tion taken from the collection must not be offered or intended to be offered in commerce and likely to serve as a market substitute for the original collection.

This exception has two particularly important applications in supplementing the coverage of the previous set of exceptions: as to nonprofit users, it can provide a defense, even when the activity directly harms the actual market for the database. In addition, it can provide a defense to commercial ventures for acts going beyond mere insubstantial uses, independent collection, or verification.

The Copyright Office applauds the inclusion of such an exception in the bill. In an area as important and delicate as this, involving legal restrictions on information, we believe the incorporation of a general, flexible defense is a wise policy choice. Like the fair use doctrine of copyright law, this provision can serve as a "safety valve," avoiding an overly strict application of the law with potentially negative consequences. It allows courts to make judgments appropriate to the particular facts and circumstances, and recognizes that some uses should be permitted even if they do not strictly fall within explicit statutory bounds.

In my prior testimony, I described how many of the concepts of copyright fair use are incorporated in various places throughout the bill; this new exception adds another concept from the first fair use factor that did not appear in earlier versions. The authorized purposes all involve activities that build on the contents of an existing collection, and provide the public with new thoughts or insights. In that respect, they are similar to the "transformative" uses favored under fair use. See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994).

The new exception differs from the structure of copyright fair use, however, in that it is not entirely determined by a balancing of factors. Certain elements are established as prerequisites, such as the authorized purposes and the requirement that the amount be limited to that "appropriate and customary for that purpose." We continue to examine the mix of elements set out in the exception, their functions, and their relation to each other, and would be pleased to work with the Subcommittee on further shaping of the statutory language.

Amendments to other exceptions

Two other "permitted acts" were also modified in positive respects during the 105th Congress. The exception covering individual items and other insubstantial parts was amended by adding a sentence specifying that an individual item of information shall not itself be considered a substantial part of a collection (§ 1403(b)). This clarification ensures that a single but important item contained in a collection cannot be interpreted to be a qualitatively substantial part of the collection, due to its individual value.

Finally, a concern we had expressed about the news reporting exception has been addressed. The exception now contains a carve-out, barring its application to a consistent pattern of takings of time sensitive information gathered by another news entity, for purposes of direct competition (§ 1403(e)). This language prevents the possibility that the type of activity held unlawful in International News Service v. Associated Press, 248 U.S. 215 (1918), would be sanctioned by the breadth of the exception.

NEW SAVINGS CLAUSES FOR COPYRIGHT AND ANTITRUST LAW

In its original form, H.R. 2652 contained a general provision specifying that it did not affect any rights or obligations under other bodies of law relating to information. During the legislative process, additional provisions were added providing more detail about the relationship of this new protection to such bodies of law, including copyright and antitrust (§ 1405(c), (d)). The Copyright Office believes these new provisions are an appropriate and useful addition to the bill.

The provision on copyright states explicitly that protection under the new law is independent of copyright, and does not affect any aspect of copyright protection, including limitations on rights such as fair use, in any work of authorship contained in or consisting of a collection of information. The provision further specifies that no greater protection is provided to any work of authorship contained in a collection than would otherwise be available to that work, other than a work that is itself a collection (which by definition would receive the new law's protection against misappropriation). This language should serve to confirm that the scope of copyright protection for compilations or for works of authorship contained in compilations will not change.

The provision on antitrust law makes clear that protection under the new law does not limit in any way the constraints imposed by antitrust laws on the manner in which products or services may be provided to the public, including rules regarding single suppliers of products and services. This language addresses the "sole source" issue that has been raised in the course of debate. See Copyright Office Re

port on Legal Protection for Databases at 102-107. It ensures that relevant principles of antitrust law continue to apply to producers in governing how they can market databases that are the sole source of information. This provision should assist in preventing information from becoming unavailable to the public. To the extent that antitrust law may not adequately deal with particular conduct, further discussion may be warranted.

DURATION

The second major change incorporated into H.R. 354 relates to the issue of duration. Under H.R. 2652 as introduced, the prohibition had no set term of protection. While this was theoretically consistent with the bill's grounding in misappropriation law, I stated in my prior testimony that further study was needed to determine an appropriate measure for how long the prohibition should last. During the last Congress, a term of fifteen years was added, in the form of a limitation on the period of time during which a lawsuit can be brought.

The Copyright Office supports the addition of such a definite term. Fifteen years of protection provides substantial incentives for investments in collections of information. It also has the advantage of being consistent with the term provided in the European Union, increasing the likelihood of obtaining reciprocal protection in Europe for U.S. database producers. See Copyright Office Report on Legal Protection for Databases at 49; article 10 of Directive 96/9/EC of the European Parliament and of the Council of the European Union of 11 March 1996 on the legal protection of database (attached to Report as Appendix B).

In the amended version of H.R. 2652, the term began to run from the date of the investment that qualified the collection for protection. In H.R. 354, the starting point is instead the date that the portion of the collection extracted or used was first offered in commerce, following the qualifying investment (§ 1408(c)). In the view of the Copyright Office, this change is an improvement. Investments in producing databases generally take place over a period of time, and it will be difficult to determine the precise point at which the investment became substantial enough to trigger protection. Nor would members of the public have any way to ascertain the status and progress of the producer's internal business activities.

Moreover, under the earlier "date of investment" approach, if further substantial investments were subsequently made before the database was placed on the market, those new investments could trigger additional terms. It is therefore preferable to start the clock running on a date that is clearcut and publicly ascertainable. Again, this approach is consistent with that of the European Union, which measures protection for publicly available databases from the January after the database was first made available to the public. European Directive, art. 10(2).

Even with this new definite term, however, concerns remain about the possibility of effectively perpetual protection. This is because the investment that triggers the prohibition in the bill may consist of maintenance of a pre-existing database. Accordingly, where a database is updated on an ongoing basis, new fifteen-year terms will begin to run whenever the update entails substantial investment and is offered in commerce. In other words, protection may be extended indefinitely.

A new sentence was added in H.R. 354 to deal with this potential problem. It distinguishes between protection for the pre-existing database and protection for the updated version, clarifying that the fact that an investment in maintenance has resulted in a new fifteen-year term does not extend or renew protection for the preexisting database itself. The public remains free to extract or use information from the pre-existing collection despite the continued protection for the later, updated

version.

In our view, this sentence helps to avoid the specter of perpetual protection. It makes clear that the version of the database that has already been protected for a full fifteen-year term does not continue to be protected because of subsequent investments. Nevertheless, it does not completely resolve the issue. A practical problem remains: how does the user obtain access to the pre-existing version that can theoretically be freely used under the bill? If the database is in hard copy form, there may be no problem; the user can, for example, go to the library and use an old casebook. But if the hard copy is no longer available, or if the database exists only on-line and is constantly updated, it may be impossible to find and use a copy of the no-longer protected version. As a result, although protection is not perpetual in theory, it may be as a matter of reality.

The Copyright Office believes this issue merits further attention. During discussions in the Senate Judiciary Committee in the fall of 1998, consideration was given to the possibility of establishing a deposit system within the Copyright Office, in order to create a public record of databases for which protection has expired. While

such a deposit system could be burdensome, and may have drawbacks as well as benefits, we are ready to work with the Subcommittee to examine this and alternative solutions.

ADDITIONAL PROTECTIONS FOR NONPROFIT INSTITUTIONS

Three provisions were added to H.R. 2652 that further insulate nonprofit educational, scientific or research institutions, and libraries or archives, from inappropriate or disproportionate liability:

1. Inapplicability of criminal provisions ($1407(a)(3)). Criminal penalties are not available against employees or agents of such institutions, when acting within the scope of their employment.

2. Remission of damages (§ 1406(e)). Courts must reduce or remit entirely monetary relief if the defendant is an employee or agent of such an institution, who believed and had reasonable grounds for believing that the conduct was permissible. 3. Deterrent against frivolous lawsuits (§ 1406(d)). If an action is brought in bad faith against such an institution, or its employee or agent, courts are required to award costs and attorneys' fees to the defendant.

These provisions should go a long way toward ameliorating any possible chilling effect on nonprofits' activities. A nonprofit institution acting in good faith, with the belief that it is engaging in permissible conduct, will run little risk of substantial penalties other than an injunction. And a database producer will have to think carefully about the grounds for a lawsuit, or be subject to potentially serious financial

consequences.

CONCLUSION

H.R. 354 would establish consistent nationwide incentives for investments in collections of information, filling the gap left in the law in the wake of Feist. The bill represents substantial progress in legislative thinking, incorporating many positive evolutions from the initial form of its predecessor bill in the last Congress. These changes have added greater clarity and balance. The Copyright Office would be pleased to work with the Subcommittee to resolve remaining issues and concerns. Mr. COBLE. Thank you, Ms. Peters.

Mr. Pincus, I inadvertently failed to advise the audience that you are with the Commerce Department. I think we all know that. Glad to have you with us.

Mr. PINCUS. Thank you, Mr. Chairman. It's an honor to appear before you today and also to be able to wish you a happy birthday. Mr. COBLE. Thank you, sir.

STATEMENT OF ANDREW PINCUS, GENERAL COUNSEL,
UNITED STATES DEPARTMENT OF COMMERCE

Mr. PINCUS. In the last Congress you and the other members of the subcommittee were responsible for a truly momentous accomplishment, enactment of the Digital Millennium Copyright Act. Under Secretary Daley's leadership, we in the Commerce Department were privileged to work with you on that important legislation and we're looking forward in this Congress to working with you on this legislation and the other matters in which we have a common interest.

The issue of database protection is a matter of great interest to a large number of Federal agencies for a variety of reasons. The Government collects, manages and disseminates large amounts of information, perhaps more than any entity in the world. We fund research that produces information. We are very concerned and eager to continue the tremendous economic growth that we've experienced.

In our knowledge based economy information is key. We therefore want to maximize incentives for data collection to expand the available universe of information without putting in place unjusti

fied obstacles to competition and innovation. And of course we want to be sure that any law enacted complies with the Constitution.

We spent a great deal of time developing an administration position that takes account of these varied perspectives. I'm afraid it's somewhat lengthy and I appreciate your making my full testimony part of the record, and I'll summarize the key parts this morning. First, after exhaustive analysis we've concluded that there is a gap in the law that must be filled by new legislation. We support the enactment of a statute to protect database creators against free riding, the wrongful taking and distribution of database material with resulting infliction of commercial harm on the database creator.

Digital technology permits the creation and distribution of a large number of perfect copies of data files at the touch of a button and therefore expands dramatically the risk that in the absence of adequate legal remedies piracy or the threat of piracy will deter investment in database creation.

Indeed, we believe, speaking to a lot of the affected interest groups, that there is considerable, if not complete consensus that additional legal protection is necessary to prevent a diminution in database creation. Of course it's important to craft this legal protection carefully to optimize the overall benefits and minimize disruption of research activities and prevent stunting of competition and innovation. I know the subcommittee is very sensitive to these concerns and we're very appreciative of the changes reflecting the differences between the bill before you this year and the bill passed by the House last year which respond to a number of these matters.

My written testimony comments in detail on a number of provisions of the bill. Let me just mention a few key points.

With respect to section 1402, which defines the conduct that may give rise to liability, we believe it is appropriate to narrow the prohibition to target more closely the troubling acts of misappropriation identified in Warren Publishing and similar cases. We therefore urge the subcommittee to focus on distribution and extraction for distribution as the wrongful conduct rather than on simple extraction for use.

Second, we urge the subcommittee to require substantial harm rather than just harm in order to be sure that de minimis activities will be shielded against liability.

We urge the subcommittee to reexamine the concepts of "actual" and "potential" market and consider instead a market definition tied to the product's actual customer base or the market currently exploited by similar products and services to avoid an over broad definition of the market that might limit transformative uses and other innovation and might restrict competition.

With respect to Government data, we agree with you that Government investment in generating data generally should not be protected. We suggest that the exclusion contained in section 1404 be broadened to more clearly encompass data gathering funded by the Government.

There also is some concern that Government data might be captured by private database producers and we provide some suggestions in the testimony for addressing that potential problem.

We also want to be sure that H.R. 354's fixed protection term of 15 years can not be circumvented to provide perpetual protection for a database. I know that you are as concerned as we are that you sought to avoid this possibility by including an expressed prohibition against perpetual protection in section 1408. We suggest that the subcommittee address this issue by eliminating "maintaining" and "organizing" as bases for statutory protection.

The "sweat of the brow" doctrine that the Supreme Court rejected in its Feist decision protected industrious collection. We think that a statutory provision that protects either gathering or collecting would more closely replicate the pre-Feist protection as well as avoid the possibility that minor acts of maintenance might restart the 15 year clock.

Finally, with respect to the permitted use provision, we suggest a number of changes to make clear that judges will have flexibility equivalent to that under the Copyright Act to insure that liability is not imposed for protected uses of data.

Thank you again for the opportunity to testify today and I look forward to answering your questions and working with you as the legislation moves through the process.

[The complete statement of Mr. Pincus follows.]

PREPARED STATEMENT OF ANDREW PINCUS, GENERAL COUNSEL, UNITED STATES DEPARTMENT OF COMMERCE

Mr. Chairman and Members of the Committee:

Thank you for this opportunity to present the Administration's views on H.R. 354, the "Collections of Information Antipiracy Act.”

I. INTRODUCTION

The Administration views database protection legislation from a number of perspectives: as a creator of data and a user of it; as an advocate of both economic incentives for socially useful investment and open, market-based competition free from artificial barriers; and as an entity committed both to effective law enforcement and to the First Amendment. Reconciling these perspectives is difficult in any context. The digital economy's rapid and unpredictable change makes this challenge even greater.

The Administration believes strongly in free markets, in which firms can meet demand for new products and services without having to overcome artificial barriers that keep consumers hostage to an undesirable status quo. However, we also recognize that there are circumstances in which markets need legal mechanisms in order to function efficiently. The Feist decision1 conclusively eliminated one form of legal protection for databases. Undeniably, Feist has altered the landscape, but the topography is still changing in ways that pull in different directions as to the nature and extent of protection that is needed.

In particular, the emerging digital environment has significant implications for this issue. It has become commonplace to observe that information is the currency of our economic age. That puts a premium on designing a legal schema that creates sufficient incentives to maximize investment in data collection-to expand the available universe of information-without putting in place unjustified obstacles to competition and innovation. Moreover, digital technology permits the creation and distribution of a large number of perfect copies of data files at the touch of a button and therefore expands dramatically the risk that, in the absence of adequate legal remedies, piracy, or the threat of piracy, will deter investment in database creation. For all of these reasons, it is important to calibrate new private rights carefullyto optimize overall economic and social benefits, to prevent unfairly undermining investments and agreements premised on the current law, and to preclude new opportunities for thwarting competition.

The U.S. Government has a unique stake in database legislation because it collects, manages, and disseminates massive amounts of information, possibly more in

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