OFF-AIR RECORDING 1. 2. 3. 5. Sony Corp. of America v. Universal City Studios, Inc., 104 Bruzzone v. Miller Brewing Co., 202 U.S.P.Q. 809 (N.D. Market researcher's off-air taping and analysis of television New Boston Television v. ESPN, 215 U.S.P.Q. 755 (D. Mass. Off-air taping and retransmission of portions of professional Pacific & Southern Co. v. Duncan, 220 U.S.P.Q. 859 (N.D. Ga. 1982) and 572 F. Supp. 1186 (N.D. Ga. 1983). Encyclopaedia Britannica Educational Corp. v. Crooks, 447 F. SATELLITE INTERCEPTION 1. National Football League v. American Embassy, Inc., 83-701- Interceptions of blacked-out football games by bars using 1. 2. 3. 4. Columbia Pictures Industries, Inc. v. Redd Horne, Inc., Rental of video cassettes for on-premises showing to limited Columbia Pictures, Inc. v. State of Wisconsin, CIV. No. (Showing of video cassettes to prison inmates via closed California Attorney General Opinion No. 81-503 February 5, 1982 Opinion that showing of video cassettes to prison inmates would violate copyright owner's right of public performance. Paramount Pictures Corp. v. Sullivan, 546 F. Supp. 397 (D. Maine 1982). Restaurant owners enjoined from publicly showing video MAY 15, 1984.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed Mr. KASTENMEIER, from the Committee on the Judiciary, REPORT [To accompany H.R. 5525] [Including cost estimate of the Congressional Budget Office] The Committee on the Judiciary, to whom was referred the bill (H.R. 5525) to amend title 17, United States Code, to protect mask works of semiconductor chips against unauthorized duplication, and for other purposes, having considered the same, report, by voice vote, a quorum being present, no objection being heard, favorably thereon with amendments and recommend that the bill as amended do pass. The amendments are shown in the reported bill, with the matter proposed to be stricken shown in linetype and the matter proposed to be inserted shown in italic type. PURPOSE OF THE LEGISLATION The purpose of the legislation is to protect semiconductor chip products in such a manner as to reward creativity, encourage innovation, research and investment in the semiconductor industry, prevent piracy, while at the same time protecting the public. BACKGROUND In about 500 B.C., the Greek philospher Heraclitus observed that "nothing endures but change." More recently, a noted legal historian has noted: "Change is one of the few things men can be certain of." 1 The proof of these statements is their truth today. In our age, however, technology has accelerated the pace of change far beyond 1 'W. Hurst, The Growth of American Law: The Law Makers 19 (1950). what anyone might have dreamed. It is easy to forget that the movie industry is only about seventy years old; the television industry is reaching its fourth decade; and the semiconductor industry is in comparison a mere infant.2 The information society-no longer an idea, but reality today—had its origins in 1956-1959.3 Integrated circuits, better known as semiconductor chips, have revolutionized our entire way of life. Semiconductor chips are used to operate microwave ovens, cash registers, personal and business computers, TV sets, refrigerators, hi-fi equipment, automobile engine controls, automatic machine tools, robots, printing presses, cardiac monitors and pacemakers, X-ray imaging and scanning equipment, blood testing equipment, word processors and printers, telephones, and many other medical, consumer, business, and industrial products. New and better uses for chips are emerging regularly and society is rewarded with a corresponding enhancement of life. More than perhaps any other invention, the semiconductor chip has brought us into the information age. The fundamental shift from an industrial to an informational society is no longer just a prediction but is a reality. The majority of the American workforce is engaged not in the production of goods but in the creation, processing and distribution of information. Expanding information technology, from computers to satellites, from television to teletype, ensures that we will become even more of an information society in the future. The semiconductor chip is at the vortex of this new society. A semiconductor chip is typically much smaller than a fingernail. Yet a single chip may contain over 100,000 transistors photographically etched and deposited on a silicon wafer. Fitting these transistors into that small space, placing them so that the resulting device operates efficiently and economically, is a fine art and also a costly one. The layout/design process and the preparation of the photographic "mask" used to etch, deposit layers on, and otherwise process the chip often take the innovating chip firm years, consume thousands of hours of engineer and technician time, and cost millions of dollars. The development costs for a single new chip can reach $100 million. NATURE OF THE PROBLEM A competing firm can photograph a chip and its layers, and in several months and for a cost of less than $50,000 duplicate the mask work of the innovating firm. Because the copyist firm does not have the enormous costs borne by the innovator, such a firm can undersell the innovating firm and flood the market with cheap copies of the semiconductor chip. In an industry in which innovation is absolutely essential, such appropriation of creativity is a The first semiconductor chip was invented in 1959 simultaneously by Jack Kilby and Robert Noyce; the microprocessor chip was invented in 1971 by Ted Hoff. See generally T. Wolfe, The Tinkerings of Robert Noyce, Esquire (December 1983) at 346. For further information about the role of law and societal change, see Hearings on Copyright and Technolgical Change Before the House Judiciary Subcommittee on Courts, Civil Liberties and the Administration of Justice, 98th Cong., 1st sess. (1983) [hereinafter referred to as House Hearings on Copyright and Technological Change]. 'J. Naisbitt, Megatrends 11 (1982). For an excellent article on the chip see "Electronic Mini-Marvel That Is Changing Your Life: The Chip", National Geographic, Vol. 162, No. 4 (October 1982) at 421. devastating disincentive to innovating research and development. The prices charged by an innovating firm necessarily must reflect the research and development costs of the innovating chip. Once returns on investment have been choked off by the unfair competition of competing firms which do not bear the tremendous research and development costs, the incentive for innovating firms to set aside internal funds for the development of future generations of semiconductor products is severely limited. Moreover, the disincentive effect reaches other firms who learn a lesson from the misfortune of others. Such copying is a clear threat to the economic health of the semiconductor industry. This, of course, has a ripple effect throughout the country's economy, with the impact becoming ever more critical as we continue an accelerated transition to a high-tech society. To allow the continuation of present practice may make it increasingly difficult for the semiconductor industry to continue to invest in development of new chips. Parenthetically, U.S. semiconductor products compete successfully on international markets precisely because they are, on the whole, the best and most innovative products available.5 U.S. semiconductor manufacturers have achieved this because they have long stressed the development of innovative products and have utilized pricing structures enabling that development to take place." Unless changes in the law occur, conferring some protection on semiconductor chip products, the industrial leadership enjoyed in the past by the American semiconductor industry may vanish. Ultimately, the continued viability of the information society may be threatened. 7 Current intellectual property law offers innovating chip firms only limited protection against the misappropriation of their technology. The current copyright, patent and trademark laws give little, if any, protection to semiconductor chips. Patent law can protect the basic electronic circuitry for new microprocessors or other new such products. But patent law does not protect the particular layouts and design work performed by the different chip manufacturers in adapting those electronic circuits for a particular industrial purpose, because the creativity involved does not rise to the inventive level required by the patent laws. Yet, it is those layouts and design works that consume the resources of the innovating firms and that are copied by free riders. Copyright law has 8 5 The economic state of an industry, and pricing mechanisms that might be used in lieu of legislation, are important policy subjects for Congress. Here, a finding that an industry has done well in the past without legislative protection does not mean that threats to present and future investments fall outside Congressional concern. 6 Historically, semiconductor chip prices decline 28 to 30 percent each time total output doubles. Noyce, "Microelectronics" in Microelectronics (W. H. Freemen & Co.) 2, 7-8 (1977). 7 See Hearings on Copyright Protection for Semiconductor Chips Before the House Judiciary Subcommittee on Courts, Civil Liberties and the Administration of Justice, 98th Cong., 1st sess. (1983) (hereinafter referred to as House Hearings (1983)] (statements of Hon. Don Edwards, Hon. Norman Y. Mineta, and Hon. Charles McC. Mathias). 8 As aptly observed by the Commissioner of Patents and Trademarks: "Patent protection is available for the process of making the chip, for the electronic circuit embodied in the chip itself as an article of manufacture, provided that the process or the circuit or the article of manufacture meets the patentability requirements of being new, useful and unobvious. While a patent on the circuit would protect against the manufacture, use or sale of the circuit, the circuits in chips are usually well-known and therefore unpatentable. Patents for the process of making the chip or for the chip itself as an article of manufacture would not ordinarily protect against a taking of the design." Id. at 17 (Statement of Gerald J. Mossinghoff). |