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It would also prevent database owners from stopping misuse of their products and services by the non-profit community until a clear pattern and practice of abuse has been established and that abuse must be for purposes of direct competition or of avoiding payment of "reasonable fees."

Mr. Chairman, SIIA feels that H.R. 354 is duly balanced and fair but we also feel that the time to act is now. We are cautious about the new provision under section 1403[a][2]. We are looking forward to hearing what the proponents of that particular language really seek to gain. We feel it may open a very wide door to potential mischief, not only because it benefits non-profit users but also for-profit users. SIIA feels the bill is more than fair and balanced without this addition.

Most importantly, however, action to pass database protection law must come quickly. A similar bill, as you noted, was passed twice last year by the full House under the suspension calendar. All interested parties have had more than ample time to express their views and have them fairly considered by the subcommittee and your colleagues in Congress. Without this law industry will suffer, fewer databases will be produced, maintained and widely marketed.

The database industry is looking to Congress to pass a law that protects property and encourages creative innovation. That is what this debate is really about. That is what this bill would accomplish. Without such a law the database industry, its customers and the overall U.S. economy will eventually pay the price.

Thank you, Mr. Chairman.
[The complete statement of Mr. Duncan follows.]

PREPARED STATEMENT OF DAN DUNCAN, VICE PRESIDENT, GOVERNMENT AFFAIRS,

SOFTWARE & INFORMATION INDUSTRY ASSOCIATION

SUMMARY

Good morning, Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to testify on H.R. 354, the Collections of Information Antipiracy Act. I am Dan Duncan, Vice President for Government Affairs at the Software & Information Industry Association (SIIA). First off I would like to express SIIA's appreciation for your continued leadership, Mr. Chairman, in pursuing a fair and balanced statute to protect collections of information, or what are commonly known as databases.

The Software & Information Industry Association was formed in January of this year through a merging of the Software Publishers Association and the Information Industry Association. SIIA represents some 1400 companies that produce information and software products. As such, SIIA's members have a strong interest in the creation and further development of intellectual property laws, including copyright, patents, trademarks, and protection for databases.

What brings us here today is the inadequate state of our laws regarding the protection of databases. Developments in technology and in the legal framework here and in other parts of the world have increased the urgency with which action must be taken. Congress in the past has readily taken action when confronted with these circumstances. Statutes such as the Digital Millennium Copyright Act and the No Electronic Theft Act, enacted in the 105th Congress, illustrate this institution's ability to a create legislation that is balanced, but also forward looking.

This bill, which is essentially the same legislation that passed the House twice last Congress, sets out a misappropriation approach to protecting databases. The bill would allow a database provider the ability to bring suit against a party that used a substantial portion of a product in a manner that affected the producer's ability to continue exploiting an actual or potential market for that product or a service of which it is a part.

As is well known, this is quite a distance from where we started. Early on, a rights-based protection similar to the type the Europeans have adopted, was considered and abandoned. The database community did not oppose this step because we recognize the need to take into account important societal principles concerning the free flow of information. Within this legislation a number and variety of exclusions and exemptions have been established that take these principles into account.

H.R. 354 also has some new provisions in it. Subsection 1408(c) clarifies that the protection under this bill will last for only 15 years. SIIA supports this clarification, while also noting that under traditional doctrines of misappropriation, protection lasts as long as the product or service has value in the market. One new provision we cannot support at this time is in subsection 1403(aX2), “Additional Reasonable Users.” While this provision appears similar to language found in the Copyright Act's section 107, SIIA fears that it may open the door to wide potential mischief.

As our Founders understood, and as is reflected in much of their handiwork in our Constitution, markets operate optimally when a predictable legal framework ex: ists. The database community awaits the Congress' action to bring a reasonable and balanced piece of legislation to fruition.

INTRODUCTION Good morning, Mr. Chairman and Members of the Subcommittee, and thank you for the opportunity to testify before you today on H.R. 354, the Collections of Information Antipiracy Act. My name is Dan Duncan, and I am Vice President for Government Affairs at the Software & Information Industry Association (“SILA"). SIIA appreciates your continued leadership, Mr. Chairman, in establishing a fair and balanced law to protect databases, or collections of information, and sees your introduction of H.R. 354 as yet another important step in accomplishing that goal.

My remarks today will be brief and to the point: America's database producing community and its customers need a new federal law to protect databases that are otherwise noncopyrightable, and a law very much like H.R. 354 should accomplish that goal. Such a statute is absolutely critical if this important industry sector is to continue creating and maintaining high-quality, accurate and reliable products and services to meet the ever-growing market demand for comprehensive collections of information. Without such a law, market instability will only grow, due to a combined fear of unfair competition and unstoppable piracy.

SIIA AND ITS INTEREST IN DATABASE PROTECTION LEGISLATION The Software & Information Industry Association was formed in January of this year through a merger of the former Software Publishers Association and the Information Industry Association. SIIA represents some 1400 companies that produce valuable information and software products crucial to the growth and value of electronic commerce. As such, SIIA and its members have a strong interest in establishing laws to protect all types of intellectual property, including copyrighted works, patents, trademarks and otherwise noncopyrightable databases.

The Association counts among its members the majority of the world's database producers, including The McGraw-Hill Companies, Reed-Elsevier, Inc., and The Thomson Corporation, as well as many small and medium-sized owners of collections of information, such as Silver Platter, Inc. SIIA also represents the interests of a large number of other organizations whose primary business lies outside the area of database production but that nevertheless provide important collections of information as a function of their operations, the securities and commodities markets being prime examples of these types of organizations. SIIA is also a member of the Coalition Against Database Piracy, whose representative is also testifying today.

As Congress has repeatedly recognized in the last few years, new technologies present a growing threat to the ability of intellectual property owners to adequately guard against unfair competition and piracy. SIIA members strongly supported passage of the Digital Millennium Copyright Act and the No Electronic Theft (NET) Act in the 105th Congress. These are only two examples of instances in which this Subcommittee and its colleagues recognized a need to act quickly to ensure market stability by strengthening our laws.

Database owners are asking for no more and no less. Demand is growing for more and more information in digital formats, but at the same time, the technologies associated with the Internet are making it easier for collections of information to be copied and redistributed without the original owner's knowledge or permission. Yet, as I will outline below, the current U.S. legal environment is at best uncertain, and America's database owners face a clear commercial threat from overseas.

More and more, these companies are reassessing whether they should risk having their products widely distributed in digital formats that are so easily pirated. As their willingness to provide wide access to these valuable, reliable and accurate information products begins to falter, other industries will also suffer. For example, many software producers will have to forego business opportunities to create and market their products and services that aid in search and retrieval of information contained in databases.

Thus, it is SIIA's goal and commitment to you, Mr. Chairman, to work hard to see that a fair and balanced bill to protect collections of information is enacted in the 106th Congress. will benefit the database industry and its customers and will create even more opportunities for ancillary industries to grow and prosper.

STATUS OF INADEQUATE PROTECTION AND THE THREAT FROM ABROAD Collections of information are of increasing importance and value in the Information Age. These compilations of facts and data are expensive and time-consuming to build and maintain, yet their value to researchers, business professionals, government officials, and everyday citizens is immeasurable. Whether the database is a directory of names and addresses, a collection of agricultural, medical or economic data, or a compilation of laws and court decisions, it is most likely used extensively everyday by someone who needs to make a decision and to do so quickly and confidently

America's database companies- large and small - produce about two-thirds of the databases available in the world market, and their products and services have consistently contributed positively to the U.S. balance of trade. The tens of thousands of Americans employed by database producers, and the millions of dollars invested in plant and product, have clearly contributed to the growth of the nation's economy at the dawning of the Information Age.

Yet, these investments and jobs are under increasing threat. Unlike other types of intellectual property-such as copyright, trademark and patent-collections of information are not protected adequately by uniform federal law. Because of this gap in the law, databases are likely to become even greater targets for theft and piracy from competitors and unscrupulous users here and abroad, unless Congress acts soon to establish a new, fair and balanced protection statute.

Following a 1991 U.S. Supreme Court decision in Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1991), lower courts have continued to chisel away at what were generally believed to be the groundrules for copyright protection for databases. Under the 1976 Copyright Act, databases are considered compilations, and those compilations are protected only to the extent that the factual material within them is originally selected and arranged. The Supreme Court ruling anticipated that even though an arrangement of facts in a white pages phone directory (the subject of the Feist case) did not meet this "originality threshold,” most other databases would enjoy protection, although the facts contained within them could not be the subject of copyright protection.

However, as lower courts continue to interpret the Feist decision, there is increasing uncertainty about which databases will pass the copyright originality test. Even for those that do, courts have stated that a competitor or user is free to take all the facts contained in a database and reproduce them without fear of legal repercussion. For most databases, once the facts are pirated and reproduced, the substantial investment in time, money and personnel required to create the original database is difficult, if not impossible, to recover. Should that occur, the incentive for the database owner to continue production and innovation would be greatly jeopardized.

Nor are other forms of protection potentially available to database owners under U.S. law adequate either to assure market stability or to create incentives for quality production and maintenance of databases. Numerous studies, including the National Research Council's 1997 study entitled Bits of Power; the U.S. Copyright Office's 1997 Report on Legal Protection for Databases and the U.S. Patent and Trademark Office's Report on and Recommendations from April 1998 Conference on Database Protection and Access Issues — have all addressed this issue. It generally is agreed that neither contract law nor state misappropriation doctrines provide sufficient, uniform protection. Likewise, as indicated during the two hearings this Subcommittee held in the last Congress, technological protections are inadequate and will simply increase costs and burdens for access to collections of information.

In addition to the growing legal uncertainties at home, American database owners face additional problems overseas. In 1996, the European Union (EU) finalized its Directive on the legal protection of databases. Under that law, each of the 15 EU member countries - among them many of America's largest trading partners—is required to implement new laws that protect databases that are not deemed copyrightable. As part of these new laws, however, each country is precluded from extending protection to databases produced outside an EU nation, unless the home nation of the database owner has "comparable” laws in place. EU officials are aggressively pursuing implementation of the Directive and encouraging their trading partners in Europe to enact similar laws. Although just at the beginning stages of implementation, this "reciprocity provision is a clear threat to America's leadership in the database marketplace, so much so that last year the U.S. Trade Representative added a special caution about the Directive's potential effect on America's database industry in its Special 301 Report.

Outside Europe, other nations are beginning to act as well. Mexico has had a database protection law in place since 1997, also with reciprocity provisions. Brazil has adopted a similar law. Last year, Canada did its own study on database protection, which reviewed the current state of Canadian law and summarized that no general legal protection exists in that nation for the protection of databases that are otherwise noncopyrightable. Yet, as the world moves forward, we in the United States seem to be stymied, and while we should not adopt laws just to respond to other nations' actions, neither can we, in today's global marketplace, willingly relinquish our leadership in important issues affecting our crucial industries and their customers. The longer we wait, the more likely that the EU model - strong copyright-like protections extended only to producers in countries where similar laws are already in force-will prevail.

KEY PROVISIONS OF THE COLLECTIONS OF INFORMATION ANTIPIRACY ACT Clearly, these threats to market stability for America's database producers and their customers, whether at home or abroad, have been growing steadily in the past few years. The questions of whether databases have adequate protection under U.S. law or whether there is a potential trade threat to America's database industry are settled. What we must address now is the type of protection that both addresses the necessary components of U.S. database legislation and that assures the least possible controversy over whether our law will be viewed as comparable by other nations either within or outside the European Union.

H.R. 354 is essentially the same legislation that passed the full House twice and unanimously in the 105th Congress-once as H.R. 2652 and again as Title V. of H.R. 2281. That bill was strongly supported by the database industry, even though it fell far short of what the industry would have preferred or what has been enacted in other nations. For example, rather than creating rights for databases owners, as does the EU Directive or as does copyright law for copyright owners, the legislation simply allowed database owners to go to court to stop a misuse of their products and services, only after the harmful activity ensued. Even then, the level of harm incurred would be judged by whether all or a substantial portion of the collection of information was misused and by whether such activity affected the ability of the owner to continue exploiting the actual or potential market for the product or service.

The legislation approved by the House last year made numerous exceptions even to this limited protection. As Title V of H.R. 2281, the bill provided nonprofit educational, scientific or research users a special exemption, in that their potential misuse could be judged only as to whether it harmed the actual market for the database. For the many database producers who create and market their products particularly or even primarily for those customers, this was and remains-a major, problematic concession. Moreover, the legislation contained a special provision stating that use and extraction of individual items or insubstantial portions of a database could never be considered harmful. It also provided that uses of databases for purposes of verifying one's own independently gathered data-an important activity in the science and research communities-would not be actionable.

The bill also mandated that courts automatically reduce any monetary damages that might be assessed against “good faith” nonprofit uses and stipulated they would never face criminal penalties. It further required producers that bring bad faith suits against these users to cover court costs and attorneys fees. Given the breadth of these amendments to the legislation you introduced in September 1997– which provide more deference to "fair uses” than is the case under copyright lawit is puzzling to the industry why the fair use communities continue to oppose this

a

1 Howell, Robert, Database Protection and Canadian Laws (prepared for Industry Canada and Canadian Heritage), October 1998. The paper has an extensive discussion of Tele-Direct (Publications) Inc. v. American Business Information Inc. (1996), 74 C.P.R. (3d), 72 (F.C.T.D.) affd (1997), 76 C.P.R. (ed) 296 (F.C.A.), and notes that as a result of that decision, Canadian courts will now have to adopt a Feist test when considering whether databases are protected in that country.

legislation. The industry recognizes the special concerns and needs of these nonprofit customers, and we are ready to endorse again a bill that contains these exceptions.

Title V of H.R. 2281 did - as does H.R. 354-contain other important provisions that he

assure that access to raw facts and information remains as open as possible. This is an important point. However, such access should not be confused with the need to protect collections of information and facts in which a producer has invested substantial resources and risk to bring to market. Just as in the last Congress, H.R. 354 provides that anyone can still independently gather or use information from an original or third party source to create a competing database. The bill also contains a special provision assuring that collections of government information-whether federal state or local, and regardless of whether they are produced directly by a government entity or by an entity's agent or exclusive licensee - will never be granted protection.2 The legislation also provides an important and special exception for a broad array of newsreporting purposes and contains a provision equivalent to the copyright law's first sale doctrine. Finally, H.R. 354 contains a special section designed to assure that databases crucial to the functioning and operation of digital, online communications—including the Internet-will not be protected. All of these provisions are supported by the database industry, in recognition of the public's need for broad access to facts and data, especially in the digital world, while still encouraging companies to produce valuable and reliable information tools.

OTHER ISSUES SIIA is well aware that despite your attempts to address the objections raised by many parties during the 105th Congress, some concerns may still remain. The Association would caution, however, that in attempting to address these concerns, a careful approach be taken.

Perhaps the most succinct summary of outstanding concerns was provided in the letter sent to you and many of your colleagues last August by Mr. Andrew Pincus, General Counsel of the Department of Commerce, on behalf of the Administration. As you will recall, the letter was sent just as the House was about to pass unanimously the Collections of Information Antipiracy Act for the second time. The views expressed in that letter are well worth noting and deserve comment.

The first point is that this legislation “may increase transaction costs in data use.” That issue, Mr. Chairman, is one that is hard to refute, but also hard to confirm. With the advent of the Information Age, facts and data have become increasingly valuable, and although some may dispute that information is a commodity, it cannot be denied that as data become more valuable in the marketplace, prices will respond to the laws of supply and demand. SIIA would respectfully suggest that the issue is not whether prices may rise, but rather whether a competitive marketplace can be sustained in which those who wish to produce valuable information sources and those who wish to purchase and use them have sufficient sources available. Without legislation such as H.R. 354, the answer should be clear: collections of high-quality, reliable information will diminish, and some may even disappear. With such a law, however, the incentive will remain for both profit-seeking and nonprofit organizations to provide a wide variety of databases to meet customer and user needs. As a result, supply should increase to meet demand, and even more comprehensive databases, offered with varying price structures, should arise.

A second concern raised is that the Collections of Information Antipiracy Act may not go far enough in terms of assuring that government information sources remain available. In this regard, critics call for Congress to include provisions that recognize data policies set forth in circulars issued by the Office of Management and Budget (“OMB”) and the many different arrangements under which governmentfunded data are gathered, maintained, and organized. As an Association whose members have a long history of promoting open access to and redissemination of government information, SII, finds this argument somewhat spurious.

Many SIIA members have worked tirelessly to assure that OMB's Office of Information and Regulatory Affairs enforce fully the provisions of the Paperwork Reduction Act of 1995 (45 U.S.C. 3506(d)). That law, passed under the current Administration, applies only to federal executive branch agencies. By contrast H.R. 354 would encourage equally broad access to and dissemination of government data in every branch of government at every level of government. Nothing in H.R. 354 hinders

2 It is worth noting, that the lack of protection for government databases does not extend to those created by federal or state educational institutions, despite the fact that such data is also publicly funded.

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