98TH CONGRESS 2d Session } HOUSE OF REPRESENTATIVES REPORT 98-781 SEMICONDUCTOR CHIP PROTECTION ACT OF 1984 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 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 2 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]. 3J. 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. 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). ? 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). always considered a mask work to be purely utilitarian, and therefore outside the scope of copyright protection. Morever, as the Copyright Office has observed: copyright does not protect useful articles per se; copyright protects the design of a useful article only to the extent that artistic features can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article copyright in a drawing or other representation of a useful article does not protect against unauthorized duplication of the useful article; and copyright protects only expression-not ideas, plans, or processes. (Footnotes deleted.) 9 Current law needs to be changed to help innovating firms combat unfair chip copying. It needs to be changed to allow innovating firms the necessary incentive to continue to invest in research and development, by protecting them against the piracy of the results of that research and development. Most importantly, it needs to be changed to enable the public to benefit from the labors of creators. It is abundantly clear to the Committee that the best way to change current law is by adding a new, freestanding and unitary chapter 9 to title 17 of the United States Code. Protection of semiconductor chip products by a sui generis approach, rather than through extension of the Copyright Act to admittedly utilitarian objects, carries with it a number of benefits in addition to providing requisite protection. These benefits shall be set forth below under separate discussions of the Congressional role, international ramifications, and sui generis versus copyright protection. THE CONGRESSIONAL ROLE It is clearly within the power of Congress to modify or amend this nation's intellectual property laws. Article I, Section 8 of the Constitution provides that: The Congress shall have Power *** 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. are The monopoly privileges that Congress may confer "*** neither unlimited nor primarily designed to provide a special private benefit. Rather, the limited grant is a means by which an important public purpose may be achieved." Sony Corp. v. Universal City Studios, Inc., 104 S. Ct. 774 (1984); accord, United States v. Masonite Corp., 316 U.S. 265, 278 (1942) (same as to patents). The congressional role therefore-as is made very clear in the text of the Constitution-is to define the scope of the limited monopoly that should be granted a creator in order to give the public appropriate access to a creation. Balancing between the rights of the creator and the needs of the public clearly is necessary. In fact, where changes have occurred and new technologies have been developed, Congress consistently has engaged in precisely such a balancing approach. 9 Id. at 85-86 (Statement of Dorothy Schrader). When creating new intellectual property rights or in expanding old rights, legislators must therefore weigh the relative equities between the rights of the property holders and the interests of the public. Where technological changes have occurred, and those changes have had an impact on the lives of millions of people (as is the case for semiconductor chips), Congress must be extremely careful that its approach be reasonable and workable. In so doing, it is important to keep in mind the following admonition: * * Copyright is an amalgam of property law principles bent to the service of a rather simple bargain. A limited term of protection against copying is granted to an author's original expression in exchange for the dedication of that expression to the public domain at the end of the term. The public ordinarily benefits at least twice from this bargain: once, when the original expression is first created, and then again when the expression is added to the public domain from which anyone may borrow freely to fashion new works. Although a copyright belongs to an author during its term, the ultimate purpose of this bargain is not to protect authors but rather to enrich the public domain. The cardinal principle in copyright law, then, is that any decision to extend the law or to recognize new interests ought to be based on a realistic expectation that one day the public domain will bear new fruit. 10 The "Semiconductor Chip Protection Act of 1984," which of course does recognize new interests, is grounded in the expectation that one day the public domain will bear mature fruit. Further, H.R. 5525 navigates the sometimes troubled waters between 66* * * the interests of authors and inventors in the control and exploitation of their writings and discoveries on the one hand, and society's competing interest in the free flow of ideas, information, and commerce on the other hand," Sony Corp. v. Universal City Studios, Inc., supra 104 S. Ct. at 782. SUI GENERIS VERSUS COPYRIGHT APPROACH Congress, in exercising its constitutional authority to solve problems discussed above, is faced with a choice between two approaches: copyright protection or sui generis protection. In the opinion of the Committee (without dissent), protection for mask works should be granted apart form the Copyright Act; H.R. 5525 therefore creates a new form of legal protection separate from and independent of the Copyright Act, as contained in Chapters 1 through 8 of title 17 of the United States Code. In reaching this conclusion, the Committee gave careful consideration to the relative merits of protecting mask works under copyright."1 From a Congressional perspective, the unique problems posed by the need to reward creativity, encourage innovation, research and 10 See Hearings on Copyright and Technological Change, supra note 2, at 60 (statement of Professor David Lange). 11 Both H.R. 1028, 98th Cong., 1st sess. (1983), and S. 1201, 98th Cong., 1st sess. (1983), protect mask works under copyright. |