article VI which uses the word "copy" and which seems to do it in a fairly narrow way, especially since the Convention was developed when the White-Smith v. Apollo doctrine was in effect under U.S. law. Sound recordings, for example, are apparently not capable of publication under the Universal Convention and many countries do not protect sound recordings under copyright. The United States does, but many countries do not. There is a separate international convention to protect sound recordings, however, and our international obligations to protect sound recordings are based on the Phonogram Convention and not on the Universal Copyright Convention. I mention this only because it does relate to the problem of what is a copy. If our domestic law is rather clear, that a semiconductor chip product is not a copy per se, but is rather simply to be treated as the equivalent of a copy for certain purposes, there may be a question as to whether the work is capable of publication under the Üniversal Convention. If it is not, then we cannot impose the notice requirements. You have those kind of problems regarding formalities. Mr. SAWYER. Do I deduce from what you are saying that there may be a flip side to Mr. Mossinghoff's view and that is that might on the other hand be easier to get international acceptance if it is not part of the copyright law? Ms. SCHRADER. I don't know. I would not say it would be easier. I would say you would have equal difficulty, and you might have to develop a new convention, as was done in the case of sound recordings. But again, I add that sound recordings are protected in some national laws under copyright. I would add this further thought. If we do take the position that mask works are copyrightable subject matter and that they will be protected under the UCC, this will mean that the United States must accord national treatment to mask works. It means that we must protect the mask works of foreigners, even if U.S. citizens receive no protection for their mask works abroad. It is true that the convention, in article IV provides for what is known as the comparison of terms, and, in theory, if there is no protection in the foreign country where the work originates, then the United States could refuse to protect the mask work under our law. But I think it is rather clear that under our law we would have to provide legislatively for this comparison of terms and provide that if the mask work is not protected abroad, then it will not be protected under U.S. law. Otherwise, under the UCC, we would accord national treatment. Mr. SAWYER. Thank you. Mr. KASTENMEIER. Well, I appreciate that rather detailed explanation. That was an excellent response and an informative response. I have only one other question. Professor Patterson suggested among other things, that the copyright laws might not be precisely on all fours. It might be inappropriate in terms of remedies or in penalties for this field. He, without being very explicit, suggested that we might think of other remedies rather than those that are traditional. Did you give any thoughts to any examination of the remedies under traditional copyright law as opposed to new remedies under design or other forms of protection? Ms. SCHRADER. We certainly have given thought to the extent that the pending bill itself provides for somewhat different remedies. The pending bill would establish a compulsory license. The pending bill has a unique, innocent, infringement provision. Of course, these provisions are largely required because of the proposed extension of a use right. However, even in the Senate subcommittee version where the use right has been eliminated, the innocent infringement provision has been retained. We tend to prefer the innocent infringement provision that appears in the design law because this provision basically places liability on the direct infringer or someone who is in collusion with the direct infringer, rather than in any way placing liability on the ultimate purchaser of the infringing product. As we understand the pending bill and the Senate subcommittee version, there is an attempt in some way to impose liability on those who are involved in using the work and who are not otherwise really making or selling the copyrighted work. Ordinarily copyright law would reach those who unlawfully sell, distribute, or reproduce a copyrighted work, rather than those who purchase it. This is a matter, to some extent, of ambiguity. We realize that it is the intention in the Senate version, for example, to try to clarify these problems, but we tend to prefer the innocent infringer provision of the design bill. I said it is rather clear that you have liability under the design bill if you are either a direct infringer or if you are in collusion with the infringer or if you fail to disclose the source of the infringement. But the purpose is to get back to the one who is doing the actual infringing rather than the one who is on the receiving end of getting the product. Mr. KASTENMEIER. Well, let me just say your testimony has been very helpful today and I think we will in fact want to work with you in terms of developing a bill here and we will be in touch with you. We appreciate the contribution today. Ms. SCHRADER. Thank you very much. Mr. KASTENMEIER. This concludes the hearings on copyright protection for semiconductor chips. The subcommittee, accordingly, stands adjourned. [Whereupon, at 12:30 p.m., the subcommittee was adjourned.] The Semiconductor Industry Association would like to thank you for your efforts in connection with the Semiconductor Chip Protection Act (H.R. 1028). Our industry has achieved and maintained very high rates of technological advancement since the development of the first commercial semiconductor devices in the 1950's. Today a one quarter inch square semiconductor chip which sells for under $10 is able to store far more information and perform more tasks than could the computers of thirty years ago, which occupied whole rooms and cost millions of dollars to produce. This rapid technological advancement has been mirrored in our economic growth. Since the early 1970's, the U.S. semiconductor industry has enjoyed annual rates of growth in excess of 20%. The development of our products has played a direct role, as well, in the economic development of other U.S. high technology industries, which have grown at a real annual rate of 7% during the same period. Much of this growth, both technological and economic, can be traced to the U.S. semiconductor industry's very high levels of research and development (R&D) and investment. In 1982 for the U.S. semiconductor industry as a whole, R&D expenditures as a percentage of sales were 10.7% and investment as a percentage of sales was over 14%. It is these expenditures which are threatened by semiconductor piracy. (177) The Honorable Robert Kastenmeier November 30, 1983 As you are aware, the R&D costs which firms must bear in order to create a new family of semiconductor devices have risen dramatically in recent years and for a complex microprocessor can now reach $100 million. Since pirate firms are able to copy the main chip of that family for as little as $50,000 to $100,000, or the entire family for less than $1 million, pirate firms have far lower up-front fixed costs. Pirate firms are, therefore, able to sell their copied product at a much lower price than would an innovative firm. The innovative firm, forced to meet the price set by its pirate competitor, would then achieve a much lower rate of return on its investment than originally anticipated. some cases, firms' revenues have been reduced by tens of millions of dollars per year as a result of a single case of piracy. The result is that innovative product development is discouraged and fewer funds are available to cover past and future R&D investment costs. The attached study prepared for the SIA provides a more detailed description of the negative effects of piracy on the U.S. semiconductor industry, and we request that it and this letter be made a part of the official record on H.R. 1028. In The SIA believes that the Semiconductor Chip Protection Act offers the best way in which to protect U.S. semiconductor firms from losses due to piracy, and hopes the bill will rapidly be enacted into law. Sincerely yours cdh/H-30:3 Warren Davis Director, Government Relations Association |