaining issues were resolved

with the court case, Apple Computer Inc. v. Franklin Computer

Corp., in which the Third Circuit Court of Appeals held that

computer programs, whether in object or in source code, whether

written or embedded in ROM, and whether an applications program or an operating systems program, are “literary works”

within the meaning of the 1976 Copyright Act, and hence subject to copyright protection.

This is not to say that there are no alternative views about

this decision. See, for example, Pamela Samuelson, “CONTU

Revisited The Case Against Copyright Protection for Computer

Programs in Machine-Readable Form, ” Duke Law Journal, No.

4, 1984.
— . —

Ch. 9–Federal Role in the Administration of Intellectual Property Rights ● 275

semiconductor chip was unprotected. Because

it was a utilitarian article, it did not fit within

the traditional concept of copyright. On the

other hand, the level of originality embodied

in a chip mask did not meet the standards required for patent protection. To provide protection for this new technology without undermining the integrity of the law and the

historical principles underlying the distinctions between copyright and patent protection,

Congress created anew class of protection with

the passage of the Semiconductor Chip Protection Act of 1984. Although similar in many

respects to existing copyright law, it differs

insofar as it provides protection for only 10

years, requires mandatory registration, permits reverse engineering, and excludes from

protection designs that are commonplace, stable, or familiar. Because the registration procedures resemble those for copyright, the

Copyright Office was given the responsibility

for administering the new law.

The organizational structure was established

to administer intellectual property law evolved

in accordance with the distinctions that had

been made between patent and copyright protection. To the extent that new technologies

require intellectual property protection that

falls outside of the traditional realms, they may

require significant institutional changes.

Growing Convergence of Intellectual

Property Issues With Other

International Issues

Historically, intellectual property laws and

practices in the United States developed with

little regard for what was taking place in the

rest of the world. For example, although many

other countries granted copyright protection

to foreign works or authors, the United States

withheld such rights throughout its first 100

years.49 And while other European states un-

“1t was only in 1891, with the passage of the Chace International Copyright Act that the IJ nited States extended copyright relations to any nation found and proclaimed by the President to afford adequate protection to American works--subject,

as stated, to a domestic manufacturing requirement and \’arious unfamiliar forma lit ieq in this country.

dertook to regulate their copyright relations

multilaterally through the Berne Convention

of 1886, the United States continued until 1955

to act bilaterally in its intellectual property

dealings with foreign governments.50

Presently, however, the new technologies

have greatly increased the flow of information

and information products and services across

national boundaries, thus enhancing their

value in international trade. Because intellectual property protection is needed to preserve

this value, intellectual property policy is increasingly being brought to bear in matters

involving international trade policy. The Trade

and Tariff Act of 1984, for example, requires

that the protection of U.S. intellectual property rights be one of the elements considered

in the renewal of the benefits of the generalized system of preferences (GSP). Similarly,

the Caribbean Basic Economic Recovery Act

of 1983 withholds foreign aid from those countries who fail to honor intellectual property

rights.

The growing importance of information

products and services has also linked intellectual property policy with general matters of

international politics. Viewing information

technologies and information products and

services as a means to social and economic development, many developing countries view

U.S. intellectual property policies as a barrier

to their own advancement.

To the extent that intellectual property issues continue to converge with those of international trade and international politics, questions arise as to whether the present organizational structure, designed to consider intellectual property from a domestic frame of reference, is adequate or whether some more formal coordination among agencies dealing with

international issues may be necessary.

‘“In 1955, the United States acceded to the IJni\ersal Cop~’-

right Convention {I-ICC). The UCC was created for- the express

purpose of bringing the United States into the international

copyright communit~’. Negotiated and established under the

auspices of U h“E SC(), it prmrided a 4 ‘low bridge to the’ Berne

(’convention b~’ a combination of minimal substanti~e requirements and the super-cession of U.S. formalities b~ a simple “[JCC

notice’ consisting of the~ familiar ‘‘c’ inside a circle.
276 . Intellectual Property Rights in an Age of Electronics and Information

Growing Convergence of Intellectual

Property Issues With Other

Information Policy Issues

The structure and the basic assumptions

underlying American intellectual property

laws and practices were designed when the

United States was an agrarian society, in which

communication and information use and exchange played relatively minor roles in society.

In this society, decisions about intellectual

property could be made relatively independently from other policy issues. For it was assumed that, through the operation of the law,

social and economic goals would be jointly

served, thus maximizing the benefits to society.51

Today, however, the role of information technologies and information products and services have grown dramatically. These technologies and their applications are being used not

only by individuals to enrich their lives, and

by businesses to enhance their productivity;

they are also being used by governments as

a means to achieve major societal goals. For

example, the French Government likens the

growing connection of information-processing

and communication technologies throughout

the world to a change in “the entire nervous

system of social organization, ” and plans to

play a major role in their development, direct-

“lLeon Seltzer, Exemptions and Fair Use in Copyright: The

Exclusive Rights Tensions in 1976 Copyright Act (Cambridge,

MA: Harvard University Press, 1978), p. 12.

ing it to be consistent and supportive of the

Nation’s overall societal goals.52

[n the information society, such as it has

been envisioned, information and communication technologies will be more interdependent,

and intellectual property issues may increasingly converge with other matters of information policy-such as telecommunication policy or privacy policy .53 Anticipating such

connections, S. 786, a bill entitled the “Information Age Commission Act of 1985, was recently introduced into the Senate. If passed,

this legislation would establish a commission

to investigate comprehensively, issues relating to the information age, such as intellectual

property rights, computer education, computer

crime, and privacy.

To the extent that intellectual property issues converge with other information policyrelated issues, the question is raised as to

whether the present set of intellectual property institutions are capable of dealing with

these issues as they cut across one another.

52Simon Nora and A lain Mine, The Computerization of Society (Cambridge, MA: MIT Press, 1980).

%ee U.S. Congress, Office of Technology Assessment,

Cor~puter-Based National Information Systems, Technology

and Public Poh”cy Issues, September 1981, and OTA staff memo

ran,~um, lnstjtution~ options for Addressing Information Policy [ssues: A Pdiminai-y Framework for Analyzing the Choices,

No~’ember 1983. For other discussions and characterizations

of the information society, see, for example, Susan Artandi,

“M m, Information, and Society: New Patterns of Interaction, ”

Journal of the American Society for Information Science, Januar:{ 1979; and Daniel Bell, The Coming of Post-Industrial Societ, v (New York: Basic Books, 1973).

IMPLICATIONS FOR FUTURE INSTITUTIONAL

ARRANGEMENTS FOR THE ADMINISTRATION OF

INTELLECTUAL PROPERTY RIGHTS

As described throughout this chapter, new No Action: Leave Major Decisions

technologies are placing considerable burdens to the Courts

on the Federal agencies responsible for administering intellectual property rights. To man- Congress, of course, does not have to act and

age these stresses, Congress has several op- might leave the agencies responsible for inteltions that it could pursue. These options range lectual property rights as they currently exfrom leaving the agencies as they exist to com- ist. Although the intellectual property system

pletely restructuring them. would not experience devastating effects, the
Ch. 9—Federal Role in the Administration of Intellectual Property Rights ● 277

burdens would remain and would perhaps increase over time with new technological developments. These burdens, moreover, would

most likely fall to the courts.

The ability of the courts to deal with the

emerging intellectual property issues will be

determined by several factors:

1. the increasing volume of intellectual property legislation and the extent to which

it departs from traditional legal concepts;

2. the limited resources available to the

courts and the confining attributes of adjudication; and

3. the inadequacy and bias of adjudicative

information.

Volume of New Intellectual Property

Legislation and Novelty of Legal Issues

Compared to the relative stability of copyright law during the 66 years which elapsed

from the enactment of the 1909 Copyright Act

to the 1976 Revision of the copyright law, legislative activity on intellectual property issues

has increased significantly during the last 10

years. Altogether 54 bills dealing with new intellectual property issues were introduced in

the 98th Congress, 1983-85.54 The Software

Copyright Act of 1980, for example, amended

Section 117 of the 1976 act to allow for the

copyrightability of computer programs without specifically enumerating computer programs.55 Another 4 years later the Semiconductor Chip Protection Act of 1984 established

an entirely new class of protection for an information technology that does not fit comfortably into either the patent or copyright categories of traditional intellectual property

law.56 Additional legislation dealing with such

diverse new technology subjects as commercial lending rights, home taping, cable copyright, aspects of the operation of the Copyright

““OTA staff memorandum, Feb. 26, 1985; and American Bar

Association, 8th Annual Copyright Law Conference, Washington, DC, Mar. 7, 1985.

“Jon Baumgarten, “Copyright and Computer Software,

Databases, and Chip Technology, ” Proceedings, 8th Annual

Copyright Law Conference, Washington, DC, Mar. 7, 1985, p.

289.

‘Public Law 98-620, November 1984.

Royalty Tribunal, the compensation of copyright owners through royalty payments, “workfor-hire, ” or computer software piracy and

counterfeiting has been enacted or is under consideration. This volume of new legislation is

matched by the novelty of some of the major

issues raised by it. For example, the protection of software under copyright law raises a

number of definitional problems that call for

the interpretation of statutory language and

its application to new technological and scientific processes.

Because some of the legislation on new intellectual property reflects a tendency to establish regulatory policies and institutions, courts

will find themselves in the familiar-but nevertheless burdensome—position of having to review a host of administrative law issues arising out of administrative rules concerning

licensing or the mechanics of copyright registration.57 As the Copyright Office becomes the

central institution responsible for copyright

registration and administration, courts will

have to resolve issues of regulatory policy.58

To the extent that registration of computer

programs and computerized databases will necessitate the adoption of new procedures and

policies by the Copyright Office, that agency’s

substantive decisions and rulemaking process

are likely to be subject to extensive challenges

before the courts.

Unavoidably, enforcement of copyright in

computer programs will involve courts in adjudication over the enforcement process itself.

Since it is likely that computer copyright protections will be less self-executing than traditional copyright, new enforcement schemes will

become necessary for the application of civil

—

‘“Inclusion of object–or machine–code within the reach of

copyright protection under the Act raises novel questions about

the existence of a prerequisite of human interaction with

copyrightable material. It poses the problem of how to reconcile the fact that computer programs can be published with the

fact that they can-at the same time–be kept secret to protect

their commercial value. It demands distinctions between

“utilitarian” workers and those conveying information or displaying an appearance.

‘“The Semiconductor Chip Protection Act of 1984, Public

Law 98-620, though not applying copyright protections, makes

the Copyright Office responsible for registration and deposit

of semiconductor chip design (mask works).
278 • Intellectual Property Rights in an Age of Electronics and lnformation

—

or possibly criminal sanctions.” Investigations

of suspected infringement will affect areas protected by privacy expectations and fourth

amendment guarantees and are likely to come

within the reach of first amendment protections. Computer crime legislation-like that

enacted at the end of the last Congress-has

already been criticized by the U.S. Department

of Justice as too difficult to enforce.

Judicial Resources and Capacity: Attributes

of Adjudication

The capacity of the Federal courts to deal

with a significant increase in their workload

on a complex new subject is circumscribed by

the limited resources of the courts, already

short on machinery and staff, and already

struggling with a growing backlog of cases.

In addition to the purely quantitative problems it poses, the increasing volume of litigation over new intellectual property rights raises

substantive questions of how well the special

attributes of the adjudicatory process are

suited to this task. Courts will have to decide

copyright questions in the context of imperfect information about the course of technological change, of doubt over the economic consequences of the allocation of new proprietary

rights in information technology, of lack of

public support or understanding, and in the

absence of comprehensive legislative guidance.

Courts as Decisionmakers Without Control

Over Their Agenda. The very fact that courts

do not control their own agenda explains why

the judiciary is sought after as a decisionmaking institution and why its decisions may

at the same time be unsatisfactory from a large

policy perspective. As long as legal questions

are presented in the right form and forum and

at the right time—conditions of adjudication

defined with precision in advance-they will

“Imposition of criminal penalties for software piracy introduces difficult factual problems about intent and innocent infringement. Legislators themselves are concerned over the civil

liberties implications of criminal laws which grant “broad Federal jurisdiction that permits Federal agents to traipse about

with impunity in the data banks of individuals and corporations.” In addition computer crime legislation is likely to raise

Federal-State jurisdictional issues.

get answers. Answers are justified by reference to evidence, reasoning and legal doctrine.

Once the judicial process has been set in motion, decisions must be made.

Yet from a larger policy perspective the accessibility of the judicial process may be a

liability. Since judges must respond to complaints and reach decisions one case at a time,

they cannot devise a coherent program or policy: they cannot await congressional action,

they cannot ask for legislative clarification of

unclear language, they cannot anticipate the

course of future action even where evidence

indicates that the course of events will undermine the basis of their decision.60

Because accessibility to particular courts is

random, determined by jurisdictional rules and

idiosyncratic characteristics of an individual

litigant residence or business operation, and

because courts are generally not specialized

according to subject matter, different courts

in different regions of the country may deal

with the same legal question at the same time

without a method of coordination and consolidation. Until the Supreme Court chooses to decide between contradictory or conflicting lower

court outcomes in such cases, inconsistent

practices maybe pursued in different areas or

by different computer industries during the not

inconsiderable period of time which may elapse

before a “unifying” Supreme Court decision

is reached.

Judicial passivity precludes courts from

influencing-much less re-directing—policy developments questionable on legal or constitutional grounds, if no litigants come forward

to challenge such policy. Thus the copyrightability of machine-readable forms of computer

programs became established policy despite

the fact that the Copyright Office had profound

questions about the statutory and constitu-

‘% 1979, after the CONTU Final Report had been issued

but before the Report recommendations had been enacted by

the 1980 Software Amendments, one court applied the 1909

Act to hold that machine-readable versions of computer programs were not copyrightable subject matters. There was no

way a court, equipped to see only the past, could have decided

that case by reference to legislative action yet to come, no matter how certain or how soon.
..—— —— -

Ch. 9—Federal Role in the Administration of Intellectual Property Rights “ 279

tional validity of the practice, when it first began to register computer programs under its

“rule of doubt” in 1964.61 From a policy perspective the nonsystematic invocation of judicial controls not only allows procedures and

policies of doubtful legal validity to continue,

but also judicial silence may serve as a signal

of approval when, in fact, courts did not have

the occasion for judgment.

Inadequacy of Adjudicative Information

Among the resources at the disposal of institutions explicitly designed to make social

policy is the availability of expert or specialized knowledge, of procedures for the evaluation of alternative strategies or policies and

of studies projecting the consequences of alternative choices. Courts lack most of these resources.

Judicial Expertise. Judges are not experts,

they are generalists par excellence.62 They are,

by and large, “lawyer-generalists” before their

appointment and must remain so to serve fundamental goals of equality and neutrality

within the legal system. To discourage judgeshopping, cases are assigned on a random basis. Sitting alone in courts of general jurisdiction district judges must be prepared for any

subject matter. While appellate courts operate as collegial bodies, the continuous reassignment to different panels provides little

opportunity for a lasting division of labor or

the development of expertise. Yet while the

generalist judge is an essential-even necessary-part of the legal system, the lack of

expert knowledge and specialization leaves

judges unprepared for dealing with matters

calling for expertise and skills in particular

fields. In part, the difficulty stems from the

scale and complexity of technical issues. In

part, it results from the fact that judges have

to deal with cases quite isolated from their

‘‘CarY, “Copyright Registration and Computer Programs, ”

Bulletin of tie C~p.Vrig~t Society, vol. 11. ‘No. 362, ~964.

“Grossman, “Socml Backgrounds and Judicial Decisionmaking, Harvard Law Review, vol. 79, No. 1551, 1966, and Carp

and Wheeler, “Sink or Swim: The Socialization of a Federal District Judge, ” Journal of Public Law, vol. 29, No. 359, 1972.

larger context and on the basis of nonprobabilistic legal reasoning. Both factors create

gaps in decisions and make them uncertain

guides for the policies they inevitably build.

The tension between the conflicting needs

of the judicial system for generalists able to

address all subjects and specialists with particular subject expertise could, in theory, be

resolved by providing judges with informational resources which would allow them to become sufficiently expert to deal with new issues as they arise. A good argument can be

made, however, that the adjudicatory process

does not serve that need.

The Informational Bias of the Adjudicatory

Process. From a policy perspective information

produced in the course of adjudication is partial in the dual sense that it is both incomplete

and biased. Information is incomplete and fragmented, because the judicial focus tends to be

delineated by the issues which the litigants

choose to raise.63 Litigation over the copyrightability of computer programs has produced judicial decisions which holds as a matter of statutory interpretation that communication with

a human audience is no longer required under

copyright law64 without, however, dealing at

the same time with the constitutional implications of the nondisclosure which results from

registration of machine-readable programs

only. 65

Adjudication does not provide mechanisms

for routine feedback on the consequences of

decisions and it provides only limited opportunities for locating specific issues in their

broader social context. The judicial process

makes little or no provision for reviewing the

consequences of decisions. The contrast be-

“In the controversy over the patentability of living microorganisms legal arguments focused on the intended coverage

of the patent laws and the distinction between a living organism and an invention, but not on the consequences of extending the concept of proprietary rights to the creation and commercial use of new life forms.

“Apple Computer, Inc. v. Franklin Computer Corp., 714

F.2d 1240, 1247-48, 3d Circuit, 1983.

“Pamela Samuelson, “CONTU Revisited: The Case Against

Copyright Protection for Computer Programs in Machine Readable Form, ” reprinted from Duke Law Journal, No. 4, 1984, pp.

705-712.
280 ● Intellectual Property Rights in an Age of Electronics and Information

.—

tween the intensive examination of antecedent

facts and the near total neglect of subsequent

or consequential facts—i.e., the impact of a decision on economic, social, or scientific behavior

and developments, is striking. Judges have no

mechanism for assessing what the consequences of keeping source codes secret are for

that free flow of information which courts have

in the past always found to be essential in order to promote the Progress of Science and the

Useful Arts."66

Information is biased in the sense that the

adversary process subjects virtually all of the

information brought before a court to the service of stakeholders. Not all interest groups with

stakes in the outcome of a particular case are

represented and those interests which are represented are not necessarily balanced in the

resources they can bring to bear on litigation.

Although conclusive data are not available, it

is clear that lawsuits over software copyright

are almost elusively fought between corporate interests; so far neither individuals–

as creators or consumers—nor other public or

private entities representing nonproprietary

public interests have played a role in the decisive cases. The litigation pattern thus reflects

the early prominence of major corporations in

the registration of computer programs.67

Confining Conditions of Judicial Decisionmaking

The rapid rate and complexity of technological change aggravate the inherent liabilities

of the judicial process and may make intellectual property law issues less manageable for

the courts and may, by extension, make the

outcome more counterproductive from a science and social policy perspective. It is in this

sense that superimposing technological infor-

“%ee for example, Graham v. John Deere Co., 383 U.S. 1 at

5-6, 1965.

“Between 1964 and 1976, 1205 programs were registered

with the Copyright Office; 971 or 80 percent were owned by

corporations-IBM and Borroughs Corp, Hersey disent, National Commision on Technological Uses of Copyrighted Works

(CONTU), Final Report (Washington, DC: Library of Congress,

1978).

mation policy issues on judicial institutions

primarily structured to decide individual cases

in the context of traditional intellectual property law may prove detrimental to both the

courts and those with large stakes in litigation over these issues. Future changes in information and communication technology are

likely to leave courts perpetually a step behind

the task they must perform.

Encourage the Use of

Collecting Societies

Congress might also encourage the

collecting societies to deal with some

use of

of the

institutional problems presented by new technologies. A number of indicators suggest that

collecting societies have been quite successful in meeting their goals. The longevity of the

musical performing rights societies, and the

modeling of other collecting societies after

them, suggest that both users and creators

have been generally satisfied with their performance over time. Collecting societies have

also increased the size of their repertories, the

number of users, and the amount of revenues

over the years. 68 Decreasing operating costs

and increasing efficiency further indicate that

collecting societies are accomplishing their

stated objective of reducing transactional costs

for both users and creators.69

‘Whe combined annual collections of ASCAP, BMI, and

SESAC, for example, grew from $13.5 million in 1946 to $190.5

millifm in 1976. BMI reports an annual increase in their repertoire of approximately 100,000 and an increase in revenues from

$53.1 million in 1975 to $150 million in 1984. In the year 1984-

85, the number of writer members has increased from 43,000

to 45,000 and the number of publisher members increased from

25,000 to 26,000. Although the CCC and AGIOCA are both too

new to determine such overall trends, both currently report increases in the participation of users and proprietors. Leonard

Feist, An Introduction to Popular Music Publishing in America (N-ew York: National Music Publishers Association, Inc.,

1980), p. 59; and discussions with BMI representatives, March

1985.

“BMI, for example, decreased its operating costs from 19

percent of total revenues in 1975 to 15 percent in 1985. Collecting societies have been able to lower the cost per transaction

in part because an increasing number of users and creators are

using their services. The major factor in lowering costs, however, has been the introduction of information technology, now

used at various points in their operations.
Ch. 9—Federal Role

Although successful and effective in many

ways, collecting societies also have problems

that could limit their usefulness as a model for

a broader range of information market situations. In particular, because collecting societies administer the rights for many creative

works, they have been accused of monopolizing

the markets and exercising unreasonable restraint on trade. These concerns have prompted

antitrust suits; since 1941, both ASCAP and

BMI have been operating under consent decrees.70 In addition, problems of developing

sufficient transactional volume to efficiently

collect and disburse funds, and problems of

equitable representation of members with disparate claims to compensation have plagued

their otherwise smooth and effective operation.71

During the congressional hearings that led

to the 1976 revision of the U.S. copyright law,

many discussions focused on how new technologies undermine copyright owners rights.

The enormous difficulties these technologies

created for both users seeking licenses and creators seeking remuneration for their works

were usually cited as the basis for establishing broader exemptions or conditions in the

new legislation. As an alternative, many of the

“ In 1941. the antitrust division of the Department of Justice filed a civil complaint against ASCAP charging the organization with violations of the Sherman Act. The result was a

consent decree that significantly altered three components of

A .SCA P‘s operations. First, .4 SC A P was prohibited from discriminating against similarl~’ situated licenses. This order was

prompted by the society’s practice of withholding certain music in an attempt to extract higher fees. Second, the consent

decree prohibited ASCAP from acquiring exclusive rights to

license members’ performance rights. Third, ASCAP was required to offer other licenses in addition to blanket licenses.

The consent decree was amended in 1950 following numerous problems with license terms, membership restrictions, and

uneven royalty distribution, as well as new problems arising

from motion pictures and television. Among other things, these

amendments gave users more options, set up procedures to handle fee disputes, and established more objective criteria for distributing royalties. More amendments followed in the 1960s.

‘Collecting societies have been criticized by some copyright

holders who feel that the distribution of royafties is often unfairly biased in favor of a few very popular and powerful members, Because of alleged inequities in the us~sampling or royaltycalculation methods, some believe they are inadequately represented in the bargaining process. Economies of scale enjoyed

by large, powerful societies serve as effective barriers to weaker

creat,ors’ formation of competing collecting organizations.

in the Administration of Intellectual Property Rights ● 281

participants in their 1976 hearing process proposed that a collective approach might be feasible for literary works and other types of

intellectual property where reprographic, performance, and recording rights were becoming more relevant in light of new technologies.72

As new information and communication technologies give rise to new creative works and

new uses of traditional creative works, similar difficulties will arise for both users and creators. For example, amplification of distant

signals and their distribution by cable to users,

or the distribution of computer programs via

videotex systems to users, will increase the access, distribution, and use, of creative works,

thus creating enforcement problems and larger

transactional costs. Given these new challenges to the administration of intellectual

property rights, collecting societies may be one

alternative to institutional problems posed by

new technologies.

Strengthen and Increase the

Responsibilities of Existing Agencies

Strengthening the capabilities of the current

agencies involved with intellectual property

rights is another option that Congress might

consider. The Patent and Trademark Office,

the Copyright Office, and the Copyright Royalty Tribunal could each be given additional

resources for research and policy planning, and

the authority to regulate and adjudicate. Other

agencies’ responsibilities for intellectual property rights could be strengthened and made

more explicit. For example, creating a position

of Assistant Secretary for Intellectual Property Right within the Office of the U.S. Trade

Representative, could provide a higher level

of attention to this aspect of international

trade, within the U.S. Government and in negotiations with other nations.

“’Leonard Feist, An Introduction to Popular Music Publishing in America (New York: National Music Publishers Association, Inc., 1980), pp. 56-57.
282 ● Intellectual Property Rights in an Age of Electronics and Information

Establish a Central Federal Intellectual

Property Agency

To comprehensively address the new institutional needs, Congress might consider restructuring the institutional arrangements for intellectual property rights. Congress could, for

example, establish a new Federal agency that

would administer all aspects of intellectual

property rights. Given the new institutional

needs, this central intellectual property agency

could assume the following responsibilities:

all of the current responsibilities of the

Copyright Office, the Patent Office, the

Copyright Royalty Tribunal, and other

agencies that are involved with intellectual property rights (this would exclude,

however, the deposit function of the Copyright Office which would remain with the

Library of Congress);

rule-making and determination of rates

such as compulsory license fees and distribution percentages as required by legislative mandates;

standard administrative adjudicatory

functions (similar to those of other government agencies) where preliminary disputes involving patent, copyright, and sui

generis protections, licensing fees, distribution percentages, etc., could be resolved;

administration of all sui generis protection schemes that fall between copyright

and patent protection;

development of international policy positions and representation of the United

States at all international intellectual

property rights negotiations and conferences;

collection and analysis of information on

markets and damages, solicitation and

analysis of industry viewpoints, and solicitation and analysis of the public’s views

and evaluation of their access to information products and services;

policy planning and research on technological developments and their effects on

the intellectual property system; and

advice to Congress on developments in intellectual property and suggest legislation

as needed.

This central agency would be particularly effective in implementing any short-term solutions that Congress might choose to address

current intellectual property issues. It could,

moreover, plan and oversee any longer term

solutions that Congress might wish to select.

In addition to relieving many of the stresses

on the Federal institutions, such an agency

would also alleviate many of the continual pressures due to rapid technological change currently facing both Congress and the courts.

On the other hand, centralizing responsibilities might also have negative impacts. Many

government agencies, for example, currently

rely on the proximity of the intellectual property rights agencies for needed information and

expertise. Consolidating the responsibilities for

intellectual property rights under one agency,

therefore, could deprive other parts of the U.S.

Government direct access to needed information to carry out their functions. The intellectual property agencies, moreover, would be

deprived of direct access not only to administrative support but to other areas of expertise,

such as international affairs and trade.

Considerations for the Choices of

Institutional Arrangements

Before considering institutional arrangements for the administration of rights, Congress must first make overall decisions about

the intellectual property system itself. For as

this report has shown, institutional arrangements must reflect the goals they are designed

to promote. Congress, therefore, must determine which goals it wishes to promote, which

laws and practices to establish, and how to balance competing interests in light of the effects

of new technological developments. It must

also determine whether the role of government

in the intellectual property system should be

regulatory or nonregulatory. Only after such

decisions are made, can Congress begin to

construct institutional arrangements for the

administration of intellectual property rights.
Chapter 10

Strategic Choices for Congress
—

Contents

Pag e

Problem for Congress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

OTA Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286

What Policy Goals To Pursue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286

Whether and When To Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

When To Act... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288

What Legal Framework To Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292

How Broadly To Define The Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294

Within What Institutional Framework Should Intellectual Property Issues

Be Resolved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
—

Chapter 10

Strategic Choices for Congress

PROBLEM FOR CONGRESS

The system of intellectual property rights

and practices, as it has evolved in the United

States, represents a balance of social, political, and economic interests that was arrived

at over time and in response to changing historical circumstances. The basic framework

was provided for in Section 8, Article 1 of the

Constitution, which authorized Congress to

grant exclusive ownership rights, for a limited

period of time, for writings and inventions. The

purpose of the grants of rights was twofold:

1) to foster the progress of science and the useful arts, and 2) to encourage the creation and

dissemination of information and knowledge

to the public.

Although this system of intellectual property rights was originally designed around the

technologies of its time, the approach that it

embodied was flexible enough to incorporate

new technological developments as they appeared. Today, however, advances in technologies are so far reaching that they pose fundamental questions about the system itself.

They raise issues, for example, about the appropriate goals of the system, the basic framework

of the law, the mechanisms for enforcing rights,

the criteria for granting incentives and rewards, as well as about the scope of the intellectual property problem itself.

Concerned about the problem that the new

technologies pose, interested parties are urging Congress to initiate legislation to take

these technological developments into account.

Holders of existing intellectual property rights,

for example, concerned lest the new technologies undermine their ability to enforce their

property rights, are calling on Congress to provide new ways to assure their remuneration.

Creators of new kinds of information products

and services are requesting Congress to extend

existing law to include their creative activities

within its provisions. In addition, the creators

and providers of goods and services that, prior

to the information era, were of little economic

value are looking to intellectual property law

to justify for themselves a greater economic

recompense. Meanwhile, the general public,

having greater expectations of, and growing

increasingly accustomed to, the information

products and services afforded by the new technologies, as well as their reduced costs and increased accessibility, are looking to Congress

to preserve these gains.

Faced with a growing number of requests

for congressional action, in addition to a ubiquitous and rapidly changing technology, the

problem for Congress is to try to take the magnitude and the scope of technological change

into account, while balancing interests and responding to present day concerns. The resolution of these issues maybe more difficult than

in the past when information-based products

and services were peripheral to the performance of many social and economic activities,

and when people had lower expectations about

their use and the profits that might be derived

from them. In such an environment, issues involving the granting of intellectual property

rights were easily worked out among the major players without much disagreement or public involvement.

Today, on the other hand, given the variety

of opportunities that the new technologies afford, the increased value of information, changing relationships among the traditional participants in the intellectual property system,

and rising expectations about the benefits of

these technologies, the number of stakeholders

with disparate interests and competing claims

on the system will be greater than ever before.

Under these circumstances, the resolution of

intellectual property issues will be more problematic, requiring that more viewpoints be

taken into account, and that policy decisions

about the distribution of incentives and rewards be made much more explicit.

285
286 ● Intellectual Property Rights in an Age of Electronics and Information

OTA APPROACH

It was to assist Congress in addressing these

issues that the Office of Technology Assessment was asked to undertake this assessment,

Intellectual Property Rights in an Age of Electronics and Information.

In thinking about how the new communications and information technologies might affect intellectual property rights, OTA has

adopted abroad approach, looking at the kinds

of stresses that technology might place on the

intellectual property system, as a whole, and

on each of its parts. Such an approach was required because the new technologies do not necessarily have a direct effect on intellectual

property rights. Rather, more often than not,

their influence on the law is felt indirectly, as

a result of such things as technologically induced changes in norms, values, and expectations, as well as in the ways in which intellectual works are created, produced, marketed,

and distributed.

Such an approach has also been useful because, given the political intensity of the intellectual property debate today, and the high

economic stakes involved, it is extremely important to view the situation in its entirety.

Those involved in the policy debate have often

defined issues narrowly, in terms limited to

their own interests and world views .

Examining how the new information an d

communication technologies might affect the

intellectual property system, OTA found that

these technologies are creating a wide variety

of opportunities and problems that, taken together, present Congress with five major strategic choices: 1) what policy goals to pursue,

2) whether and when to act, 3) what legal frame

work to use, 4) how broadly to define the problem, and 5) within what institutional framework should issues be resolved. These choices,

and a description of some of the issues and options that they entail, are discussed below.

What Policy Goals To Pursue

Which policy goals a particular intellectual

property system is designed to serve depends,

in large measure, on history, circumstances,

and the particular needs of a society at the time

when such considerations are being made. Concerned primarily about building a nation, and

thus about the need to establish communication links, develop a unified market, forge a

common culture, and build a democratic polity, the Founding Fathers intended the granting of intellectual property rights to increase

the flow of knowledge and information throughout the country. The granting of rewards was

not considered to be an end in and of itself,

but rather a means to achieve the goal of

learning.

Given the changing role of information in

society, the question is raised as to whether

a goal established for an agrarian era is still

appropriate in an information age. Because information-based products and services now

constitute a major source of economic growth,

and are essential to our balance of trade, some

people, for example, are urging that the intellectual property system be restructured to give

priority to economic goals. They propose a

number of changes in the system that would

presumably foster such a goal. One suggestion,

for example, is to extend protection to information itself. Such protection, it is argued,

would create a whole new source of economic

wealth. Another proposal, designed to induce

investment in information production, calls for

the elimination of the requirement that inventions be reducible to practice, thereby allowing for the protection of ideas. Such types of

protection have traditionally been denied on

the grounds that they would inhibit the dissemination of knowledge and ideas.

There are others, however, who oppose changes

designed to favor economic goals. Instead of
—

Ch. 10–Strategic Choices for Congress “ 287

—

increased protection, they prefer to see the new

technologies used to enhance access and the

sharing of information resources. While acknowledging that the development of information-based products and services are important

to the economy, opponents of stronger protection point out that information is equally important for social, political, and cultural purposes. Librarians and educators, for example,

are concerned that, if treated primarily as a

commodity, information will be less available

for learning.

Looking at these issues, OTA found that the

potential for conflicts among cultural, economic, and political goals is indeed heightened in

an information age. The ease with which the

system has historically been able to mutually

serve all goals is no longer possible, given that

the value of information-based products and

services is being enhanced simultaneously in

all realms of life. And even if, as some have

suggested, increased intellectual property protection significantly increases the production

of information and information-based products

and services, it is uncertain whether goods designed primarily with a profit motive in mind

would be the most suitable for noneconomic

ends. Nor would their production in and of itself lead to their widespread distribution. For,

as is pointed out below, producers of works distributed electronically do not have as much incentive to make them publicly available as do

producers of works distributed in hard copy.

Conflict among goals may also increase because, viewing information as a new source of

wealth, many people are looking for profit

where they never have before. Given these

heightened expectations of economic rewards,

the amount of economic growth that might result from extending property rights may indeed be insufficient to eliminate conflicts about

intellectual property goals.

In an information age, therefore, Congress

will most likely have to make more explicit

choices among policy goals. Alternatively,

other policy mechanisms, apart from the granting of intellectual property rights, might be

used to foster some goals not supported by the

present system. For example, other kinds of

economic incentives, such as subsidies or tax

exemptions, might be granted, which would

have fewer negative consequences for learning and the creative environment,

Whether and When To Act

In making intellectual property policy, Congress has always had to reckon with technological change. Over time, Congress has altered

copyright law to incorporate such technological developments as designs, engravings, and

etchings (1802); photographs and negatives

(1865); mechanical recordings (1909); motion

pictures (1912); sound recordings (1972); computer software (1980); and mask works for

semiconductor chips (1984). Then, in 1976, the

copyright law was completely revised in an effort to deal, once and for all, with the impacts

of technological change. This revision, however, failed to meet its objective. Almost as

soon as it was passed, the new law was out of

date.

With the new information and communication technologies, the pace of technological

change is accelerating. Thus, once again, Congress is faced with choices of whether, how,

and when to respond. Should Congress, for example, do nothing? Should it respond immediately to those needs deemed to be most pressing; or should it wait until it has a better

understanding of the long-term impact of technology on the intellectual property system?

Should Congress Take Any Action?

Stakeholders in the system disagree about

the extent and seriousness of intellectual property problems, and thus about whether Congress should take any action at all. Not particularly affected by the new technologies,

many traditional copyright holders, such as

book publishers, are satisfied with the system

as it presently exists. Advocates of the free

market approach also prefer that Congress

take no action. They believe that, as markets

develop, so too will natural solutions to the

problems stemming from technological change.

Others oppose change, fearing that major alterations in the law will be disruptive, and

merely lead to greater uncertainty.
288 ● Intellectual Property Rights in an Age of Electronics and Information

Holding quite a different position are those

who call for specific changes in the law to be

made in response to particular problems as

they arise. Included in this group are, for example, people from the motion picture and recording industries who, although concerned

about how technology affects their ability to

enforce their rights, still want to profit from

the new home market that the new technologies afford. To allow them to do so, they propose a royalty on the sale of blank tapes and

recording devices. By assuring them remuneration, legislation of this sort would make their

enforcement problems irrelevant. Similarly,

television program suppliers would like to see

specific changes in the law made to deal with

problems they deem crucial to their interests.

Believing that government rates are lower than

those established in the market, they propose

changes in the law that would require cable

operators to bid for programming in the market place. Groups such as these, however, are

generally reluctant to view intellectual property problems as being linked, and to make

overall, structural changes in the system. Such

an approach, they argue, will detract from

those problems in need of immediate solutions.

Seeking more fundamental changes in the

intellectual property system are those who are

concerned lest intellectual property law be

stretched to the point where it can no longer

be consistently applied, or meet its intended

policy goals. This view is heard most frequently among members of the legal and judicial

communities. Such people are most outspoken

in opposing the provision of copyright protection for computer software. Noting that reverse engineering may be precluded under

copyright law, they argue that the extention

of such protection may actually serve to inhibit learning and innovation.

When To Act

Decisions about when to act are clearly related to decisions about whether to act, and

to decisions about whether to deal with problems separately, as they appear, or in a comprehensive fashion. Thus, those who favor a

specific piece of legislation designed to deal

with a particular problem also tend to press

for action now; whereas those concerned about

the overall system are willing to postpone action until Congress has the information and

understanding required to deal with intellectual property issues as a whole.

In considering these choices, OTA found

that technological developments are, indeed,

affecting the intellectual property system in

all of its aspects. Moreover, because we are now

only just beginning to move into an electronic

era, the full impact of the new technologies will

not become completely apparent for some time

to come. Thus, even if Congress decides to act

in some areas now, it will need to be prepared

to reconsider these actions at some point in

the future. Acknowledging that this is the case,

however, it is still useful to distinguish between

short-, mid-, and long-term problems, because

different kinds of problems may merit different kinds of solutions.

Short-Term Problems.–A number of problems can be considered to be pressing on the

grounds that stakeholders are seeking immediate legislative action, that societal stakes are

particularly high, or that technological change

is occurring so rapidly that, if Congress wants

to deliberately channel its impacts, it will have

to act sooner rather than later. OTA has identified three such problems: the problem of enforcement, the problem of private use, and the

problem of functional works.

The Problem of Enforcement. –One problem

that will require attention in the short term

is that of enforcement. Taken together, improvements in the cost, speed, and capabilities

of information technologies are undermining

the mechanisms by which intellectual property

rights have traditionally been enforced. Devices such as optical disk storage systems may

allow individuals to collect entire libraries of

works in their homes. Under laboratory conditions, moreover, fiber optic technology is now

capable of transferring 100 average-length novels over a distance of 150 miles in 1 second.

Such capability can be expected soon in systems that are available to the public. Technology is also making the copying, transfer, and

manipulation of information and intellectual

works more private. Personal computers can

store, process, and communicate the entire con-
——-——

tents of commercial databases without the

knowledge or consent of the compilers of such

works. In the face of these developments, copyright holders are finding it harder to detect,

prove, and stop infringements .

If this problem remains unresolved, creators,

producers, and distributors of intellectual properties may become increasingly reluctant t o

distribute their works in forms over which they

have little physical control. Moreover, if piracy

becomes the norm, the legitimacy of the intellectual property system may itself be called

into question, and the opportunities for policymaking in this area significantly reduced.

Information technologies provide proprie -

tors with some technological options for dealing with enforcement. Private, computerized,

electronic systems, for example, allow proprietors to maintain control by limiting and monitoring access. The government might provide

support for such options were it, for example,

to provide industrywide standards for thes e

technologies. Standards such as these, however, may be very difficult to impose, since they

would require a cooperative agreement be -

tween hardware and software producers, A

number of proprietors, moreover, would rather

maintain their freedom of action than receive

such support. Nor are such kinds of solutions

particularly popular among consumers, who

feel that they would reduce the value of the

product and perhaps constitute a threat t o

their personal privacy .

Recognizing that technological solution s

may make their products less appealing to the

consumer, a number of copyright holders are

now calling on Congress to establish new ways

of insuring their remuneration instead of new

mechanisms for enforcing rights. The most frequently mentioned proposal of this kind is a

royalty, or tax, on blank audio and video tapes.

Based on interviews with and surveys of the

public, OTA found that many people would be

reasonably disposed to such an option. They

favor a law that would allow them the freedom

to copy, without making them personally responsible for making judgments about the propriety of their actions. One of the unintended

Ch. 10—Strategic Choices for Congress • 289

consequences of such a law, however, might

be to encourage private copying.

Unlike consumers, however, hardware producers are adamantly opposed to options that

would add a surcharge to their products. They

argue that, before any such proposals be

adopted, much better estimates of damage

need to be made, and these estimates need to

be weighed against the benefits that copyright

holders gain from the new markets that hardware such as videocassette recorders provide.

Decisions about whether or not to seek new

ways to provide incentives to creators and producers of intellectual works will also need to

take into account the Federal administrative

requirements and costs that such steps might

entail. Given the current nonregulatory climate

in the country, and recent efforts to curtail the

activities of the Copyright Royalty Tribunal—

the only Federal institution currently involved

with distributing intellectual property royalties—it is difficult to imagine how existing institutions might effectively administer such

a policy.

In light of the problem of enforcing intellectual property rights, public support for the underlying principles of the law will become increasingly critical. However, at present, the

average citizen is quite unaware of the issues

involved. A recent OTA survey of the public

found, for example, that over two-thirds of

those surveyed said that they were not at all,

or were only slightly, familiar with the subject. Moreover, an equal proportion felt that

intellectual property issues had very little to

do with them personally. Notably, however,

those who owned home technology, or who

were under 40, were more aware of the issues.

It would appear, therefore, that Congress has

a brief window of time in which to establish

policy. Under these circumstances, policymakers may want to undertake a dialog with the

public in order to ascertain its viewpoint and

to enhance its understanding of what is at

stake for members of the public in the present

debate over intellectual property issues.

The Problem of Private Use.—A second

short-term problem is that of establishing pol-
290 . Intellectual Property Rights in an Age of Electronics and Information

icy for the private use of information technologies. As is the case with enforcement, if Congress does not take the initiative in this area

now, it maybe unable to do so later, when public attitudes and behaviors have become more

entrenched.

Technology is spawning whole new opportunities in the development and use of information-based goods. A central question for intellectual property law is who shall benefit from

these opportunities. In the Supreme Court’s

‘‘Betamax” decision, for example, the question

was whether proprietors or users would benefit, either directly or indirectly, from home

videorecording capabilities.

As even newer technologies affect individuals’ ability to copy, store, and modify information, such questions are likely to multiply.

However, because it evolved in a period when

duplication and storage technologies were centralized and deployed in a commercial context,

copyright law offers little guidance to courts

in resolving such conflicts. Neither the existing framework of rights, nor limitations on

those rights—such as the fair use doctrine—

clearly apply to the private use of informationbased goods.

Stakeholders strongly disagree about who

should benefit from new opportunities. Copyright holders would like to profit from the

expanded home use of intellectual works. Moreover, they argue that, given the new technologies, private use, considered in the aggregate,

will cause them extensive harm. Users, on the

other hand, view the new technologies as a

boon, reducing their costs and increasing their

access to intellectual works. As the OTA survey of the public illustrates, while acknowledging that copying is wrong when done for profit,

or as a part of a business, most people see private copying of copyrighted works as being

acceptable. Producers of copying equipment

also oppose restrictions on private use.

Some survey research has been conducted

on the financial benefits that would accrue to

proprietors if they were remunerated for new

technological uses. OTA found, however, that

estimates of harm such as these are, in and of

— ——. .

themselves, insufficient to help Congress resolve the issue of who should benefit from new

uses, since they presuppose—and cannot be the

foundation for–a legal right to profit from the

new uses of copyright works made available

by technology. Whether Congress wishes to

consider new uses as harmful will depend on

the goals that it seeks to promote through

copyright law, and where it believes the benefits of new technologies should be allocated.

The Problem of Functional Works.–Functional works, such as computer programs, artificial intelligence, and algorithms also present

problems for the law that will need to be resolved within a short timeframe. Neither copyright nor patent law is entirely appropriate for

such works. And, because they are very costly

to develop, there is a strong incentive for industries to pirate them. For these reasons, it

is generally agreed that rules governing their

protection will be required shortly, if these

works are to be developed and widely deployed.

The resolution of this issue becomes increasingly important, moreover, as these works

come to play a dominant role in domestic and

international economies. Potential options for

dealing with functional works are described be

low, in the discussion of the legal framework.

Mid-Term Problems.–Other problems, although no less important, are less ripe for immediate action. Included in this category

might be, for example, the problem of assigning value and distributing rewards in cases of

derivative use, that of protecting the integrity

of works in an electronic environment, and that

of attributing and assigning authorship when

works are generated by means of interactive

or electronic processes.

Engendered by technologies still in their infancy, these problems are only now just emerging, and our understanding of them is severely

limited. Sound government policy requires an

accurate understanding of how information

markets operate and of the role that these technologies might play in the creative environment. Yet, at present, such an understanding

does not exist. Although there have been a few
. -. --

Ch. 10—Strategic Choices for Congress “ 291

isolated efforts at collecting comprehensive

data about information-based commodities,

there is neither enough data nor sufficient

quantitative analysis on which to make sound

policy judgments. Most data is fragmentary,

incomparable, and available only through interested parties.

As the new technologies are developed and

deployed, however, these problems, and the issues to which they give rise, will become more

and more pressing. New participants will enter on the scene, as new technological opportunities appear. Not party to previous intellectual property agreements, many of them will

have their own distinct attitudes about who

should have access to works and materials, and

about what kinds of activities and pursuits

should be rewarded. These new stakeholders

will lobby to have their needs and their perspectives taken into account. As a result, new

controversies about the intellectual property

system are likely to arise.

The Problem of Derivative Use.—The new

technologies multiply the possibilities of creating new works from old ones. Using computer and video technologies to electronically snip

and paste, for example, a film artist, can rearrange footage in the same way a writer rearranges words on his word processor: inserting and deleting images, frame by frame;

taking whole sequences from one place and

shifting them to another; scrolling through sequences again and again. All this is done in

a matter of seconds. In the same fashion, all

information content can serve as the basis for

new derivative products and creative works.

With these capabilities to store, retrieve, and

manipulate information, there come a multitude of new opportunities to expand the variety, scope, and sophistication of informationbased products and services. Taking advantage of these opportunities, the information

industry—database businesses, software and

hardware providers, publishers, cable television, information analysis centers, and clearinghouses –has grown rapidly in the last few

years. In the domestic software industry alone,

for example, there are now an estimated 1,200

companies and thousands of individual freelancers creating and producing software, and

providing services worth some $40 billion annually.

Given the growth of opportunities to create

derivative works, issues will emerge with respect to who shall profit from them. Under

existing intellectual property law, copyright

holders have the right to benefit from all works

based on their work. And, clearly, copyright

holders want this right to extend to all new

uses of their work. Many of those who are secondary information providers, however, oppose

this point of view. In an information age, they

argue, the most valuable information is that

which is the most appropriate and the most

timely. Custom designed, formatted, or packaged, this kind of information is by its nature

derivative. To encourage its development and

use, they claim, incentives and rewards must

be provided not as they have in the past to the

original creators, but rather to those who, making use of the new technologies, add new economic value to intellectual works.

The Problem of Artistic Integrity. —The ease

with which information can be electronically

snipped and pasted raises problems for creators, not only with respect to how they can assure a profit from their works, but also with

respect to how they can safeguard its integrity.

For the same images and sounds that the artist, photographer, or musician stores to be reused for his or her own purposes, can be accessed, manipulated, revised, copied, and used

in a multitude of ways by others, with or without permission. Some creators worry that, under these circumstances, a “cavalier attitude

will develop toward taking whatever you want

and doing whatever you want with it. Such

an attitude is already evident in the worlds of

advertising and publishing as well as in the

artistic community itself. Moreover, the scope

of this problem is likely to increase as these

technologies become cheaper and more widely

available.

In the United States, intellectual property

law has traditionally been unconcerned with

protecting the integrity of a creator’s work.
292 . Intellectual Property Rights in an Age of Electronics and Information ——— —

In the new electronic environment, however,

creators may become as concerned about the

integrity of their works as they are about their

profits. If, in the future, intellectual property

protection is to be an effective incentive for

creativity, it may need to secure artistic integrity as well as financial rewards.

The Problem of Assigning Authorship and

of Measuring Value Added.—To effectively

grant and to equitably distribute intellectual

property rights requires that authorship or invention can be clearly assigned, and that new

value added to intellectual works can be accurately measured. Today, however, because of

the fluid, interactive, and functional nature of

the new technologies, it is becoming increasingly difficult to perform either of these tasks.

With intellectual works being simultaneously

created, published, and communicated over

electronic networks, the possibility of discovery or invention on-line, once a vision of the

future, is now a reality. Such a development

greatly complicates the process of determining originality and authorship, and of assigning rights. Similarly, with advances in artificial intelligence, computer-aided design, and

computer-generated software, it will become

more and more difficult to determine what creators have actually created. Given these trends,

it is likely that, in the future, the number of

controversies about the distribution of rewards

is likely to increase. Moreover, as the economic

value of information-based products and services increases, such disagreements may become

all the more intense.

Long-Term Problems.–Even if a number of

issues are effectively dealt with in the short

term, another major revision of intellectual

property law can still be expected in the future. Fundamental changes in technology are

now taking place. And, although technology,

for the moment, is multiplying the forms that

works can take, and the means by which they

can be transmitted, eventually all works will

become available in compatible, digital, computer-processible form. Such developments will

not only antiquate many of today’s solutions;

they may also give rise to new problems requiring new kinds of answers. For, as more and

more works appear in digital form, the scope

of today problems may expand so greatly so

as to alter their very nature.

In the short term, for example, the enforcement problem may be amenable to a solution

that requires a royalty on blank tapes. Although it might be difficult to establish an

administrative structure to collect and distribute such royalties, the task is not an impossible one. However, if such an administrative

apparatus had to be expanded to deal with the

increasing number of works delivered on-line,

the problems of effectively executing such a

scheme may be so great as to, perhaps, negate

the solution itself.

Another problem that will probably take on

more importance in the future is that of access. For, as is described below, when works

are intangible in their form, copyright holders

may, under some circumstances, be able to restrict access to them. Such a problem may not

warrant legislative attention now, because its

extent is limited. However, if and when intangible works become the norm, the problem, being cumulative, may loom much more serious.

What Legal Framework To Use

The intellectual property system was carefully designed to balance the public and the

private interest. Because the new information

and communication technologies do not fit

neatly within the existing framework of the

law, the balance may be harder to achieve in

the future. Questions arise, therefore, with respect to how the new technologies should be

dealt with according to the law, and whether

or not a new conceptualization of the law may

be required. Two particular problems that OTA

has identified in this regard are the problem

of functional works, and that of intangible

works.

Patents, Copyrights, and Functional Works

Traditionally, intellectual property law provided two basic forms of protection: patent law

and copyright law. These schemes reflected a

basic distinction between invention and

authorship. Inventions are essentially useful
Ch. 10—Strategic Choices for Congress • 293 — ——

devices or processes, whereas works of authorship convey information or ideas. And, although both schemes encouraged the production and dissemination of ideas, they did so

in two different ways. Patent required disclosure, and copyright required publication. Moreover, the types of protection granted reflected

the differences between inventions and writings. Copyright prevented commercial copying; patent prevented commercial use.

The clear distinction between inventions and

writings is beginning to break down. With the

new technologies, writings act like inventions.

Although considered to be writings, computer

programs, for example, can run machines. They

can, moreover, create new programs, and even

control industrial processes. In the future, information itself will play a functional role. A

piece of information entered into a database

in one city, for instance, may automatically retool a factory in another. These developments

raise questions about whether these new information-based products can be accommodated within the old legal framework, or whether some new categories of protection might not

be required.

A subject of debate since the mid- 1960s, this

question has defied conclusive resolution.

Some people believe that a 1980 amendment,

incorporating computer programs into copyright law, adequately settled the issue. This

is the view, for example, espoused by many

traditional copyright lawyers and by representatives of the computer hardware and software

industries. However, a number of lawyers,

many with engineering backgrounds, now challenge the wisdom of this approach. They argue that computer programs are hybrid works,

sharing traits of both patentable and copyrightable works. They fear that, if the law is

not revised, not only will functional works be

inadequately protected, but also the sharing

of ideas and knowledge, necessary for innovation, will be curtailed.

Looking at this question, OTA found that

the distinction between writing and inventions

is indeed breaking down with respect to functional works such as computer software and

semiconductor chip masks. Because there are

many kinds of these works, they may require

their own framework for protection. Included

within this category would be works of artificial intelligence, algorithms, firmware, and recombinant DNA. Like computer software, these

works use information to affect a process.

The sui generis law for protecting chip masks

might serve as one model for such works. OTA

findings suggest, however, that it might be better to develop a more comprehensive approach

that would treat functional works as a major,

separate class of intellectual property law. Taking into account the particular characteristics

of functional works, the law might be more accurately targeted to achieve specific policy outcomes, and thus serve as a more robust policy

tool. Moreover, with a new category of law,

both producers and users would face less uncertainty each time a new type of functional

work were introduced. In addition, if the law

were reconceptualized now, it might be possible to address a much older problem in copyright—that of distinguishing between artistic

and factual works, a problem which is becomming more troublesome in the light of the new

technologies. OTA suggests that a fruitful basis for such a revision might be found in the

distinctions between works of art, works of

fact, and works of function.

Copyright Framework and Intangible Works

The copyright system was based on the attributes of a print culture: works were fixed

in a tangible medium; they were expensive to

reproduce on a large scale; and, in order for

the creator to profit from his work, he had to

publish it in copies. A novel, for instance, had

to be set in type, printed, and bound. Because

of the expense entailed, copying was a commercial venture. A conspicuous activity, it was

relatively easy to police. Moreover, because the

only way of selling such a work was to sell copies, public dissemination went hand in hand

with profit-making. Although the author retained the right to print and publish the novel,

he relinquished control of copies of it with each

sale. This promoted both the interest of the

proprietor as well as that of the public.
294 ● Intellectual Property Rights in an Age of Electronics and Information

Works disseminated through electronic

media are different from traditionally printed

works. And their unique characteristics make

it more difficult to balance public and private

interests through copyright. Unlike a novel,

a television program or a database entry need

not be fixed in a copy to be sold. Thus, its creator or proprietor does not have to disseminate ‘copies in order to profit from them. Under these circumstances, the proprietor retains

control over access to his work, and may decide to intentionally restrict it in order to enhance his profit. Were this to occur, the public interest may suffer.

On the other hand, technology may also favor the user at the expense of the copyright

holder. New reproductive technologies, such

as audio and video recorders, are now widespread, allowing many individuals to cheaply

and easily copy intangible works. If these privately made copies compete with sales of the

original works, the proprietors’ profits may be

significantly diminished.

Whether, in any given situation, it is the proprietor or the public who will suffer is extremely hard to determine. Indeed, under certain circumstances, both parties may jointly benefit

from advances in technology. Generally speaking, however, it is clear that, given the growing number of works being distributed electronically, it will now be harder to achieve the

balance between the public and the proprietors

interest under the copyright system.

How Broadly To Define The Problem

Historically intellectual property issues were

somewhat isolated policy concerns. Because

information did not assume the same social and

economic importance that it does today, intellectual property decisions were less likely to

impinge on other areas of public policy.

OTA found, however, that intellectual property policy can no longer be separated from

other policy concerns. To the extent that information is, in fact, central to most activities,

decisions about intellectual property may be

decisions about the distribution of wealth and

social status. Furthermore, given the unlimited

scope of the new technologies, and the growing

trade in information-based products and services, U.S. intellectual property policy is now

inextricably tied to international affairs. Communications policy, too, is now linked to intellectual property policy as more and more intellectual property is being transmitted via

media such as cable television, telephone lines,

and communication satellites. Today, moreover, intellectual property issues give rise to

concerns about privacy, as copyright holders

seek technical means to monitor use. In making decisions about intellectual property policy, therefore, a whole new range of considerations will need to be taken into account, and

decisionmakers in all these areas will need to

strive for greater coordination.

Within What Institutional Framework

Should Intellectual Property Issues

Be Resolved?

Traditionally the intellectual property system required little institutional support. The

system was designed to be self-enforcing: the

government granted rights and registered

works, while individual creators and users were

responsible for protecting their rights.

As the previous findings demonstrate, however, the system is no longer so simple. Technology is creating new demands. Many more

people with disparate interests are making

claims on the system. Technology is advancing faster than the law and institutions can

adapt. More and more, laws are being proposed

that require that government play a regulatory role. In addition, given the growing complexity and diversity of information markets,

more information is needed to make sound public policy decisions. The need for policy coordination is also greater as intellectual property

issues converge with other issues.

This institutional question has not been

widely discussed among stakeholders. In the

current anti-regulatory climate, many are reluctant to recommend the creation of new institutions. For example, the proposed legisla-
Ch. 10—Strateg(icChoices for Congress “ 295

tion to impose a royalty on blank tapes and

recording equipment would require that the

Copyright Office collect monies and that the

Copyright Royalty Tribunal distribute them–

this despite the proposed dissolution of the

Copyright Royalty Tribunal. Similarly, the recent passage of the Semiconductor Chip Act

requires a patent-like examining procedure in

the Copyright Office, even though it has no

such expertise,

OTA found, however, that intellectual property issues cannot be resolved without dealing with the question of institutional capabilities and change. In the absence of institutional

change, the courts will increasingly be called

on to resolve highly complex technical issues

and to make policy in this area. The judiciary,

however, may not be the best suited for this

role.

The pace of technological change will continue to put pressure on existing institutional

arrangements. One way of dealing with such

stress might be to establish a central governmental agency to address intellectual property

issues as they emerge. Such a step would be

consistent with an approach that deals with

immediate issues in the short term, while preparing to address longer term issues later. Such

an agency might, for example, monitor technological change, and assess the ways in which

the law might deal with it. It might, moreover,

provide the necessary expertise to deal with

complex technologic issues and collect and analyze information about information markets

and information use. It might even assume a

regulatory function, distributing rewards or

adjudicating disputes. Finally, such an agency

might coordinate intellectual property policy

with policy in other, related areas.
Appendix
Appendix A

List of Contractor Reports

Copies of the following contractor reports completed in support of this assessment are available

from the National Technical Information Service,

5285 Port Royal Road, Springfield, VA 22161 (703)

487-4650.

1.

2.

3.

4.

5.

6.

7.

8

9.

James Beniger, “Information Technologies and

Commodities in the Development of Intellectual Property: Changing Rights and Prac -

tices, ” prepared for OTA, April 1985.

Clifford Berg, “Organization for Protection of

intellectual Property Rights, ” prepared for

OTA by the National Academy of Public Administration, June 1985.

Stanley M. Besen, “Economic Issues Relating

to New Technologies and intellectual Property, ” prepared for OTA by the Rand Corp.,

December 1984.

Anne Wells Branscomb, “The Accommodation

of Intellectual Property Law to the Introduction of New Technologies, ” prepared for OTA,

December 1984.

Christopher Burns and Patricia Martin, “The

Economics of Information, prepared for OTA

by Christopher Burns, Inc., April 1985.

Herbert S. Dordick, “Intellectual Property:

Protecting Rights and Privileges in an Electronic Age, ” August 1984.

Jose-Marie Griffiths and Donald W. King, “Impact of information Technology on Information Service Providers and Their Clientele, ”

prepared for OTA by King Research, Inc., July

1985.

Roland S. Hornet, “New Technologies and Intellectual Property Rights: The international

Dimension, “ prepared for OTA, August 1984.

Kenneth L. Kraemer, John Leslie King, and

David G. Shetter, “Innovative Use of Information Technology in Facilitating Public Access

to Agency Decisionmaking: An Assessment of

the Experience in State and Local Govern10.

11.

12.

13.

14

15.

16.

17.

18.

19.

merits, ” prepared for OTA by the Irvine Research Corp., March 1985.

L. Ray Patterson, “Copyright and New Technology: The Impact on the Law of Privacy, Antitrust and Free Speech, ” prepared for OTA,

August 1985.

W. Curtiss Priest, “The Character of Information: Characteristics and Properties of Information Related to Issues Concerning Intellectual Property, ” prepared for OTA, February

1985.

Carroll Pursell, “Historical Case Studies of the

Influence of Intellectual Property Laws on

Technological Change, ” prepared for OTA, August 1985.

A. Allan Schmid, “A Conceptual Framework

for Organizing Observations on Intellectual

Property Stakeholders, ” prepared for OTA,

February 1985.

Petra T. Shattuck, “The Judicial Impact of

Legislation Extending Copyright Protection to

Computer Software, ” prepared for OTA, April

1985.

Petra T. Shattuck, “Public Attitudes and the

Enforceability of Law, ” prepared for OTA,

June 1985.

Richard Jay Solomon, “Intellectual Property

and the New Computer-Based Media, ’ prepared for OTA, August 1984.

Richard Jay Solomon and Jane Yurow, “International Intellectual Property Issues Engendered by New Technologies, ” prepared for

OTA, May 1985.

“Public Perceptions of the Intellectual Property Rights Issue, ” prepared for OTA by The

Policy Planning Group, Yankelovich, Skelly &

White, Inc., February 1985.

“The Intellectual Property Rights Issue: The

Small Businessman’s Perspective, ” prepared

for OTA by The Policy Planning Group, Yankelovich, Skelly & White, Inc., May 1985.

0

299