poses of the test, or is this intended to be a reasonable return on investment? Our concern with this element of the "in competition" test is the same as we have expressed elsewhere concerning the "diminution of incentive" test inspired by the National Basketball Association v. Motorola case. While we agree that a misappropriation law should be focused on acts that do, in fact, have a tendency to reduce incentives in this manner, we think these types of tests do not comport with our principle (described below) that a database protection law should be predictable, simple, and transparent. Because a competitor cannot be expected to know much about the incentive structures that lead to the production of the first database, such a competitor would have no way to judge in advance whether or not her acts would "threaten❞ recovery of "a return on investment," particularly where the statute does not say what kind of return on investment.

In addition, this test is problematic because it does not take account of the cumulative effects of repeated acts of blatant piracy. Suppose several different persons duplicated all or a substantial portion of the database, but the effect of each duplication fell just short of "significantly threatening to the opportunity to recover a return on the investment" under the test. Cumulatively, however, these acts would indisputably deny a return on an investment. Our fear is that this standard, in comparison with a substantial harm approach, will not provide appropriate incentives for people to invest in the creation of databases. For these reasons, we believe that some variation of a harm test can achieve the necessary purposes and be both easier for private parties to understand and for courts to apply.

Finally, we have previously testified before the House Committee on the Judiciary's Subcommittee on Courts and Intellectual Property that while the Administration continues to believe that misappropriation for commercial purposes should be the focus of any legislative efforts, we recognize that some acts of duplication by individuals, when systematic, could conceivably undermine the commercial market for a database product. We are not familiar with any reported cases or incidents of this kind, but we recognize that such harm could occur. Such damage may occur when those acts become customary in a particular economic sector or field of research. At present, if there is no contract with the individual or her organization, the investor in a database has no effective civil remedy against such acts. We believe that one of the greatest challenges in drafting database protection legislation is providing database producers with some type of protection against such patterns of repeated individual acts of duplication without prohibiting uses of data by individuals that, in the opinion of many, should be treated as "fair uses" permissible under the First Amendment. We are not certain whether a balance can be struck, but we note that section 102 does not address this problem. We look forward to working with the Subcommittee and all concerned parties on this problem as the legislation moves forward.

B. Second Principle-Keep it simple, transparent, and based on consensus Because any database misappropriation regime will have effects on electronic commerce, any such saw should be predictable, simple, minimal, transparent, and based on rough consensus in keeping with the principles expressed in the Framework for Global Electronic Commerce. 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.

The preceding section identified at least one of the ways in which Title I of H.R. 1858 does not fulfill the Administration's goal of a database protection law which is predictable and transparent. We also believe that there are some additional aspects of H.R. 1858 which may unnecessarily complicate the bill. For example, we are concerned that some aspects of the definition of a "database" may complicate application of the section 102, generating uncertainty and, possibly, unnecessary litigation. The section 101(3) definition of “information" expressly excludes "works

7105 F.3d 841, 852 (2d Cir. 1997). For the Administration's discussion of this issue, see Administration Statement on H.R. 354 at 5.

818 U.S.C. § 1030 would appear to create some criminal liability for database misappropriation by individuals in the on-line environment. Subsection 1030(a) (2) (C) creates criminal liability when a person "intentionally accesses a computer... and thereby obtains... information from a protected computer if the conduct involved an interstate or foreign communication," while section 1030(a)(4) creates criminal liability when a person "knowingly and with intent to defraud, accesses a protected computer without authorization... and by means of such conduct...obtains anything of value" in excess of $5,000. We assume that the server holding a commercial database would fall within the definition of a "protected computer" because it would be “a computer... which is used in interstate or foreign commerce or communication [1030(e) (2)(B)]. Subsection 1030(g) also creates civil liability where there has been a "violation" of the section.

of authorship," making databases composed of such works ineligible for section 102 protection. It is unclear whether the phrase "works of authorship" is intended to apply only to original works of authorship under 17 USC 102 or if it is intended to encompass non-copyrightable works which, nonetheless, appear to be text written by identifiable authors (that is, "non-original" works). For example, would real estate listings which may lack sufficient creativity for copyright be ineligible for database protection? Unless this is clarified, the express exclusion of "works of authorship" may cause unnecessary litigation in defining protected databases.

In the same vein, section 104(c)(2) would exclude from protection any database integrated into a software program where the database is "an element necessary to the operation of the computer program." We appreciate the effort in section 104(c)(2) to distinguish data entries from instructional software code, but a database embedded in software will often be "an element necessary to the operation" of the software in the sense that the software will stop running if the data entries are not available as inputs to the software code; that the database is "necessary" to the operation of the software does not mean that it should lose the possibility of being covered by a database protection law.

Of considerable concern are the enforcement provisions for Title I. While most, if not all other proposals for database protection, provide for a private cause of action, only the Federal Trade Commission (FTC) would be empowered to enforce the prohibition created in Title I of H.R. 1858. On policy grounds, the Administration is very concerned about both the lack of a private cause of action and the placement of enforcement responsibilities with a single government entity. While vesting exclusive jurisdiction in the FTC may reduce the risk of abusive litigation, we believe that this is better addressed by establishing suitable thresholds for private causes of action.

Placing enforcement of the law solely in the hands of a government agency distinguishes H.R. 1858 from a wide range of laws which provide for both a private cause of action and government enforcement (such as antitrust law, computer crimes and eavesdropping). In short, Congress has generally considered it wise to permit private parties to enforce laws bearing on commerce. A database protection law will stimulate database production only to the degree that it is perceived as having meaningful enforcement. A database producer cannot be sure that a newly charged government agency will protect its products from misappropriation in the same way that the producer could plan to make provisions to willingly defend its own invest

ment.

Inasmuch as subsection 105(b) expressly preempts state laws inconsistent with the bill's provisions, H.R. 1858 appears to eliminate private causes of action that now exist under many state laws. This replacement of private causes of action with exclusive government enforcement could be considered a step backward by many. Even if the enforcing government agencies had sufficient resources and expertise, this development would not be in keeping with the Administration's commitment to market mechanisms to develop the information economy. As a general approach, we believe that is better for the government to establish ground rules for interaction among private parties and then allow enforcement of those rules by the private parties concerned.

C. Third Principle- Preserve access to government data

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.

Section 101(6) defines a "government database" as a database "collected or maintained" by any agency or instrumentality or the United States or any database required to be collected or maintained by Federal statute or regulation. Section 104(a)(1) then provides that the basic prohibition does not extend to these databases. Section 104(a)(3) further provides that where a Federal, state, or local government substantially funds the creation or maintenance of a database, that government may "establish[] by law or contract" that the resulting database will not enjoy protection under the bill's basic prohibition.

As we have consistently stated, the Administration believes that a database protection law generally should not protect government investment in generating data. There are three reasons for this conclusion. First, database protection proposals are premised on the need to provide an incentive for investment in data gathering; in the case of wholly government-funded information, no incentive is needed. If a government decides that it is in the public interest to collect information on smog levels, education scores, or solar flare activity, it will do so. Second, there is a widespread sentiment that once data generation has been paid for with government

funds, taxpayers should not have to pay "twice" for the same data. Finally, the U.S. Government has historically pursued policies that strongly favor public funding of the creation and collection of information. The Administration believes that these policies have contributed greatly to the success of America's high technology and information industries as well as the strength of our democratic society. The Administration has stated previously:

"Government information is a valuable national resource. It provides the public with knowledge of the government, society, and economy-past, present, and future. It is a means to ensure the accountability of government, to manage the government's operations, to maintain the healthy performance of the economy, and is itself a commodity in the marketplace.""

The Administration believes that the free flow of government-generated data is an important engine of economic growth; it will be an increasingly important resource for any society intent on creating jobs, businesses, and wealth in the "Information Age." Often, government-generated information is also critical to the health and safety of the population; we must ensure that any database protection law does not hamper the dissemination of such information.10

For these reasons, we believe that the definition of a "government database" should be broadened to encompass all databases created on behalf of the government or with substantial government funding from any level of government, not just Federal. The definition should be broadened to encompass all government-generated information, whether created as the result of direct government activity or as a result of a government contract or grant. This matter should not be left to local, state, and Federal agencies to decide.

Instead of drawing a distinction between information directly generated by the government and information substantially funded by the government, we believe that the focus should be on the funding source. Information generated with public finances should be treated the same regardless of the vehicle used to generate the information. We recognize, however, that many valuable cooperative efforts involve funding for a variety of sources and in these cases, it may be desirable to give some recognition to the non-government contributions. In exploring the need for such flexibility, 12 the Subcommittee should consider whether the presumption should be reversed: instead of permitting agencies to expressly "opt-out" of database protection in government contracts and grants (section 104(a)(3)), it would be better to create a system that allowed agency-by-agency express determinations "opt-in" in favor of database protection for information generated with substantial government funding. 13

In the other direction, our initial conclusion is that section 104 does not provide the best solution to the problem of “capture." Section 104(2) implicitly indicates that government information integrated into a private database continues to retain its exclusion from section 102, such that third parties can copy the government information without any risk of liability to the private database producer. The Administration recognizes that this is one possible approach to the specter of government information being "captured" in private database products, but we believe that this approach may substantially reduce the incentive for the creation of value-added products using government-generated information and, thus, the "flow" of government information to the public.

Office of Management and Budget Circular A-130 Revised [Section 7.b, "Basic Considerations and Assumptions"], available at: http://www.whitehouse.gov/WH/EOP/OMB/html/circular.html 10 The U.S. Government's position on the importance of the free exchange of such data has been stated often, including in the "Bromley Statement" on climate change information. See Data Management Global Change Research Policy Statement, Office of Science and Technology Policy, The White House, July 2, 1991.

11 One example is government agencies that offer their unique capabilities to the private sector on a reimbursable basis. At the Department of Energy, for example, these transactions can be Cooperative Research And Development Agreements (CRADAs) which are "100% funds-in" agreements or "Work for Others" agreements or User Faculty agreements: that is, the private entity provides 100% of the operating funds for the research which is conducted at a government laboratory. We believe that these privately funded research projects could reasonably give rise to collections of information protectable under a database protection law because in judging the equities of the relative contributions to the final database product, there is little or no government investment. Failure to provide protection in such cases would discourage businesses from entering into these agreements. This would sharply curtail the ability of the government to enhance the competitiveness of the private sector.

12 The pending NRC Study may provide Congress and the Administration with additional information on this issue.

13 This is in keeping with our recommendations in relation to parallel provisions in H.R. 354. See Administration Statement on H.R. 354 at 8-9.

Federal, state, and local governments generate tremendous amounts of information. Historically, these same government agencies have not done a commensurate job disseminating the information to the public. Dissemination of government-generated data has always involved a mix of public and private resources. Through the Congressionally mandated Federal Depository Library Program, the Federal Government uses public libraries, libraries of public universities, and libraries of private institutions to make government-funded information widely available to citizens. At the same time, in hundreds of cases ranging from the court system to the U.S. Geological Survey, private entities gather raw, government-generated data and then process, verify, and repackage the data to produce value-added products which are then widely disseminated.

Once there are such commercial products, any decisions to devote public resources to disseminate the raw government data further must be weighed against other demands for government resources.14 If government-generated data does not remain available to the public from government sources, there is the potential for capture of data, with one or a few private entities becoming the "sole source" for important data.

When a U.S. Government work is integrated into a private, value-added product, copyright law requires that the U.S. Government portion remain unprotected and available for copying. 15 The Administration has considered whether a parallel solution to the "capture" problem with collections of information would be appropriate: requiring private entities to identify government information in their value-added products, and excluding such information from any database protection schema. The problem with this approach is that a private entity may make a considerable investment in gathering government data from disparate sources, bringing it together, and distributing it. This "value-added" would be lost-and the incentive for it destroyed-if all the data could be freely appropriated on the grounds that it is government-generated data in a private database.

While the Administration is committed to finding ways to increase public dissemination of government information and to avoid "capture" of data, we must recognize that these private entities perform a valuable service, and may invest substantial resources, in the production of data products. For this reason, the Administration has advocated that private database producers provide clear notice of the source of government data-so that users or would-be competitors may turn to the original government source-in exchange for the right to prevent wholesale misappropriation of government information embedded in the private database.16 Given the realities of dissemination of government information, we believe that this is a better means

14 This same balance was expressed by Weiss and Backlund as follows: "On the one hand, this means that the Government should not try to duplicate value-added information products produced by the private sector. On the other hand, it means that the government should actively disseminate its information-particularly the raw content from which value-added products are created-at cost and not attempt to exert copyright-like controls or restrictions." Peter N. Weiss and Peter Backlund, International Information Policy in Conflict: Open and Unrestricted Access versus Government Commercialization, in BRIAN KAHIN AND CHARLES NESSON, EDS., BORDERS IN CYBERSPACE (1997), 300, 303.

15 A disclaimer capturing the spirit of this requirement is that found in the U.S. INDUSTRY AND TRADE OUTLOOK (1998) published by McGraw-Hill in cooperation with the Department of Commerce. The disclaimer states: "Portions of this publication contain work prepared by officers and the employees of the United States Government as part of such person's official duties. No copyright is claimed as to any chapter or section whose designated author is an employee of the United States Government, except that copyright is claimed as to tables, graphs, maps or charts in any chapters or sections of this publication if the sole designated source is other than the United States Government."

16 We have suggested that, as a condition for any database protection, a private database producer whose database includes a substantial amount of government-generated data should be required to note that fact with reasonably sufficient details about the government source of the data. By this, we mean, for example, "This database was compiled with substantial amounts of data from the National Weather Service, National Oceanic and Atmospheric Administration, Department of Commerce, Washington, D.C." but not "This database was compiled with information from the Department of Defense." In other words, the disclosure should reasonably direct the user to the government source. Defendants could be given an express defense where the database producer has included substantial amounts of government-generated information and failed to make such a disclosure. See Administration Statement on H.Ř. 354 at 10-11.

Such disclosures might also give government agencies a stronger incentive to maintain the raw data and keep it available to citizens, thus eliminating at least some sole source situations. Generally, we are hopeful that the digital environment and the Internet will, over time, make it possible for government agencies to provide more government-generated information at less cost through public channels. See id.

to transition into wider dissemination of government data by the government than the approach embodied in section 104.

Section 101(6)(B) provides that databases collected or maintained because of Federal statute or regulation would be excluded from section 102's protection. Perhaps the most powerful argument for excluding "legally required databases" from any database protection regime is that the production of these databases requires no further incentive. There is, however, an important distinction between legally required databases that must be submitted to public authorities and those whose preparation are legally required, but held privately by individuals and institutions. The Administration has not reached any conclusion on whether either kind of databases collected or maintained by requirement of law should be excluded from any database protection regime

D. Fourth Principle- Avoid unintended consequences

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.

Until the introduction of H.R. 1858, advocates of database protection had proposed database protection terms of up to 25 years. Given the speed at which new products are introduced in information industries, critics have expressed the view that the 15-year or 25-year terms in other database protection proposals were unnecessarily long. The Administration currently believes that there is no single, optimal term of protection for the wide range of products subject to protection as "databases" or "collections of information." 17 In order to implement the suggestion, it will be necessary to specify the acts that initiate the term of protection.

In the absence of strong indicators of the optimal term for an ex ante incentive structure, the Administration has expressed the view that there are virtues to a 15year term of protection, as proposed in H.R. 354, and that the Administration would be troubled by any efforts to establish a term of protection exceeding 15 years. We do not support the basic premise of H.R. 1858—that a codification of misappropriation principles should provide an open-ended term of protection because common law misappropriation principles do not impose any fixed duration to such claims. We also believe that legislation must specify the acts that initiate the term of protection. 18 The codification of these principles presents Congress with the opportunity and, in some sense, the responsibility to draw limits on when misappropriation claims should be entertained. Because any database protection law will have some impact on the dissemination of information, we think that time limits should be established, and we favor a term of protection no longer than 15 years.

Of course, there is a risk that attempts might be made to circumvent the limitations caused by fixed term of protection. Because users would be unable to differentiate between protected and unprotected data, they would consequently be chilled in their use of the unprotected data. We have suggested in the past that where the database that is the subject of a litigation is the descendant of a now unprotected database and has substantial elements in common with that unprotected database, the defendant should be able to raise, as a defense, that the most recent unprotected iteration of the database is not reasonably publicly available. In other words, if Smith Industries has been issuing the "Smith Industrial Database" annually since 1980, and then in 1999 if Smith Industries sues someone for unauthorized distribution of the "1999 Smith Industrial Database," the defendant can raise as a defense that the 1983 Smith Industrial Database is no longer reasonably publicly available. If the 1983 database is reasonably publicly available, there is no such defense. E. Fifth Principle-Balance protection with permitted uses

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.

Last summer, we expressed concern that then-H.R. 2652 lacked a balancing mechanism analogous to the fair use doctrine in copyright sufficient to address the wide range of circumstances in which information is aggregated, used, and reused; we expressed the same concern more recently in relation to H.R. 354. So it will come as

17 This is similar to economists' efforts to establish the optimal term of protection for copyrighted works where, for example, copyrighted software has a much shorter product cycle than copyrighted books and films which retain significant commercial value for decades.

18 For the Administration's discussion of this issue, see Administration Statement on H.R. 354 at 25-27.