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misappropriation theory but you want that changed but I'd like to hear what Ms. Peters thinks.

Ms. PETERS. I happen to like the test that we have. I think that it is narrowly drawn. I think that when you talk about extraction or use in commerce and you say "all or a substantial part such as to cause harm to the actual or potential market" and you now have more narrowly defined "potential market" that you have in effect narrowly defined it to the kind of free riding misappropriation type tort that we're trying to address.

Mr. BERMAN. Okay. What would be your criticism of this is a very nice test but what's wrong with that test? Can you accomplish the same thing? Forget all the different facets of it, just focus on the distribution rather than the use.

Ms. PETERS. I think what you're saying is that extraction would be out and it's limited to what is distributed.

Mr. BERMAN. It's distribution and extraction for the purposes of distribution, is that what you're suggesting?

Mr. PINCUS. Right. To cover the situation where someone extracts it and is in cahoots with somebody else to distribute it, yes. Ms. PETERS. I think that there are databases that are intended for narrow markets, particular markets, and if people can extract without limitation, where's the market? One of the purposes that people subscribe to a database for is to gain that information.

Mr. BERMAN. What does "extract" mean? I buy the database, I pay.

MS. PETERS. That's it. That's my point. You must have authorized access to the database; you can't merely get unauthorized access and then extract.

Mr. BERMAN. So your focus is not simply on anti-competitive conduct. It's on people getting something for free that they should be paying for?

Ms. PETERS. It has to go to the goal that we're trying to achieve, to encourage investment so people will create. In order to encourage people to invest and create there has to be a market for the product, and we need to protect that market.

Mr. BERMAN. Mr. Pincus?

Mr. PINCUS. I guess I have a couple of responses. One is another assistance help in the first amendment analysis that one gets by focusing on only covering wrongs that would stop the data from being created in the first place. So as close as you can get to that category, then the measure can partially be justified as a speech encouraging measure, which means you're enhancing the total information out there because these people without the statutory protection wouldn't be putting the information out, wouldn't be creating the information at all. That's just one point I wanted to make on the first amendment analysis.

I think the question about obviously focusing on distribution or extraction for distribution leaves some potential wrongdoing uncovered. I think our concern is that the price of covering that wrongdoing is not only problematic Constitutionally, it's also problematic in terms of researchers and other activities and really puts a lot of pressure, if you will, on the permitted use provisions and created a dynamic in the last Congress of really a desire to expand those provisions and sort of identifying specific areas and then covering

them. And that it might be a sort of a better way to cut the baloney, if you will. To say we're not going to worry that much about uses, we're going to focus on distribution because, after all, the cases that have been pointed to as concerns are cases in which there has been a competitive distribution.

Mr. BERMAN. Thank you, Mr. Chairman.
Mr. COBLE. Thank you.

The gentleman from Indiana.

Mr. PEASE. Thank you, Mr. Chairman.

Ms. Peters, can you give us an update, a status report, on discussions in the World Intellectual Property Organization on the subject of database protection and how this proposal would be consistent or inconsistent depending on how far those discussions have gone?

Ms. PETERS. The debate is stalled in the World Intellectual Property Organization.

As you probably know, the European Union has put forward a proposal for database protection that matched its directive and the United States has put forward one. The United States is now going the misappropriation route rather than a property route.

I believe that the United States needs to craft a solution that fits the United States, and I strongly support the misappropriation approach.

If we're able to craft legislation that suites our purposes, that has the appropriate balance I think it will serve the world greatly because it will offer an additional model that many countries might find more attractive than the one that the Europeans have. I think the models are comparable. And, I think that many people are waiting to see what the United States does. If we were to pass legislation you would see movement in the World Intellectual Property Organization to create a worldwide system that would benefit the producers of databases in all countries.

Mr. PEASE. Mr. Pincus?

Mr. PINCUS. I agree very much with Ms. Peters comments that the United States should craft a system that works for us. And I think our position in the World Intellectual Property Organization is that it should not specify a particular way to implement the protections, that the treaty process should look toward requiring a level of protection and then leave it to individual countries to implement those with a particular kind of legal regime that fits their own domestic law.

Mr. PEASE. Would you anticipate that further delay by the United States in addressing this issue would allow the issue to be coopted by others and perhaps addressed in a way that is not consistent with the way the United States would prefer?

MS. PETERS. It could. We have the leading database industry in the world; the longer that we put off granting protection, the more we'll be seen as not setting a very great example.

Frankly, to be honest, I don't think that there will be much activity in the World Intellectual Property Organization until the United States acts.

Mr. PEASE. Mr. Pincus?

Mr. PINCUS. I think it would be useful to our position to show there already is a sui generis approach out there that's done and

enacted. It would be useful to show that there is an alternative that actually is a law somewhere so that when we make our argument that I stated in response to your last question, that there are different ways of doing this, we actually have another way of doing it out there that we can point to.

Mr. PEASE. I appreciate that.

Thank you, Mr. Chairman.

Mr. COBLE. The gentlelady from California.

Ms. LOFGREN. Thank you, Mr. Chairman. I think this testimony has been very helpful, permitting us to wrap our minds around the issues remaining.

Given the tremendous progress made with the redraft, as I understand you, Mr. Pincus, the last thing we want to do now is create a statute that is deficient constitutionally and doesn't protect anybody. So I think it is well worth our efforts to try to avoid that and come up with something that will survive a court test that will be stable itself and thus lend stability to the marketplace.

As I understand it, you're really suggesting that the more we define this in terms of a market, the safer we're going to be in terms of the first amendment issues. I'm wondering, looking at section 1402 of the bill, specifically the phrase, "measured either quantitatively or qualitatively actual or potential market," whether that language in your judgement, if it could be tightened in some way would help us define the market more precisely and assist us with the first amendment issues?

Mr. PINCUS. Yes, Congresswoman. We especially focus in our testimony on the actual or potential market because there is a lot of concern that both of those terms could be, unless defined very tightly, susceptible to manipulation. I mean, for example, "actual market," how is that test met? If a database creator has a web site that offers licenses in lots of different markets even though there aren't really any sales in them does that mean that all of those are actual markets or potential markets? Add that leads to sort of a gold rush phenomenon where people staked claims broadly but actually only are serving a much narrower market, but it prevents others from competing to serve those markets.

So that's why with respect to actual or potential market we suggest a definition that's tied to either the actual market actually being served or some objective test of a commonly served market by_the_product to avoid that kind of staking out of a broader area. Ms. LOFGREN. I'm sorry, I have not yet read your full written testimony. Do you have actual language, you suggested in your testimony, in that regard?

Mr. PINCUS. We suggest those concepts specifically. We don't have actual language but I don't think it would be that hard and we'd be certainly happy to work with you to figure out what some language might be.

Ms. LOFGREN. One of the things of concern is misappropriations standard. The court uses this standard when it makes a determination. But part of the value of giving protection for the effort to create a database is the certainty that what you've created and worked to accomplish is in fact yours.

So my concern is the potential for variability in court decisions that might really be unpredictable at least to some extent, and that

would undercut the value of the database to its creator. Do you have any ideas on how we may give more certainty to judicial decision-making to avoid such a result?

Mr. PINCUS. Well, we've tried in the written testimony to give a number of specifics about areas that we believe that could happen because it works both ways, of course. You want the database creator, as you say, to know what the universe is that's protected. So that can help calibrate the investment. That also obviously helps for the first amendment analysis as well. So we have a number of suggestions.

I think some of the terms here obviously have a meaning and that's useful. And to the extent that the statute is drafted to call upon common law misappropriation concepts that provides a whole body of knowledge out there that courts can look to to interpret it. So I think even apart from changing the terms there is that to fall back on which is very useful.

Ms. LOFGREN. Finally, for Ms. Peters, and for you, Mr. Pincus, as well, if you have a view, please consider the fact that in this Internet world that information, and sometimes misinformation, travels rapidly through this virtual world. There are concerns whenever anything is done, with regard to IP or copyright, that the nature of the Internet will change. How, in your judgement, would passage of this bill, even if tightened up in some of the ways we've discussed, change the Internet as it looks today to the consumer Internet user, if it would change it at all?

Ms. PETERS. My guess is and my hope is that it wouldn't necessarily change it that much. It is true that people have important databases on the Internet and they may use technological protections but that's going to happen with all types of works as we get more and more into electronic commerce.

Much of what you see on the Internet is put on there by the creator of the material, and I don't think that is necessarily going to change. When you have browser software you send your search and it gathers the information that people want you to have. So from the very beginning I had thought that people who want to make information totally available totally for free are going to do that and there's going to be a lot of that. Then there are other products that are going to have more limited terms and conditions of use and I don't see this bill as changing that phenomenon.

Mr. PINCUS. I think it will actually, as we say in the prepared testimony, encourage the availability of more information. I think some of these arguments were made last year-I know the subcommittee is familiar with them-in the WIPO debate. But I think it was the administration's view in that context and it's our view here that having clear protections that really work to the people who are considering whether to invest money in creating new information products, if you will, is the best way to encourage this new transmission medium has a lot of content to go over the wires. Ms. PETERS. I should have said what he said. [Laughter.]

Ms. LOFGREN. Given that we have a large panel I'll yield back. Mr. COBLE. I thank the lady.

The gentleman from California, Mr. Rogan.

Mr. ROGAN. Mr. Chairman, thank you. First I want to apologize for being tardy, as often happens when members have competing hearings. Mr. Chairman, I'd like to pass on questions at this time. Mr. COBLE. Very well, I appreciate that.

Mr. Delahunt, the gentleman from Massachusetts.

Mr. DELAHUNT. Just to segue and maybe restate differently the point pursued by my friend from California-I think the problem that she alludes to will have to be dealt with for any creative work, which I think really argues for supporting an environment that continues to promote state-of-the-art encryption so that we really don't face these problems. Would you like to comment, Mr. Pincus, on that particular--[Laughter.]

Mr. DELAHUNT. That was the question that was whispered in my

ear.

Mr. PINCUS. We'd like to try as much as possible. Saying anything about encryption--[Laughter.]

Mr. PINCUS. Our policy is to do that consistent with law enforcement.

Mr. DELAHUNT. I just wanted to make a point, Mr. Pincus. [Laughter.]

Mr. PINCUS. I do.

Mr. DELAHUNT. And I'm trying to win some support over here to my right.

I think it was you, Ms. Peters, who indicated that you don't anticipate any action by the World Intellectual Property Organization until we do something here in this country?

Ms. PETERS. I think we are a critical player. And if we're still stalling or not resolving it doesn't serve WIPO well.

Mr. DELAHUNT. As I'm sure you remember, during the 105th Congress we heard a lot of debate and a lot of diverse perspectives regarding WIPO, and it required a huge effort to formulate legislation in that regard.

Given the scenario where we cannot resolve the differences and we do nothing during the course of the 106th Congress, are we in any danger in terms of this particular issue as it relates to the global market?

MS. PETERS. I would say yes on two fronts. One, you already have a European directive that is in force in many countries of Europe where protection is not going to be given to our databases that are not protected by copyright and therefore could put our databases at a competitive disadvantage. And I believe that countries that have a gap in their law like the United States their databases are at risk.

Mr. DELAHUNT. So the reality is that it is incumbent upon not just this committee but this Congress to produce something that is legitimate and valid and maintains that comparative advantage I think you alluded to, Mr. Pincus. Is that a fair statement?

Ms. PETERS. I'm ever hopeful that this committee is going to be able to resolve the difficulties.

Mr. DELAHUNT. Thank you very much. I'm going to ask just a few wind up questions to Mr. Pincus, since you are from Commerce, and these are easy questions. [Laughter.]

Mr. DELAHUNT. They have nothing at all to do with encryption.

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