ards and precedents regarding what level of return is reasonable and can be expected. Precedents and principles from the utility regulation context could be consulted in this regard.47 (d) Sections 101(6) and 104(a): Government Databases. Following the lead of the Copyright Act,48 the Bill appropriately avoids creating private rights that would take government-created or government-funded information and databases out of the public domain. At the same time, the Bill recognizes that private investment in compilations that include substantial government data may be worthy of protection. In Section 104(a)(3), the Bill also helpfully preserves the ability of government entities to minimize uncertainty by establishing specific rules to govern specific databases by law or by contract. It is not readily apparent why the exclusion of government information from database protection is generally limited (under the present Bill as under the Copyright Act) to federal government information; as a matter of general policy, it appears desirable to keep state, local and foreign government-created information in the public domain as well. Under Section 104(a)(2), as under Section 105 of the Copyright Act, the most difficult issue likely to arise is the severance issue: when and how should private investment in a database containing predominantly government information be compensated? Under the Copyright Act, the copyright holder must establish "substantial similarity between those elements [excluding governmental data and organization], and only those elements, that provide copyrightability to the allegedly infringed compilation." 49 The federal courts of appeals are currently split on the application of this test to a single factual issue: the incorporation into competing databases of West Publishing Company's star pagination from its database of judicial opinions. 50 This and similar issues may be expected to arise under H.R. 1858. (e) Section 103: Permitted Acts. Section 103 appears intended to be the Bill's equivalent to the fair use defense in copyright. Unlike Section 107 of the Copyright Act, however, Section 103 limits its permitted acts to four specific enumerations. This poses a danger that additional valuable transformative uses that might emerge in the new information economy and cannot currently be specifically anticipated might be stifled. A broader provision along the lines of Section 107 of the Copyright Act that would provide a general defense for substantially transformative uses appears to merit serious consideration;11 such a provision could use the current enumeration in Section 103 or a similar enumeration as a non-exclusive starting point. In addition, several aspects of the specific subsections of Section 103 raise questions. Section 103(a) usefully clarifies that the independent creation of an identical database is not prohibited. The law enforcement exception in Section 103(c) appears plainly appropriate with respect to government officers, agents or employees. The interpretation of the phrase "lawfully authorized investigative, protective, or intelligence activities" is, however, unclear. Is it intended to be narrowly limited to governmental action for the purpose of preventing, detecting or prosecuting crime? Or does it encompass a broader array of activities, such as disseminating information to the public on the whereabouts of convicted or alleged violent sexual offenders, commercial sale of pri 47 Similar criteria have been used in the regulated utility context. Experience in that context indicates that determining what is a reasonable return on investment requires judgments concerning the appropriateness of the utility's valuation of its assets, appropriate rates of depreciation and the appropriate rate of return to compensate for the level of business risk in the market concerned. Since Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591 (1944), in which the Supreme Court described the rate-setting process as one of "pragmatic adjustments," id., at 602, and "balancing of the investor and the consumer interests," id., at 603, courts have generally been highly deferential to regulators in this area, recognizing that "[t]he economic judgments required in rate proceedings are often hopelessly complex and do not admit of a single correct result." Duquesne Light Co. v. Barasch, 488 U.S. 299, 314 (1989). 48 See 17 U.S.C. § 105. 49 Matthew Bender & Co., Inc. v. Hyperlaw, Inc., 158 F.3d 693, 704 (2d Cir. 1998) (citation and quotation marks omitted), cert. denied, 522 U.S. 3732 (1999). 50 Compare id. (finding insufficient similarity and denying infringement) with West Pub. Co. v. Mead Data Central, Inc., 799 F.2d 1219 (8th Cir. 1986), cert. denied, 479 U.S. 1070 (1987); see also Oasis Pub. Co. v. West Pub. Co., 924 F. Supp. 918, 922-25 (D. Minn. 1996) (maintaining that the Eighth Circuit case remains good law after Feist). 51 The Copyright Act provision cannot provide a complete model for the Bill, since it builds into the affirmative fair use defense considerations of substantiality of copying and displacement of sales of the copyrighted work that have their analogs in Sections 101 and 102 of the Bill. However, its open-ended approach, citing a non-exclusive list of permissible "purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research," 17 U.S.C. § 107, enables courts to focus on the underlying policy of "balancing the need to provide individuals sufficient incentives to create public works with the public's interest in the dissemination of information," Hustler Magazine Inc. v. Moral Majority Inc., 796 F.2d 1148, 1151 (9th Cir. 1986), rather than focusing on specific categories. vate intelligence information, or dissemination by private entities of information re- Data gathering and dissemination in many of these contexts raises significant pri- The limitation of Section 103(d)'s exemption for "scientific, educational or research Similarly, whereas the basic prohibition applies to "sell[ing] or distribut[ion]," 56 (g) Section 106(b): Misuse Defense. As discussed above, the misuse defense created Section 106(b)(6) assists in the interpretation of the misuse provision as a whole 52 For example, Section 6254(f)(3) of the California Government Code requires that law en- 53 146 F.3d 1133 (9th Cir. 1998). 54 Cal. Gov. Code § 6254(f)(3), supra, note 52. 55 See Los Angeles Police Dep't v. United Reporting Pub. Corp.,119 S. Ct. 901 (1999) (granting 56 H.R. 1858, § 102. 57 See, e.g., 17 U.S.C. § 107's inclusion of the duplication and distribution of "multiple copies 58 See, e.g., Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 792 (5th Cir. 1999). 59 H.R. 1858, § 106(b)(2). 60 Id., § 106(b)(3). 61 Id., § 106(b)(4). criterion. But caselaw exists in most of these areas that might be useful in developing appropriate principles to guide application of these provisions.62 In other respects, however, the misuse provision appears novel and potentially ambiguous. First, its subsections merely list factors to be considered in making the ultimate determination of whether "misuse" has occurred. "Misuse" itself is not defined, and the intent of Section 106(b)(6)'s instruction to consider copyright and patent misuse doctrine to "the extent to which [it] may appropriately be extended to the case or controversy" is unclear. It may be useful to clarify whether it is intended as an open-ended delegation to consider whether databases should be more or less protected than copyrights or patents and to adjust misuse precedents from those contexts accordingly, or whether the intention is to mandate consistency with those precedents unless specific factual issues render them inapplicable in the particular case. If the former, a determination of "misuse" threatens to become highly subjective: the whole point of the basic prohibition is to create a degree of exclusivity that the database creator can exploit for profit, but how much exploitation is too much? If the latter, significant distinctions between the misappropriation-style database rule and the intellectual property regimes of patent and copyright law may be neglected. For example, the filing of an infringement action can never be misuse under patent law precedent, while the filing of database protection lawsuits that assert claims that cannot be readily verified at the Patent and Trademark Office (since databases do not have to be registered) could be a highly effective and anticompetitive way of erecting barriers to entry in the database industry. The role of the six enumerated factors is also unclear. Read literally, Section 106(b) consigns them to be considered "among other factors" in determining the ultimate issue of misuse, but can any one of them suffice alone? For example, can perfectly lawful "technological measures" taken to prevent unlawful copying, which then have the side-effect of frustrating permitted research or news media uses, constitute "misuse" pursuant to Section 106(b)(1), or does the term "misuse" itself entail some notion of wrong-doing?63 By its nature, an assertion of database protection may well raise barriers to entry in a relevant database market; under what circumstances might the "manner of asserting" data protection rights amount to misuse pursuant to Section 106(b)(5)? Also, when must the misuse occur? Is the determination to be made in the individual case, i.e., whether the database protection claimant has injured the alleged violator by misuse, or over the whole course of the claimant's conduct, such that, for example, improper frustration of the ability of researchers to engage in permitted acts could result in forfeiture of protection as against all-comers, including direct commercial competitors? The latter alternative, which may be suggested by the text of Section 106(b)(1), could potentially provide an effective incentive to ensure access to databases for non-profit and other permitted users who might not themselves be in a position to complain of misuse or risk litigation. Existing copyright and patent misuse doctrine generally denies all enforcement against infringement while misuse persists, but allows the intellectual property owner to revive its rights by purging itself of the misuse.64 62 See, e.g., Morton Salt Co. v. G.S. Suppiger, 314 U.S. 488 (1942) (patent misuse: where a patent is used, by means of tying, to secure monopoly power over products or services outside the scope of the patent's protection, a court will not enforce the patent in such a way as to assist such efforts); B.B. Chem. Co. v. Ellis, 314 U.S. 495, 498 (1942) (patent misuse: same, and all infringement suits will be denied until patent misuse is "fully abandoned"); Alcatel, 166 F.3d at 793 (copyright misuse: where a plaintiff "has used its copyrights to indirectly gain commercial control over products [the plaintiff] does not have copyrighted, then copyright misuse may be present"); Practice Mgmt. Information Corp. v. American Medical Ass'n, 121 F.3d 516, 521 (9th Cir. 1997) (copyright misuse: conditioning a copyright license on the licensee's promise not to use a competitor's products constituted misuse), modified on other grounds, 133 F.3d 1140 (1998); Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330, 1337 (9th Cir. 1995) (copyright misuse: where a plaintiff merely forbids outright copying of its copyrighted software, and does not attempt to prohibit legitimate reverse engineering of competing software, there is no copyright misuse). 63 In last year's Digital Millennium Copyright Act, Congress addressed the use of technological measures to control access to copyrighted works. The new 17 U.S.C. §1201 attempts to balance protection against infringement with access for legitimate uses by (1) prohibiting "circumvention" (e.g., descrambling or decryption) of technological access control measures, and (2) instructing the Librarian of Congress to exclude from that prohibition, and to publish, works whose protection thereby would adversely affect noninfringing uses. 64 See, e.g., B.B. Chem. Co., 314 U.S. at 498 (patent misuse: "It will be appropriate to consider [the patentee's] right to relief when it is able to show that it has fully abandoned its present method of restraining competition in the sale of unpatented articles and that the consequences of that practice have been fully dissipated."); Alcatel, 166 F.3d at 792, n. 81 (copyright misuse: “A finding of misuse does not........invalidate plaintiff's copyright. Indeed,... “[plaintiff) is free to bring a suit for infringement once it has purged itself of the misuse."") (citation omitted). V. THE COMMISSION'S PROPOSED ROLE UNDER H.R. 1858 The most noteworthy remaining feature of the Bill, and one that distinguishes it from all other proposals that the Commission has reviewed and from existing intellectual property and misappropriation laws, is that it assigns enforcement authority to the Commission.65 This proposed assignment raises several issues. (a) Absence of criminal liability. Unlike the 1998 bill, H.R. 1858 does not create any new criminal liability. Although willful copyright infringers can incur criminal liability,66 misappropriation and other laws concerning the copying and dissemination of factual information have traditionally been purely civil. This tradition reflects First Amendment concerns and a salutary general policy favoring freedom of information. Moreover, the interpretive issues noted in Section V above and the residual ambiguities that are inherent in the enterprise of crafting a new legal regime to protect formerly unprotected works raise the concern that the threat of criminal liability could chill innovation and competition as a result of uncertainties in the law. It therefore appears appropriate to exclude criminal liability from the Bill. (b) Is a private civil right of action excluded? Section 107 of H.R. 1858 confers jurisdiction on the FTC, but it does not expressly address whether a private right of action may be maintained to enforce the basic prohibition of Section 102. The Commission tentatively interprets the Bill, in the light of Supreme Court precedent on implied rights of action,67 as excluding any private civil right of action: the Bill appears to intend that database owners harmed by duplicates address their complaints to the Commission instead of the courts. However, the Bill is also somewhat ambiguous: Section 106(b) directs “a court," rather than the Commission, to consider a list of factors in determining the merits of a misuse defense. Express clarification of legislative intent in this regard could avert future litigation. (c) FTC Enforcement. The Bill would entrust the Commission with its enforcement. The Commission appreciates the confidence of Congress and the recognition of the Commission's experience with the underlying policy issues that this appears to reflect. The Commission also appreciates that the threat of private actions could be used by market incumbents to threaten potential entrants, potentially raising difficult issues for courts called upon to interpret the misuse defense in Section 106(b). However, the enforcement burden would appear to be considerable, particularly if the Commission were the sole statutory enforcer.68 No federal administrative agency has previously had jurisdiction over claims of misappropriation or infringement of intellectual property-type rights, and the scope of issues that might arise in the emerging information economy under such a new legal regime is not easy to forecast. As noted above, the Bill would raise several complex rule-making and adjudicative issues, including assessing substantiality of investment, degree of copying, disaggregation of governmental and private content in databases, what constitutes 65 H.R. 1858, § 107. 66 17 U.S.C. §06(a). 67 See, e.g., Meghrig v. KFC Western, Inc., 516 U.S. 479, 487-88 (1996) ("where Congress has provided 'elaborate enforcement provisions' for remedying the violation of a federal statute,... "it cannot be assumed that Congress intended to authorize by implication additional judicial remedies for private citizens suing under' the statute.") (citation omitted). 68 If, as the Commission understands, state common law misappropriation suits involving databases will generally be preempted under Section 105(b), such cases would be effectively federalized and further add to the enforcement burden. If called upon to enforce the legislation, the Commission would, of course, exercise its best judgment as to enforcement priorities. Section 107(d) provides that the Commission "shall prevent" violations "in the same manner, by the same means, and with the same jurisdiction, powers and duties as though all applicable terms and provisions of the Federal Trade Commission Act (15 U.S.C. 41 et seq.) were incorporated into and made a part of this title." This appears to incorporate by reference the Commission's enforcement discretion under Section 5(b) of the FTC Act, which instructs the Commission to issue a complaint respecting a violation "if it shall appear to the Commission that a proceeding by it in respect [of the violation] would be to the interest of the public." It is well established that this standard gives the Commission wide latitude in the allocation of its scarce enforcement resources. See, e.g., Federal Trade Commission v. Universal-Rundle Corp., 387 U.S. 244 (1967); Encyclopedia-Britannica, Inc. v. Federal Trade Commission, 605 F.2d 964 (7th Cir. 1979), cert. denied, 445 U.S. 934 (1980); see also Montgomery Ward & Co. v. Federal Trade Commission, 379 F.2d 666 (7th Cir. 1967) (court of appeals has no general authority to second-guess Commission's determination of what is in the public interest); Action on Safety and Health v. Federal Trade Commission, 498 F.2d 757 (D.C. Cir. 1974) (Commission's decision to deny intervention to consumer protection organization was an agency action committed to agency discretion and therefore exempt from judicial review). Although the factors enumerated in Section 106(b) are addressed to "a court" rather than the Commission, the potential for misuse and competitive implications more generally would appear to be appropriate considerations in this context. misuse, and the effects of the duplicate database on the original database creator's market and returns to investment. Finally, Section 108 would create a further, reporting responsibility for the Commission. Under the jurisdiction conferred by Section 6 of the Federal Trade Commission Act, the Commission has substantial experience with gathering information, holding hearings and issuing reports on important matters of competition and consumer protection policy. The importance of the issues dealt with in the Bill, and the policy questions regarding the optimal balancing of access and protection that it raises, suggest that ongoing study could be valuable. CONCLUSION H.R. 1858 strives to strike a balance between protecting database producers from unfair free-riding and preserving factual information in the public domain and allowing transformative uses of databases and fair competition. Like traditional antitrust and intellectual property policy, it aims to stimulate both first- and secondgeneration innovation in the interests of consumers. The Bill demonstrates a responsiveness to competition concerns raised by the Commission last year in its definitions of the basic prohibition, permitted uses and exclusions, and the misuse defense. However, each of these definitions also gives rise to ambiguities and potential concerns, and the differences between the permitted uses under the Bill and the fair use defense in copyright may also warrant further examination. The Bill's omission of criminal liability appears appropriate, given its potential chilling effects on speech, innovation and competition in this context. Its assignment of authority to the Commission would impose a significant new burden on the Commission's resources. In sum, the Bill's approach to database protection applies sound general principles underlying antitrust and intellectual property policy to difficult issues raised by the emerging information economy, but raises several issues that may warrant further examination. The Commission stands ready to assist the Subcommittee or the full House Committee on Commerce in that examination if called upon. PREPARED STATEMENT OF ASSOCIATION OF DIRECTORY PUBLISHERS The Association of Directory Publishers (ADP) thanks Chairman Tauzin for the invitation to submit the following statement for the record in connection with the June 15, 1999, hearing of the Telecommunications, Trade, and Consumer Protection Subcommittee on H.R. 1858, the "Consumer and Investor Access to Information Act of 1999." The Association of Directory Publishers (ADP) is a century-old international trade association of over 180 independent telephone directory publishers employing thousands of individuals throughout the country. ADP members provide consumers with telephone directories that include white and yellow pages listings, plus community information. These products are indispensable links in the communications network that binds communities together. Consumers have benefited greatly from the competition that ADP's members have brought to the directory industry. Many of the innovations independent publishers have introduced are now standard in directories today. They were the first to introduce coupons and maps to directory products. Independent publishers created the first community sections with helpful local information, such as frequently called service and government numbers, school information, sports schedules, and seating diagrams for auditoriums and stadiums. Recently, independent publishers were the first publishers to add zip codes to the white page listings, again expanding the usefulness of directories. These enhancements were quickly copied by phone company publishers, thus making all phone books more useful to consumers and businesses. The Association of Directory Publishers supports the inclusion of two sections in H.R. 1858 that will ensure the "status quo" for subscriber list information. These provisions would ensure that directory publishers continue to have access to subscriber lists (name, address and phone number) under the ruling by the Supreme Court in Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1991) and Sec. 222(e) of the Communications Act. Specifically, the applicable provisions in H.R. 1858 are the following: Sec. 104 (e) Subscriber List Information. Protection for databases under section 102 does not extend to subscriber list information within the meaning of section 222(f) of the Communications Act of 1934 (47 U.S.C. 222(f)). Nothing in this subsection shall affect the operation of |