of information, perhaps more than any in the world. We fund research that produces information, and in our knowledge-based economy, information is key.

We, of course, want to do everything we can to continue our remarkable economic growth; and we, therefore, want to maximize incentives for data collection to expand the available universe of information without putting in place any unjustifiable obstacles to competition, innovation, or use of that information.

And, of course, we want to be sure that any law enacted complies with the Constitution. We have spent a great deal of time developing an administration position that takes account of these very perspectives, and I would like to summarize it. It is set forth at length in my written statement.

We agree with Chairman Bliley and the other members of the subcommittee that spoke that there is a gap in the law that should 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.

Of course, we believe it is very important to craft this legal protection carefully to optimize the benefits and to minimize disruption of research activities, competition, and innovation that is essential for our economy to continue to grow. I know that the members of the subcommittee are sensitive to those concerns, and H.R. 1858 clearly works at balancing those competing concerns. We set out in the written testimony a number of comments with respect to the specifics of the legislation. Maybe I can highlight a few.

First is the question of how to enforce this new legal right. We believe that private right of action is necessary. As in other areas where the question is how to provide a legal environment that will provide an incentive for investment and deter piracy, there is a need for certainty of enforcement; and we are very concerned that the Federal Trade Commission will not have the resources, given its other responsibilities, to provide a level of enforcement that will be necessary to deter the bad actors that are out there.

Second is the question of a term of protection. We believe that, as in other areas of where there is some intellectual property like protection, there should be a protection for a limited term of years; and we have said that we think 15 years is really the outside limit.

Third, the question of protection of government data. We agree with the basic premise of H.R. 1858 that government data should not be protected, that if the public pays for it, sponsors its collection, it should not have to pay for it twice.

We think that H.R. 1858, perhaps, could be expanded to deal with the question of government-financed collection of data where there is a government-is not actually doing it itself, and that is perhaps another area that we could work with you on.

Finally, the question of fair use. We want to be sure that whatever protections are ultimately put in law are tempered by fair use

protection that is at least as broad as the fair use protection that is available under the copyright laws, and that is an issue that we would like to work with you on.

To summarize, this is a complicated area. We would very much like to work with the subcommittee as the legislative process moves forward. We agree on the basic principles, but there are some details that we would like to work with you on further.

[The prepared statement of Andrew J. Pincus follows:]

PREPARED STATEMENT OF ANDREW J. PINCUS, GENERAL COUNSEL, DEPARTMENT OF COMMERCE

Mr. Chairman and Members of the Committee: Thank you for this opportunity to present the Administration's views on H.R. 1858, the "Consumer and Investor Access to Information Act of 1999."

I. INTRODUCTION

As we have stated in the past, the Administration views database protection legislation from a number of perspectives: as a creator of data and a user of it; as an advocate both of economic incentives for socially useful investment and of 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 decision 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. Those data files may constitute all, or significant portions of, commercial databases. This new technology expands 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 carefully-to 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 an unique stake in database legislation because it collects, manages, and disseminates massive amounts of information, possibly more information than any other entity in the world. In all these processes, it interacts with the private sector in a variety of ways. In addition, Federal agencies are engaged in funding research that produces tremendous amounts of information that the government does not undertake to manage itself.

These activities represent enormous investments in highly complex knowledge management processes that are vital to human health, the environment, national security, scientific progress, and technological innovation-and, in turn, to the economy as a whole. Changes in ground rules for the use and reuse of information must be designed to minimize disruption of these critical activities and to avoid imposition of new costs that could hinder research.

The sections which follow discuss the Administration's efforts to study database protection and access issues (Part II) and summarize the six principles that we believe should guide both domestic legislative and international treaty efforts in this area (Part III). Next, we elaborate on each principle, discussing the Administration's

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

concerns relating to that topic and particular provisions of H.R. 1858, as well as some additional concerns with aspects of the bill. (Part IV).

The Administration congratulates Chairman Bliley and the other members of the Committee involved in drafting H.R. 1858 for their thoughtful efforts to draft a simple bill that is targeted on the dangers of unchecked piracy. At the same time, the Administration has had only a very limited amount of time to consider the provisions of H.R. 1858. For that reason, the comments provided below are not as extensive as other Administration analyses of database protection issues or legislative proposals, such as H.R. 354. The Administration's work on database protection has been an intensive, interagency effort (as described in Part II below), and we have not yet been able to bring all these resources to bear in our analysis of H.R. 1858. For that reason, we hope that we may provide you, at a later date, with any further comments that you may desire on this legislation.

II. HISTORY OF ADMINISTRATION STUDY OF DATABASE ISSUES

In response to legislative proposals in the Congress and developments in the World Intellectual Property Organization (WIPO), the Administration devoted substantial energy in 1998 and 1999 to studying database protection and access issues. The Administration's review of these issues has included a variety of mechanisms and fora:

• The Patent and Trademark Office (PTO) held a public conference on database protection and access issues on April 28, 1998.

• During the spring and summer of 1998, a variety of Executive Branch departments and agencies participated in an informal working group on database issues led by the State Department, the Office of Science and Technology Policy (OSTP), and the PTO.

• In January 1999, the National Research Council (NRC) held a two-day conference on scientific databases at the Department of Commerce. This conference was supported by the National Science Foundation, the National Institutes of Health, and several other agencies. 2 The NRC is expected to issue a report this

summer.

• Various officials in the Executive Office of the President (including OSTP), the Department of Commerce (including PTO), and the Justice Department have held informational meetings with both proponents and opponents of database protection legislation.

In addition to these efforts, the Administration has carefully studied a wide range of reports, studies, legal opinions and legislation on database protection and access from the United States, Canada, Japan, and the European Union, as well as participating in discussions of database protection issues at WIPO conferences in 1996, 1997, and 1998.

The Administration continues to discuss these issues with concerned parties and to examine specific topics and areas where we believe further information will help both the legislative process and any future study of the effects of database protection that might be mandated by legislation.

III. GENERAL PRINCIPLES

On August 4, 1998, in response to Senate consideration of then-H.R. 2652, the Administration set out the principles that it believes should govern database protection legislation.

Now, as then, Administration supports legal protection against commercial misappropriation of collections of information. We believe that there should be effective legal remedies against “free-riders" who take databases gathered by others at considerable expense and reintroduce them into commerce as their own. This situation has arisen in recent case law, and we believe that digital technology increases opportunities for such abuses.

At the same time, the Administration has significant concerns with provisions of H.R. 1858, both on policy grounds and because the Constitution imposes significant constraints upon Congress's power to enact legislation of this sort. From a policy perspective, the Administration believes that legislation addressing collections of information should be crafted with the following principles in mind:

2 Including the National Oceanic and Atmospheric Administration (NOAA), the National Institute of Standards and Technology (NIST), the U.S. Geological Survey, the Department of Energy, and the PTO.

1. A change in the law is desirable to protect commercial database developers from commercial misappropriation of their database products where other legal protections and remedies are inadequate.

2. Because any database misappropriation regime will have effects on electronic commerce, any such law should be predictable, simple, minimal, transparent, and based on rough consensus in keeping with the principles expressed in the "Framework for Global Electronic Commerce."3 Definitions and standards of behavior should be reasonably clear to data producers and users prior to the development of a substantial body of case law.

3. Consistent with Administration policies expressed in relevant Office of Management and Budget circulars and Federal regulations, databases generated with Government funding generally should not be placed under exclusive control, de jure or de facto, of private parties.

4. Any database misappropriation regime must carefully define and describe the protected interests and prohibited activities, so as to avoid unintended consequences; legislation should not affect established contractual relationships and should apply only prospectively and with reasonable notice.

5. Any database misappropriation regime should provide exceptions analogous to "fair use" principles of copyright law; in particular, any effects on non-commercial research should be de minimis.

6. Consistent with the goals of the World Trade Organization (WTO) and U.S. trade policy, legislation should aim to ensure that U.S. companies enjoy available protection for their database products in other countries on the same terms as enjoyed by nationals of those countries.

We believe that these principles also embody some of the Constitutional concerns with legislation in this area. With these principles in mind, we turn to an analysis of H.R. 1858.

IV. DISCUSSION

A. First Principle Protect against commercial misappropriation

A change in the law is desirable to protect commercial database developers from commercial misappropriation of their database products where other legal protections and remedies are inadequate.

As we have stated previously, the Administration supports enactment of a statute to protect database creators against free-riding the wrongful appropriation and distribution of database material with resulting infliction of commercial harm (loss of customers) on the database creator. We believe that there is considerable, if not complete, consensus that this kind of free-riding can occur without additional legal protection for non-copyrightable databases and that such legal protection is necessary to prevent a diminution in database creation.4

Section 102 is the operative core of H.R. 1858 for databases outside the securities markets; it provides the "basic prohibition" of this proposal to protect databases through a misappropriation model. Section 102 prohibits unauthorized selling or

3A Framework for Global Electronic Commerce is available at: http://www.ecommerce.gov/ framewrk.htm.

4 See, e.g., National Research Council, Bits of Power (1997) at 135; U.S. Patent and Trademark Office, Report on and Recommendations from April 1998 Conference on Database Protection (1998) at 4-7; Letter from Federal Trade Commission Chairman Robert Pitofsky to Congressman Tom Bliley, September 28, 1998 at 6-7. See also Institute of Intellectual Property, Tokyo, Japan, Database Protection on the Borderline of Copyright Law and Industrial Property Law 5 (1998); Wendy Gordon, Asymmetrical Market Failure and Prisoner's Dilemma in Intellectual Property, 17 U. DAYTON L. REV. 853, 863-865 (1992) (describing conditions when additional protection is needed); Dan L. Burke, The Market for Digital Piracy, in BRIAN KAHIN AND CHARLES NESSON, EDS., BORDERS IN CYBERSPACE (1997), 205 (describing databases on the Internet as classic "public good" problem that may require special law); J.H. Reichman and Pamela Samuelson, Intellectual Property Rights in Data?, 50 Vanderbilt L. Rev. 51, 55 (1997) (critical of EU Database Directive and H.R. 3531 of the 104th Congress, but recognizing that risks of market failure may keep data production at "suboptimal levels"); M. Powell, The European Union's Database Directive: An International Antidote to the Side Effects of Feist? 20 FORDHAM INTERNATIONAL L. J. 1215, 1250 (1997).

5 There has been much discussion among commentators about the differences between a sui generis form of protection as was proposed in H.R. 3531 in the 104th Congress and the "misappropriation" approach proposed in H.R. 1858 (as well as H.R. 354). The Administration believes that the misappropriation theory provides an appropriate model for database protection in American law. The United States has substantial case law on the misappropriation of information as a form of unfair competition which should help courts interpret any database protection law built on a misappropriation model. Placing database protection in the framework of unfair competition will also allow courts and commentators to draw appropriately from the rich body of cases in trademark law and unfair business practices.

distribution of a "database" that is a "duplicate" of a prior database "collected and organized by another person" where the new database is sold or distributed "in competition" with the original database. Section 101 provides definitions of these key concepts.

The drafters of H.R. 1858 have understood that the problem of misappropriation includes the distribution of significant parts of databases as well as entire databases. To address this problem, section 101(1) provides that a discrete section of a database "may be treated as a database." We recognize that the intent of this "discrete section" provision is to protect identifiable subsections of databases from wholesale misappropriations, but we very are concerned that this definition could create liability for insubstantial distributions from databases, particularly in the digital environment.

For example, the book edition of a national database of hotels might subdivide hotels by state and city; in such a situation, we understand that the intent of section 101(1) would be to create liability when a competitor misappropriated all of the Sacramento, California or Cincinnati, Ohio listings from the national database, even though this might only be a small part of the national database. But in a digitized form, the same national hotel database can have discrete sections organized by state, by city, by neighborhood, by quality rating, by hotel ownership or chain participation, by price, by the availability of particular services (conference rooms of such a size, gym facilities), etc.-so that many, if not most, distributions of material from the database could trigger the "discrete section" provision.

Indeed, the coverage provided by section 101(1) appears likely to be more subject to technological vicissitudes and manipulation by private parties than a "substantial" taking measure, i.e., defining a "database" as a complete database and providing that a "substantial" distribution of material appropriated from it could trigger liability. A substantial appropriation requirement has the virtue of allowing courts to apply reasonable, evolving standards against possible manipulation by private parties. Defining a database to include a discrete subset of the database invites database producers to format their products so as to make small amounts of the data appear as "discrete," therefore liability-triggering, subsets. We therefore recommend against this approach.

By requiring "extraction" from a pre-existing database, the definition of "duplicate" in section 101(2) seems intended to ensure that the basic prohibition of section 102 would not create liability for a database that was independently developed, but was nonetheless a "duplicate" (in the everyday meaning) of the pre-existing database. We are not sure, however, that the definition achieves this purpose. Imagine, for example, that a database was 98% independently gathered material, but the remaining 2% came from “extracting information from [a pre-existing] database." It could be argued that the new database "was made by extracting information from [the] other database." Because H.R. 1858 does not provide any express exception for verification, it could also be said that a new database product "was made by extracting information from [another] database" when, in fact, all the new database producer did was to check the accuracy of its independently collected work against the pre-existing database.

Of course, the scope of the basic prohibition of section 102 depends greatly on the interpretation given to "in competition." Section 102(5) provides a bifurcated test for when a new database is in competition with a pre-existing database. The first element requires that the new database "displaces substantial sales or licenses of the database of which it is a duplicate." Our initial impression is that this is similar to the standard we have advocated in relation to H.R. 354—that is, other conditions being met, there would be liability when the new database causes "substantial harm" to the pre-existing database's market. This approach also is consistent with the standard under many states' general misappropriation laws.

The second element of the bifurcated test for "in competition" requires that the new database "significantly threaten[s] the opportunity to recover a return on investment" in the pre-existing database. We are concerned that this standard is too vague. Would a significant threat to any return on investment be sufficient for pur

The Administration believes that any treaty on database protection that emerges from ongoing discussions at the World Intellectual Property Organization should permit each treaty signatory to provide any mandated database property protection through the legal mechanism most appropriate to its domestic law, whether through misappropriation, sui generis protection, or a simple extension of their domestic copyright and neighboring rights laws. The critical issue is not the legal framework used, but whether the law provides private citizens with comparable rights to protect their investments in different jurisdictions.

"See Statement of Andrew J. Pincus before the Subcommittee on Courts and Intellectual Property, Committee on the Judiciary, U.S. House of Representatives, March 18, 1999, at 5. [hereinafter Administration Statement on H.R. 354]

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