Segment 2 Of 2     Previous Hearing Segment(1)

SPEAKERS       CONTENTS       INSERTS    Tables

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COLLECTIONS OF INFORMATION ANTIPIRACY ACT; VESSEL HULL DESIGN PROTECTION ACT; TRADE DRESS PROTECTION ACT; AND INTERNET DOMAIN NAME TRADEMARK PROTECTION
PART II

THURSDAY, FEBRUARY 12, 1998

House of Representatives,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
Washington, DC.

    The subcommittee met, pursuant to call, at 10 a.m., in Room 2226, Rayburn House Office Building, Hon. Howard Coble [chairman of the subcommittee] presiding.

    Members present: Representatives Bob Goodlatte, Chris Cannon, Barney Frank, John Conyers, Jr., William D. Delahunt.

    Staff Present: Mitch Glazier, Chief Counsel; Vince Garlock, Counsel; Robert Rahin, Minority Counsel; and Eunice Goldring, Staff Assistant.

    Mr. COBLE. The Subcommittee on Courts and Intellectual Property will come to order.

    Today, the subcommittee is conducting a continued legislative hearing on H.R. 2652, the Collections of Information Antipiracy Act; a legislative hearing on H.R. 3163, the Trade Dress Protection Act; and a continued hearing on Internet Domain Name Trademark Protection.
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    First, we will direct our attention to H.R. 2652, the Collections of Information Antipiracy Act. As you will recall from our initial hearing last October, this bill fills a void recognized by the Supreme Court in our intellectual property system and strikes a balance as the information age arrives.

    The balance provides adequate protection to ensure there is an incentive for companies to invest in the development of collections of information without inhibiting members of the scientific, library, and research communities from carrying on their respective works.

    This bill, as a complement to copyright law, relies on unfair competition principles to prevent a party from misappropriating another's collection of information. In the event a person steals a substantial portion of another's collection of information where that person invested substantial time and resources to collect it, and where it will harm the original collector's ability to compete, the misappropriator would be subject to injunctive relief and possible money damages.

    I want to take a moment as well to look back at the road which has led to this second hearing on this issue. Almost 2 years ago, the European Union set the table by adopting a directive in March 1996 by which member states were to adopt protections for databases in their national legislation by January of this year.

    In response, then-Congressman Carlos Moorhead of California introduced H.R. 3531, the Database Investment and Intellectual Property Antipiracy Act of 1996, in May 1996. In December of that year, the World Intellectual Property Organization tabled a discussion of a draft treaty regarding database protection. Then from March through June of last year, the United States Copyright Office conducted a series of meetings with groups and individuals with an interest in database protection.
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    These meetings resulted in the publication of a report to Congress on this issue in August. Throughout that same time period, staff of this subcommittee conducted a similar series of meetings with interested parties. The following month, in September of last year, WIPO again discussed the general subject of database protection at its informational meeting.

    On October 9 of last year, I introduced H.R. 2652, on which we conducted a hearing 3 weeks later. At that hearing, while we heard a number of concerns related to this legislation, we also learned the following: the viability of small publishers like Paul Warren, who appeared before us, is being threatened by the wholesale copying and republication of their work by competitors who don't have to invest any time, money, or effort; that authorities such as the Register of Copyrights conclude based on a Supreme Court ruling that there is a gap in the protection afforded by current law; and, finally, that economists believe it is imperative that this country provide additional protection which provides the necessary economic incentive to encourage the collection of information.

    I point out this chronology because some have contacted me complaining that this bill is on a fast track. We all know that virtually nothing in the Congress proceeds on a fast track, even legislation named identically. Right, Mr. Delahunt?

    Mr. DELAHUNT. That is right, Mr. Chairman. Whatever you say, Mr. Chairman.

    Mr. COBLE. He is in a good mood today.

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    Mr. DELAHUNT. I have got to leave soon. That is why.

    Mr. COBLE. The framers made it so deliberately. This bill took 2 years to create and introduce, and I can safely assume the other members of this subcommittee are keeping a very open mind on the amendments. As a result of the last 2 days of hearings on this bill, I will offer several amendments to deal with the issues such as sole source, government information, a statute of limitations, permissible uses by scientific, educational, and research institutions, and defining a potential market.

    I look forward to working with the members of the subcommittee and all interested parties on these amendments. I plan to schedule this bill for markup in about 3 weeks. Our door is open, as it always has been, and I look forward to a constructive discussion today. I anticipate a similarly lively discussion from our various panelists.

    Next, we will hear testimony on H.R. 3163, the Trade Dress Protection Act. Trade dress has historically consisted of a service or product's configuration, package or distinct image, design or appearance. If you will, the ''clothes'' in which a product or service is dressed.

    Over the years, trade dress has been expanded to include protection for unique shapes or designs that serve to advise consumers that certain goods or services identify certain companies. This bill seeks to clarify various cases coming out of several Federal Courts interpreting the standards which Courts may use to apply to trade dress. I look forward to our third panel's view on this important issue.

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    We are going to stand easy here, folks. That is the second bell. Bill and I will return imminently. We will resume the hearing at that time.

    [Recess.]

    Mr. COBLE. I apologize for the delay. It appears, as I said previously, that we probably ought to be okay for the next hour and a half without votes. Let me conclude my opening statement. Our third panel will also comment on internet domain name trademark protection. The third panel will give us the views of professionals who practice in the trademark area on the relationship between trademarks and domain names. This will be a continuation as well of the hearing conducted on November 4 of last year.

    I realize this is a lot of ground to cover in one hearing, but this subcommittee has much to do in a very short session or as far as remaining legislative days are concerned. And I thank the members and the witnesses for their cooperation and understanding in that regard. And I see my friend from Massachusetts came in, and I will be pleased to recognize Mr. Frank for an opening statement.

    Mr. FRANK. No. I think I will probably want to wait till I remember what the hearing was about.

    Mr. COBLE. When he says things like that, I get ready for the dart to come right to my eye. Then I can pull the dart out of my eye for the first time when I see it. Let us bring on the first panel then. The first witness on our first panel is Robert Aber, who is the Senior Vice President and General Counsel for the Nasdaq Stock Market, which is a wholly owned subsidiary of the National Association of Securities Dealers, Inc. Mr. Aber, is that the right pronunciation of Aber?
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    Mr. ABER. Aber, Mr. Chairman.

    Mr. COBLE. Aber. Mr. Aber also serves on behalf of the organization as a voting member of the Consolidated Tape Association, the Consolidated Quotation Operating Committee, and the Intermarket Trading System Operating Committee, which are organizations composed of all major United States stock markets that administer national market system plans governing the collection and dissemination of securities information for exchange traded securities and the intermarket linkages between these various markets. He is also the Chairman of the Board of Directors of the Information Industry Association and serves on several committees of that board.

    Our second witness is Dr. Debra Stewart, who is Vice Provost and Dean of the Graduate School at North Carolina State University at Raleigh, testifying on behalf of the Association of American Universities. Dr. Stewart received her Ph.D. in Political Science at the University of North Carolina at Chapel Hill, and her Master's in Government at the University of Maryland, and her B.A. in Philosophy and Political Science at Marquette University.

    Our next witness is Dr. Richard Corlin, who is the Speaker of the American Medical Association, House of Delegates; a gastroenterologist in private practice from Santa Monica, California. Dr. Corlin has been active in the affairs of the AMA for the past 18 years, having served for 9 years as a member and then chair of the AMA Council on Long-Range Planning and Development. Dr. Corlin is a graduate of Rutgers University and received his M.D. degree from the Hahnemann Medical College.

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    Our final witness on the first panel will be William Hammack, who is President of the SunShine Pages, which publishes three directories in the Sarasota, Florida, area. He also publishes six directories in Louisiana and Mississippi, as well as directories in Tennessee and Martin and St. Lucie Counties in Florida.

    The SunShine Pages employs approximately 160 people. Mr. Hammack is here today representing the Association of Directory Publishers. We have written statements of all the witnesses on this panel, and I ask unanimous consent to submit into the record in their entirety.

    Now, folks, if you will, we are on a short leash today, and I am sure you all are also probably on a short leash. We like to operate on the 5-minute rule. You will know that your 5 minutes have elapsed when the red light illuminates, and at that time we will be appreciative if you begin to wind your testimony down. Mr. Aber, we start with you. It is good to have you all with us.

STATEMENT OF ROBERT E. ABER, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, THE NASDAQ STOCK MARKET, INC.

    Mr. ABER. Thank you, Mr. Chairman. It is indeed my pleasure to appear here today to testify in support of this bill. It is going to be a little bit difficult I think to add to the introductory statement which you have made, Mr. Chairman, in support of the bill. But let me just try and highlight a couple of very quick points here.

    First of all, I think one of the most important things with regard to this is that existing law really does not adequately protect the databases that are out there in America today. And as you are aware, there are representations made by some that, well, you have copyright, you have misappropriation, you have contract law, and you have various technological enhancements which really are going to take care of this.
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    There are weaknesses in each one of these areas, which I will be happy to explore in greater detail during the course of my testimony. But suffice it to say that what this bill appears to do is really bring about a national database protection regime, and that is really going to add substantially to curing some of the problems that we see today.

    The second thing is that the bill provides comparable protection to the EU database directive. This too is extremely important in that the database regime of protection is moving forward in Europe, and from our own perspective, being that of a securities market and securities marketplace and the financial information industry, the protection of that data abroad is key.

    Finally, the bill provides important tools to combat piracy and also provides us with greater flexibility to expand data use by investors, by consumers, et cetera. Finally, it provides additional protections for our revenue streams and resources which are utilized to develop the various infrastructure necessary to support investors in this country today.

    Now, if I may, I would like to go back and deal with these themes in a little greater detail. First of all, we talked about some of the inherent weaknesses that we had in the existing regime for protection. First of all, let us just take the area of copyright.

    And may I also preface my remarks by indicating as you aware, that I am representing the Information Industry Association. Information Industry Association is made up of a broad cross section of information collectors, distributors, and value-added redisseminators.
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    There is also a large body of participants though in the IIA which are related to the securities industry, that represent all of your major markets—your financial markets in this country. You have Nasdaq. You have the New York Stock Exchange, the American Stock Exchange, CBOE, CBOT, the various mercantile exchanges.

    Then you have a whole series of vendors that are represented, which are distributing information throughout the country. You have the Reuters of the world, the ILXs, all of the major companies which are putting out securities information. Then you have a large number of users—the First Bostons of the world, the Solomon Smith Barneys, the Merrill Lynches, et cetera. All of these firms are part of that information industry.

    What happens today in the securities industry is that every effort is being made to get the broadest possible dissemination of data out to investors. It is in the industry's best interest. Intelligent investors can make intelligent choices.

    What you have today is that although there have been concerns about these sole source types of data is that somebody may control the data and not necessarily make it available. What you have is ready availability, free availability, reasonable cost data to investors generally.

    Anybody in this room today can call up a website, be it the New York Stock Exchanges, the American's, or Nasdaq's www.nasdaq.com. You can get a quote on any stock which you may have. It may be delayed. It will be delayed 15 minutes, but it will be readily available.

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    Anybody can plug information into a portfolio and have your entire portfolio tracked; values calculated on a real time basis throughout the day so that people have wonderful sources of information. The kinds of pricing structures which there are today for American investors. There are professional levels of information. There are also nonprofessional levels of information, which are available at a very cheap rate.

    Now, let me just go back to copyright. As we know, there has been discussion regarding Feist, concern about some of the cases that are out there, and basically the concept of the thinness of the protection of copyright. Copyright is virtually unavailable for securities quotes. Securities quotes truly are hot news, and that is the way they are being protected.

    Let us take a look at the other area for the protection of hot news—misappropriation. Misappropriation varies from state to state. It is completely unavailable overseas so that does us absolutely no good whatsoever. We do have some misappropriation cases out there that are changing.

    You more recently have the NBA case which has come along and what the NBA case has said; in the area of misappropriation, those types of sport scores, that kind of ready information, you have to be, one, in a competitive market, and, two, the other thing is it has to be time-sensitive information. I can tell you that apart from the securities industry and securities information providers, the rest of the IIA members are not going to be protected given that case and given that evolution.

    Thirdly, you have got contracts. Contracts are our primary means of protection today. There are inherent limitations in contracts. They are difficult to understand, difficult to administer. You find our users are members of various firms out there. Information subscribers are very concerned about the difficulty with respect to dealing with those. They are long. They are difficult to understand.
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    People are interested in trying to move toward global contracts which we can use in various countries, not just here. So there are inherent limitations. That is what we have to use today. But one of the things that your bill does is it gives us tremendous additional protection. Not only do you have the contract, which you now can begin to pare back, simplify, utilize for the web and a lot of other things, but you will still have the misappropriation or, rather, the database protection of this bill available to you as well.

    Now, the last thing is there are technology enhancements which may be utilized, and certainly there is a lot of potential there. But the problem with it is your average investor doesn't want to have to go through a lot of hoops, go through a lot of barriers to try and get to this information. Investors want cheap, quick, fast. They want to be able to get to this information, and these technological barriers, various encryption techniques, et cetera, are very difficult.

    With regard to this comparable protection to the EU database, obviously, there are going to be some political decisions made overseas as to whether or not there is true comparability. There could be a problem down the road. We hope not. But what it does is it sets us up for true global competition.

    There are pools of capital overseas that could be accessed by a number of American companies, and the only way we are going to be able to access those pools of capital is to have the quotation information, the trade report information, et cetera, available over there so that these kinds of investors, institutional investors, the whole raft of pension-type accounts which are going to be expanding overseas, much as the 401K accounts have expanded here in America, will be able to invest in those American companies.
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    Now, again, we talked about this bill providing important tools to combat privacy concerns and misuse of data. The ability to go in and enjoin improper activity is wonderful. We can move on it quickly. One of the problems with contracts, I am sorry that I did forget to mention, and perhaps the most important, contracts are wonderful where you have privity. What do you do when you don't have privity?

    You have somebody out there who has taken down data, he is putting it up on the net, it is on the web, and you have to stop that data. Oh, by the way, why do we want to stop data going up on the web? You could have misleading information out on the web.

    One of the things that we have as a self-regulatory organization, as well as New York and AMEX, is the obligation to ensure the integrity of quotation information. Somebody could be putting up data on the web, for instance, that is delayed, and it may not be properly marked as delayed, and you wouldn't know that. You need to know that. You need to know that the information that you are getting is the highest quality information possible because you are making investment decisions based on this.

    One of the other things, as I mentioned, was there is going to be greater flexibility with regard to the ability to expand data, new uses of data. We want to see more data out there, not less. And, finally, there is protection for revenues that are coming into the securities markets now which are really going to pay for the various infrastructure for each one of these markets—Nasdaq, New York, AMEX. They are major quote and trade engines which are being maintained for these companies.

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    Massive investments are being made. Dick Grasso recently indicated that approximately $2 billion has been spent over time with regard to the investment in his infrastructure. Believe me, comparable investments have been made by Nasdaq as well. These funds, these resources, which are necessary for this, necessarily flow out of the information revenues that are brought in. These information sources, of course, have to be protected.

    They go to pay for not only the information infrastructure for the primary markets, but also all of the regional markets. For example, you have all the regional stock exchanges which are linked together with the AMEX and the New York Stock Exchange, as well as us.

    And you have got stock exchanges, for instance, Congressman Frank, in Massachusetts, the Boston Stock Exchange, as well as the Pacific Stock Exchange, Chicago Stock Exchange, Philadelphia Stock Exchange, et cetera, all of which are deriving revenues and are funding some of their operations out of these revenue sources.

    As you can see, this is extremely critical to our industry, and I think this bill is a wonderful step in the right direction. To the extent that there are certain questions which are being raised, for instance, by state universities with concerns with respect to sole source information and the potential inability to get to some of these databases, one last thing I want to mention, there are protections in place today. Number 1——

    Mr. COBLE. Mr. Aber——

    Mr. ABER. Yes?

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    Mr. COBLE [continuing]. We have an inoperative light. I think you are about to run out of time so if you can wrap up? Our light does not illuminate.

    Mr. ABER. Oh, excuse me. One last thing. With respect to protections which may be needed with regard to the sole sources or control of certain information sources, the one thing I would want to mention is you do have the antitrust laws which come into play, and I am not an antitrust law expert.

    However, you have got other means to deal with this as well, and one is government regulation which has been brought to bear in certain areas. For instance, we are regulated as to what information we can and must make available and the pricing structures for that. There has been limited interference.

    The industry has operated on its own and priced it fairly and made it freely available. It has worked well, but, notwithstanding, there is a shotgun behind the door. So there are means to deal with this. So I think any objections that have been raised hopefully can be dealt with in the near future. Thank you, Mr. Chairman.

    [The prepared statement of Mr. Aber follows:]

PREPARED STATEMENT OF ROBERT E. ABER, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, THE NASDAQ STOCK MARKET, INC.

INTRODUCTION

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    Thank you, Mr. Chairman and Members of the Subcommittee for the opportunity to appear before you today. I am Robert Aber, Senior Vice President and General Counsel of The Nasdaq Stock Market, Inc. (''Nasdaq''). I currently serve as Chairman of the Board of Directors of the Information Industry Association (''IIA'') and I am pleased to have the opportunity to present the views of IIA and its constituencies on H.R. 2652, the Collections of Information Antipiracy Act.

    IIA is composed of a broad cross section of information/database collectors, distributors, value-added redisseminators and users from a number of different industries. Given my background and the nature of my participation in IIA, I am most familiar with financial information and the issues facing the financial information industry. Participants in IIA include, among a variety of diverse interests, representatives of all the major U.S. equities, options and futures markets that collect and process financial information, the major information vendors that disseminate financial information, and the financial intermediaries who receive and use financial information.

    First, Mr. Chairman, let me state IIA's appreciation to you for introducing this legislation and for the Subcommittee's continued interest and attention to the issue of how best to protect databases. As the Subcommittee is aware, IIA submitted a detailed written statement following last October's hearing on this legislation. I appear today to reinforce the views we expressed at that time and to address additional issues in more detail.

    The Nasdaq Stock Market is a wholly owned subsidiary of the National Association of Securities Dealers (NASD), the largest self-regulatory organization for the securities industry in the United States. Every broker/dealer that does a securities business with the public is required by law to be a member of the NASD.
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    Founded in 1971, Nasdaq is today the largest electronic, screen-based market in the world, capable of handling trading levels well in excess of one billion shares a day. It accounts for more than one-half of all equity shares traded in the nation and is the second largest stock market in the world in terms of the dollar value of trading. It lists the securities of more than 5,500 domestic and foreign companies, more than all other U.S. stock markets combined.

    A critical component of the success of the Nasdaq Stock Market is the integrity and wide spread availability of information that we provide about quotations and trading activity. A fundamental tenet of securities regulation is disclosure and the hallmark of securities markets in the U.S. is the transparency of quotes and trades. The Nasdaq Stock Market, New York Stock Exchange (NYSE), American Stock Exchange (AMEX), Chicago Board Options Exchange, Chicago Board of Trade, Chicago Mercantile Exchange, New York Cotton Exchange, and New York Mercantile Exchange, all process and disseminate the highest quality, most transparent and widely available, financial information in the world. These financial markets continually strive to provide the highest quality information to the greatest number of people at reasonable cost. Like other members of IIA, we operate in a global marketplace where the quality and accuracy of our data is essential to the economy and society as a whole. And like our colleagues in the database industry, we feel strongly that a law to protect databases is both necessary and beneficial to the continued general availability of information that is essential to the lives and livelihoods of millions around the world.

    IIA is a 30 year-old trade association representing all sectors of the information industry. The Association's 550 member companies include organizations, large and small, that create, manage and distribute information products and services. IIA members serve every conceivable market, domestic and international, including businesses, governments, libraries, educational institutions and, increasingly, the general public. The Association's public policy program focuses on fostering an environment favorable to the growth and widespread availability of high-quality, timely and reliable information products and services. The industry provides information in a variety of traditional formats—print-on-paper, microfiche and microfilm—but like Nasdaq, many other IIA members are using digital formats to meet the ever-growing demands of the marketplace for delivery of comprehensive collections of information.
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THE NEED TO ESTABLISH A SUPPLEMENTAL LEGAL PROTECTION FOR DATABASES

    IIA has long urged that the Congress adopt enhanced protection for databases. IIA has done so because it is concerned about both international and domestic developments in this area. The financial markets share these concerns.

The U.S. Database Industry Faces the Threat of Unfair Competition From Europe.

    The information marketplace is competitive and global. As the thirst for information grows in all parts of the world and technology makes it easier to deliver information across borders, other nations are seeking to usurp the U.S. lead in database production. Nowhere is the threat to the American database industry more evident than in Europe.

    The European Union's Directive on the Legal Protection of Databases (''EU Directive''), adopted in March 1996, went into effect on January 1, 1998, and is being implemented by EU member states. Both the United Kingdom and Germany—two of our largest trading partners—have already written their own national laws to implement the EU Directive, and IIA's understanding is that many other EU countries are moving forward in a similar manner.

    Many aspects of the EU Directive trouble the financial markets and other IIA members, but I will refer to only one, which poses a substantial threat to U.S. database producers. The EU Directive was clearly designed to promote increasing investment in Europe's database industry, in the hope of overcoming its shortcomings in competition with U.S. industry.(see footnote 29) The chosen means for achieving this is the law's reciprocity provisions. The EU Directive requires that each EU member extend protection to all databases produced in any EU country. However, it does not extend similar protection to a database producer in a non–EU nation, unless that producer has a significant operational presence in an EU country(see footnote 30) or unless its home country offers comparable protection to EU database producers.(see footnote 31)
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    Since the United States produces by far the majority of the world's databases, the onerous reciprocity provision in the EU Directive, may soon be interpreted as a virtual ''license to steal'' by unscrupulous overseas competitors. Without U.S. database protection legislation, there is little hope that American providers will receive the protection necessary if their products and services are misappropriated by overseas competitors and marketed against them—whether pirated copies appear in Europe, the United States or elsewhere in the world.

    Enactment of a U.S. law to protect databases would not only mitigate potential threats arising from the EU Directive, but would also have a positive influence on international developments outside the European Union. The World Intellectual Property Organization (''WIPO'') was scheduled to take up a draft treaty for the protection of databases at its December 1996 diplomatic conference but, because of time constraints, did not. Instead, WIPO has deferred formal negotiations on database protection, pending further information exchange among the member nations of WIPO. IIA believes that at this juncture, Congress must enact database protection legislation to assure that the United States continues its leadership role at WIPO. In that role, the U.S. can lead other nations toward reasonable and workable treaties that encourage the wider availability of valuable information products to citizens of all nations. If supported by Congressional action, U.S. leadership can make strong international protection of databases a reality. But without such leadership on this important issue, it is likely that the process will continue to founder in WIPO, leaving the EU Directive—with its aggressive reciprocity provision—as the only model for others to follow.

In the United States, Database Investment needs Enhanced Protection.
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    Apart from the concerns that the financial information industry and other IIA members have about developments internationally, there is also a compelling domestic need to enact legislation similar to H.R. 2652 in order to establish adequate protection for databases. Today, the database industry is faced with an intolerable situation under domestic copyright law. Legal protection for databases—essential to foster their development and dissemination—changed dramatically with the Supreme Court's decision in Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1991). Prior to Feist, producers believed their databases to be entitled to copyright protection under the ''sweat of the brow'' doctrine. As noted in the Report on Legal Protection for Databases prepared earlier this year by the U.S. Copyright Office (''Copyright Office Report''), this doctrine was cited by many courts to ''prevent the copier from competing unfairly with the compiler by appropriating the fruits of the compiler's efforts or creativity. In this sense, courts treated copyright protection for compilations much like a branch of unfair competition law.''(see footnote 32)

    In addition to eliminating the sweat of the brow doctrine, Feist clarified that ''originality'' forms the linchpin of copyright protection in compilations. Even where sufficient originality exists for protection, its scope is thin because it extends only to the original selection, arrangement and coordination of the database. Therefore, the factual contents of the database are not protectible and may be copied with impunity. These sweeping pronouncements in Feist—and subsequent lower court decisions—significantly altered the legal landscape for database producers. The conclusion reached by the Copyright Office bears special emphasis:

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  ''Consistent with Feist's pronouncement that copyright affords compilations only 'thin' protection, most of the post-Feist appellate cases have found wholesale takings from copyrightable compilations to be non-infringing. This trend is carrying through to district courts as well.''(see footnote 33)

    Thus, in sharp contrast to the situation before Feist, the database industry today can count on only limited protection for databases. A database qualifies for copyright protection only if the information it contains is selected, coordinated or arranged in a manner that expresses originality. Increasingly, databases whose producers attempt to meet the growing market demand for comprehensive, logically organized collections of information—like the financial markets quote and trade information reports—risk falling short of the originality standard, at least as it is applied in some circuits. Even if a database qualifies for copyright protection, the courts have refused to stop wholesale copying of the information they contain. In some cases, the courts have held that the entire product may be replicated with abandon by others, including unscrupulous competitors looking to make a quick profit by reaping where they have not sown.(see footnote 34) There has also been evidence of ''cyberpranksters'' who copy and disseminate databases via the Internet without a profit motive, although the resulting harm to database providers remains.(see footnote 35)

Alternatives to Statutory Protection are not Sufficient

    The weakness of copyright law leaves database producers with only a few possible, but limited, legal means of protecting their investment of money, time and diligent effort. None of these offer the general protection that H.R. 2652 would provide. I will comment on three of the methods that the financial markets and other database producers must resort to, absent federal statutory protection.
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    The first is the set of state laws and judicial doctrines that are lumped under the heading of misappropriation and unfair competition. Certainly in terms of the Nasdaq database, whose value is primarily in its timeliness, this is an important form of protection and one on which we rely wherever possible. However, these state law doctrines suffer inevitably from a lack of national uniformity. As the Copyright Office Report noted, misappropriation is ''somewhat ill-defined and uncertain in scope.''(see footnote 36) Moreover, it is not available in all states and virtually non-existent in many other countries—a big disadvantage in today's global database market.

    Moreover, last year's decision of the Second Circuit in National Basketball Association v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997), underscored some of the shortcomings of the misappropriation doctrine. Under the Second Circuit's opinion, a misappropriation claim can succeed only if the information taken is ''time-sensitive'' and only if the data pirate is ''in direct competition with a product or service offered.''(see footnote 37) Many valuable databases contain information that is not ''time-sensitive''—it may even be historical in nature. Further, as the LaMacchia decision demonstrated, the commercial value of a work can be seriously undermined if misappropriated by someone other than a competitor and not for any commercial purpose.

    Another crucial protection that financial markets and other IIA members rely on is contract law. It is an important component of any adequate legal regime, but it has its shortcomings. Opponents of database protection contend that information providers can simply rely on contract to control misuse, but the most obvious defect in that argument is that you can't enforce a contract against someone who's not a party to it. Once the information is accessed and used by someone not bound by the contract, any contractual control over misuse is lost irrevocably.
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    Moreover, like misappropriation, contract law is a state-based form of protection, and there are variances among state laws in this area. Even if current attempts to create a new Article 2B of the Uniform Commercial Code to govern information contracts are successful, and even if the resulting uniform law is eventually adopted in all states, that will give little protection to American database products and services delivered in other nations whose traditions and legal protections differ from ours.

    Finally, database producers are relying more on technological protections to help assure that their databases are used responsibly. However, while technology is helpful for assuring that information is not misused, it's also an impediment to increased availability of databases. Both producers and users must incur additional costs in equipment and software to ''encrypt'' and ''decrypt'' protected information.(see footnote 38) Users will also have to employ greater sophistication in operating digital systems. The end result will be to make access to valuable data sources more difficult, expensive and time-consuming. Furthermore, many user systems will not be able to accept a vendor-specified complex encryption architecture.

    Increased emphasis on technological protection will divert resources from the development of efficient, comprehensive databases. Moreover, technological protections apply only to products and services disseminated in digital form and offer no safeguard for printed works—the most commonly used format today (and for the foreseeable future), that are easy to duplicate using scanning technologies.

    The misappropriation doctrine, contract law, and technological controls all help to safeguard the huge investments needed to create, maintain, disseminate and support commercially valuable databases. But even taken together, they do not fill the gap in protection left by the erosion of copyright law in the wake of Feist and its progeny. A new federal statute to outlaw database piracy—a statute like H.R. 2652—is still needed.
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ISSUES TO CONSIDER

    As I noted earlier, Mr. Chairman, IIA submitted a lengthy written statement for the October 1997 hearing record. That statement contained several specific suggestions for the Subcommittee's consideration in its further refinement of H.R. 2652. Today, I will offer additional perspectives on two important issues that have been widely discussed since the Subcommittee's first hearing: (1) unique collections of information and (2) the treatment of government databases.

    Some critics of H.R. 2652 express concern about protecting databases that are unique or contain information not available from other sources. Some critics have gone so far as to suggest that federal law should force database providers to offer such products on terms and conditions dictated by users who rely on unique data sources.(see footnote 39) IIA stands by its earlier response that such forced subsidization will prove detrimental to the development of quality products and services for all users.

    This legislation need not create any special rules for databases that are—or that users may consider to be—unique collections of information. Antitrust law already provides safeguards against anti-competitive licensing practices. Under appropriate circumstances and well-settled Sherman Act precedent, if a monopolist controls an ''essential facility'' that cannot practically be duplicated, the monopolist may not unreasonably deny the use of that facility to a competitor who is economically and technically capable of using it.(see footnote 40) Under the appropriate circumstances, information under the exclusive control of one party can be treated as an essential facility for the purposes of the Sherman Act.(see footnote 41) The essential facilities doctrine is firmly established in our antitrust law, and as proposed Section 1205(a) makes indisputably clear, enactment of H.R. 2652 would not change antitrust law in any way. Thus, a special provision undercutting the rights of proprietors of unique collections of information is unnecessary as well as unwise. If Congress feels it necessary to emphasize this point, IIA would be pleased to work with the Subcommittee and other interested parties to clarify the issue.
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    In addition, Congress and the independent regulatory agencies have already determined that certain unique databases are of such public importance that they require special regulation of the terms and conditions under which they are available. As a self-regulatory organization under the Securities Exchange Act of 1934, Nasdaq is subject to Securities and Exchange Commission (SEC) oversight. The NYSE, AMEX and other markets are subject to equivalent oversight. One aspect of this SEC review is that the markets are required for the ''protection of investors or maintenance of fair and orderly markets . . . [to assure that] . . . all . . . persons may obtain on terms which are not unreasonably discriminatory such information with respect to quotations for and transactions in such securities.''(see footnote 42) We therefore operate under the scrutiny of the SEC and also under our own self-regulatory processes. Both are designed to assure that The Nasdaq Stock Market database is provided under non-discriminatory terms and conditions that achieve greatest availability to investors and other securities industry participants. Similarly, Congress has already directed the FCC to regulate white pages telephone directory information as recognized in proposed Section 1205(d) of H.R. 2652. Nothing in this legislation would change the special treatment accorded to these unique databases, nor would Congress be precluded from taking similar action with respect to other unique databases in the future. However, these special situations are much different from those of most database producers.

    IIA believes that proposed Subsection 1203(a), which excludes government databases from the scope of this legislation, is sound in its premise. However, the Association also recognizes that some believe it may have unintended consequences in relation to state universities. Databases are created by university employees in the conduct of research whose focus may lie far outside traditional governmental functions. IIA believes that there is justification for clarifying this question in order to avoid any unintended consequences of this subsection of H.R. 2652. Some states have already grappled with this issue in their open records laws; these statutes could be instructive in helping determine when information created by employees of taxpayer-funded universities should be deemed to come under the exclusion for government information. In addition, provisions contained at 44 U.S.C 3506(d) (The Paperwork Reduction Act Amendments) may be relevant. This issue deserves further study.
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CONCLUSION

    In conclusion, Mr. Chairman, I want to thank you and the Subcommittee for holding this second hearing on the Collections of Information Antipiracy Act. It demonstrates real progress toward enactment of a federal statute that will provide adequate protection for the investment in commercially significant databases. In recent years, the situation for American database producers has continued to worsen, both internationally and domestically. Many have advocated that Congress await market failure in the database industry before acting. That is not a solution. It is a recipe for disaster.

    I urge you to ask those who fear new database legislation one simple question: What legitimate uses of databases are you making today that enactment of a new law like H.R. 2652 would prevent? While I believe the honest answer is ''none,'' a response from critics would move the debate beyond general speculation to specific problem solving.

    The American database industry already sees the potential threat from Europe. Thankfully, we have not yet witnessed the type of legalized piracy that the EU Directive seems to invite, but we cannot wait until that happens.

    In the United States, database protection continues to erode as a result of court decisions handed down since Feist—most notably the decision involving Warren Publishing, Inc. Paul Warren was a witness at your October hearing. Despite the fact that the decision of the Court of Appeals to deny Warren any copyright protection for its Cable and TV Factbook was based on reasoning that conflicts with that of other courts, the Supreme Court denied Warren's petition for certiorari to help resolve the conflict.
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    That left Warren with no copyright protection for an important and useful compilation it invested considerable time, effort and money to create. It sent a message to America's database producers that, short of a new law, they must look to other means to assure that their products are not unfairly copied and distributed.(see footnote 43)

    Those means, while important, are insufficient. In order to protect their resources, database producers may be forced to restrict the availability of some of their materials through tighter contract controls or more onerous encryption methods. They may be discouraged from investing in improving current products and creating new ones. The benefits that wide availability of valuable collections of information bring to our economy and society will be sharply diminished. In the long run, it will be database users—and that means all of us—that will suffer.

    U.S. law has long encouraged the private sector to create, market, maintain and disseminate valuable collections of information to the general public. These legal incentives have brought enormous benefits to our economy and our society. They must remain a fundamental principle of our legal system. IIA looks forward to working further with the Subcommittee and its members toward continuing the long overdue progress you have begun to make toward developing and enacting fair and balanced database protection legislation.

    Thank you.

    Mr. COBLE. Thank you, Mr. Aber. Folks, for your information, efforts are underway to make this room more comfortable. Someone, obviously, left the heater on last night. We are going to try to make that a little better. Dr. Corlin, I may have to interrupt you at the 5-minute segment. And, incidentally, folks, all the witnesses know in advance that the 5-minute rule is in effect so we are not surprising anybody with that. Dr. Corlin, good to have you with us.
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STATEMENT OF RICHARD F. CORLIN, M.D., SPEAKER OF THE HOUSE OF DELEGATES, AMERICAN MEDICAL ASSOCIATION

    Dr. CORLIN. Thank you, sir. Mr. Chairman and Mr. Frank, the AMA is pleased to take this opportunity to express our strong support for H.R. 2652, the Collection of Information Antipiracy Act. We urge prompt and favorable action. The American Medical Association is also a member of the Coalition Against Database Piracy and the Information Industry Association, and we support their comments.

    The AMA developed, maintains, and owns significant databases, including the Physician Masterfile, Physicians' Current Procedural Terminology, the FRIEDA database, Practice Parameters, and the Directory of Physicians in the United States. These databases promote the core purposes of the AMA by providing medical, scientific, and other useful information to the medical profession and to the public.

    It is crucial both to the public and to the AMA that these databases be accurate, up to date, and complete as these unique compilations of information have widespread application and benefit to the public in numerous ways. Unauthorized use and copying of these databases jeopardizes the uniformity and integrity of these databases, as well as our ability to maintain them.

    We also represent physician members who have a strong interest that data be made available for medical, scientific, and other research purposes. While these databases must be protected, it is equally important that physicians performing research, scientific authors, and other legitimate not-for-profit users be guaranteed access to up to date scientific, medical, and other related data. We believe that H.R. 2652 provides the means to both meet the interest of database protection and reasonable information availability.
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    Let me describe briefly two of AMA's key databases. Our Physician Masterfile is considered to be the most comprehensive source of physician-related data in the United States. This unique file contains demographic, educational, certification, licensure, and current practice information for over 800,000 active U.S. doctors of medicine and over 90 percent of the doctors of osteopathic medicine, both members and nonmembers, and is the primary source used when a drug company needs to put out an emergency recall of a medication.

    The AMA's Physicians' Current Procedure Terminology is a compilation of numeric codes with associated descriptions for the reporting of procedures performed by physicians. The CPT medical code is a shorthand language used by physicians and our staffs to enable us to communicate effectively about the medical services we have performed on our patients.

    The CPT medical code is an essential tool in helping the Federal Government manage Medicare expenditures and assisting every third party payer in properly classifying and paying for millions of medical procedures per year and is often the first clue that a fraudulent or abusive billing practice is in play.

    CPT coding terminology is updated annually through an elaborate and exhaustive process that requires state-of-the-art input to reflect advancements in medicine, procedures, and terminology. The AMA has spent millions of dollars in the upkeep and maintenance of the CPT medical code to assure that medical procedures are accurate and reflect new advancements in medicine.

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    Since the Feist Decision, cases involving copyright of databases and compilations have not been predictable and put databases such as ours at substantial risk. It is obvious that existing copyright, contract, and misappropriation laws are simply inadequate to provide the necessary protections to our databases.

    Efforts to defend our rights have taken their toll on the AMA by diverting significant resources away from the core purpose of the AMA; that is, promoting the art and science of medicine and the betterment of public health. We want to continue to contribute to the better health of Americans by making our scientific and medical-related databases available to the medical profession and to the public.

    The AMA also licenses some of its databases abroad, including in the European Union. Action must be taken to protect all American databases used in the EU by providing this reciprocal protection. Mr. Chairman, we commend you for introducing H.R. 2652 and holding this important hearing, and would be pleased to respond to any questions. Thank you.

    [The prepared statement of Dr. Corlin follows:]

PREPARED STATEMENT OF RICHARD F. CORLIN, M.D., SPEAKER OF THE HOUSE OF DELEGATES, AMERICAN MEDICAL ASSOCIATION

SUMMARY

    The American Medical Association (AMA) expresses strong support for H.R. 2652. The AMA maintains and owns significant databases including the Physician Masterfile and Physicians' Current Procedural Terminology. These databases promote the core purposes of the AMA by providing medical, scientific and other information to the medical profession and the public. The AMA needs to prevent the unauthorized use and copying of the databases in order to preserve their uniformity and integrity as well as protect the revenue streams necessary to maintain the databases. In addition, physicians performing research, scientific authors and others must have access to up to date scientific, medical and other related data.
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    The AMA's Physicians' Current Procedural Terminology is a compilation of numeric codes with associated descriptions for the reporting of procedures performed by physicians. This database is known as CPT coding terminology and contains over 7000 codes and descriptions. The CPT medical code is a short hand language used by the medical and insurance community to enable physicians to communicate procedures they have performed as well as expedite reimbursement of medical claims. The AMA expends substantial staff and financial resources for the annual updating of CPT coding terminology and all of its databases.

    Cases involving the copyright of databases and compilations have not been predictable and have put databases such as ours at substantial risk. In addition, a European Union directive has put U.S. databases at a disadvantage abroad. The AMA supports the legislation with several recommended modifications.

    Copying of a ''substantial'' portion of a database should be clarified to be ''qualitative'' or ''quantitative''. The verification of data provisions should be clarified so that protected databases could not be used to enhance or substitute for the database being verified.

    The exemptions for not-for-profit educational, scientific or research purposes should be reviewed to seriously consider the concerns of the scientific, research and related communities. The AMA will be monitoring the exemptions for databases created by or for government entities.
STATEMENT

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    Mr. Chairman and Members of the Subcommittee:

    My name is Richard M. Corlin, MD. I am a practicing gastroenterologist from Santa Monica, California and I serve as the Speaker of the House of Delegates of the American Medical Association (AMA).

    The AMA is pleased to take this opportunity to express our strong support for H.R. 2652 ''The Collections of Information Antipiracy Act''. We urge prompt and favorable action by both the Subcommittee on Courts and Intellectual property and the full Committee.

    The AMA developed, maintains and owns significant databases including the Physician Masterfile, Physicians' Current Procedural Terminology, FRIEDA, Practice Parameters and the Directory of Physicians in the United States. These databases promote the core purposes of the AMA by providing medical, scientific and other useful information to the medical profession and to the public. The licensing and sales of these databases also provide significant revenue to the AMA.

    The accuracy and up to date nature of these databases is extremely important to the public as well as the AMA. As I will discuss, these unique compilations of information have widespread application and benefit the public in numerous ways. The AMA needs to prevent unauthorized use and copying of these databases in order to preserve the uniformity and integrity of these databases as well as protect the revenue streams necessary to maintain the databases.

    The AMA, as the world's largest medical publisher, and representing its physician members also has a strong interest that data be made available for medical, scientific and other research purposes. Physicians performing research, scientific authors and others must be able to have access to up to date scientific, medical and other related data. We believe that H.R. 2652 provides the means to meet both the interests of database protection and reasonable information availability.
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AMA Databases

    Let me describe two of the AMA's key databases.

Physician Masterfile

    The American Medical Association's Physician Masterfile is considered to be the most comprehensive source of physician-related data in the United States. This unique file contains demographic, educational, certification, licensure, and current practice information for over 800,000 active U.S. doctors of medicine (MDs) and over 90% of the doctors of osteopathic medicine (Dos), including members and nonmembers alike. Primary-source reported information contained on the Masterfile is provided to hospitals, managed care organizations, licensing boards and other organizations and agencies concerned with the verification of physician credentials. This is one of the many ways in which the Association works to strengthen the medical profession and ensure quality healthcare for the American public. Through this initiative, imposters and dishonest physicians have been uncovered more efficiently and medical staff have become aware of all significant past disciplinary problems of an applicant who has moved from another state or hospital.

    The unique identifier on the AMA's Physician Masterfile allows healthcare companies to more easily identify those physicians that would most be benefited by the availability of new drugs and their side effects. The unique identifier is also used to protect the public by helping to ensure physicians have been contacted in the event of a drug recall by the Federal Drug Administration.
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Physicians' Current Procedure Terminology

    The AMA's Physicians' Current Procedure Terminology is a compilation of numeric codes with associated descriptions for the reporting of procedures performed by physicians. This database is known as CPT coding terminology. The CPT medical code is a short hand language used by physicians and their staff to enable physicians to communicate effectively about the medical services they have performed on their patients. For example, by using the five numeric digits of ''33510'' the medical and insurance communities know that this code refers to ''Coronary bypass, vein only, single coronary veneous graft''. CPT coding terminology contains over 7000 codes and related descriptions to describe the wide diversity of medical procedures.

    Use of the CPT medical code expedites the reimbursement of medical claims to patients and physicians and assists in tracking medical care. CPT coding terminology is used for a variety of purposes including widespread application in connection with internal hospital record keeping and evaluation the quality of care provided to patients. It is used in state and federal reimbursement programs. The CPT medical code is an essential tool in helping the federal government maintain control over Medicare expenditures.

    In light of the continuing development of medical practice and technology, CPT coding terminology is updated annually through an elaborate and exhaustive process that requires highly skilled state of the art input to reflect advancements in medicine, procedures and technology. The AMA has spent millions of dollars in the upkeep and maintenance of the CPT medical code. We hold multiple meetings throughout the year and thousands of hours are spent revising CPT coding terminology to assure that medical procedures are accurate and reflect new advancements in medicine. An AMA staff of 15 individuals works with an Editorial Panel of 16 including physicians and representatives from government and the insurance industry to insure the up to date nature and quality of the CPT medical code. We also consult with over 90 physicians who are members of our Advisory Committee in developing CPT medical terminology as well as other health care providers. Over 1000 physicians directly or indirectly provides input to keep the CPT medical code current on an annual basis.
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AMA Position on Necessity for Legislation

    The purpose of H.R. 2652 is to protect collections of information, including databases such as ours from substantial copying by third parties that cause commercial harm based on unfair competition principles. Specifically, the bill would supplement rights that are available under the current copyright laws.

    Cases involving the copyright of databases and compilations have not been predictable and put databases such as ours at substantial risk. Recent court rulings are suggestive that copyright protection to certain types of databases is weak. The AMA's copyright in the CPT coding terminology was also challenged in recent litigation, Although the appellate decision upheld the AMA's copyright in the CPT medical code, petitions before the U. S. Supreme Court are extant. In addition, the AMA has been compelled to file various Amicus briefs in the last few years in cases that could adversely affect the AMA's copyrighted databases. These activities have been crucial to protect the AMA's databases. These efforts have taking their toll on the AMA by diverting significant staff and financial resources away from the core purpose of the AMA. The AMA mission's is to promote the Art and Science of Medicine and the betterment of public health. We want to continue to contribute the better health of Americans by making our scientific and medical related databases available to the medical profession and to the public.

    The AMA also licenses some of its databases abroad including the European Union. (EU) Due to a recent EU directive, databases created in the United States would not have the same protection as databases created in the EU. Adopting database protection legislation in the United States could be a step toward providing the necessary ''reciprocity'' in order to protect U.S. databases in the EU.
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    HR 2652 would provide the framework to protect the AMA's databases independent of copyright. The primary language of the Bill provides for both financial and criminal recourse against any person who extracts or uses all or a substantial part of information gathered, organized or maintained by another person through the investment of substantial monetary or other resources, so as to harm that other person's actual or potential market for a product or service. In addition, the Bill provides for use by others of databases in specified circumstances.

Proposed Modifications

    Mr. Chairman, although the AMA supports this Bill we recommend the following modifications to provide for more comprehensive and balanced legislation.

 The Bill refers to copying of a ''substantial'' portion of a database but does not define ''substantial''. It would be advisable to clarify that H.R. 2652 recognizes ''substantial'' part to be—''qualitative'' or ''quantitative''. This would protect AMA data if relatively small, but significantly important, portions were inappropriately used or copied. As an example, approximately 150 CPT medical codes and descriptions covering the full range of the types of physician office visits represent approximately 35% (thirty-five percent) of all physician services billed to insurance carriers including Medicare.

 The Bill allows for the verification of data. Clarifications should be provided so that a protected database could not be used by a third party to substitute for or to enhance the database being verified. We are seriously concerned that our substantial investment in time and resources in our databases could be jeopardized without this modification to the Bill.
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 The Bill provides exemptions for not-for-profit educational, scientific or research purposes. We have taken seriously the concerns of the scientific, research and library communities and while we believe that the current language adequately address these concerns, we believe that the Committee should see if any modifications would be necessary to correct perceived problems.

 The Bill provides exemptions for databases created by or for government entities. We will be monitoring the progress of the Bill to be assured that none of the AMA's databases are adversely affected by language changes to this and other sections.

Conclusion

    In conclusion, Mr. Chairman, thank you for the opportunity to testify here today. We commend you for introducing H.R. 2652 and holding this important hearing. The AMA supports H.R.2652. In developing our suggested modifications, we have tried to address the balance of protecting databases while meeting the needs of researchers, scientists and others that need to use our databases. The AMA stands ready to work with you, Mr. Chairman, and Members of your Subcommittee on these important matters in the future.

    Mr. COBLE. Thank you, doctor. Dr. Stewart.

STATEMENT OF DR. DEBRA STEWART, DEAN OF THE GRADUATE SCHOOL, NORTH CAROLINA STATE UNIVERSITY

    Ms. STEWART. Thank you, Chairman Coble and members of the subcommittee, for inviting me here today and giving me an opportunity to testify on behalf of research universities. At the outset, I want to emphasize that I am not here as a legal scholar nor an information expert. I am here as a university administrator, a researcher, and a teacher.
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    Research universities, working in cooperation with the Federal Government and industry, developed the computer networks that formed the precursor to the Internet. In continuing collaboration, universities are expanding network capabilities and developing new applications to exploit those capabilities.

    The productivity of this government/university/industry collaboration has been made possible in large measure by the open and unfettered communication of fundamental research results. The predominant view within the university community is that enactment of H.R. 2652 in its current form would limit or deny future access to information that is readily accessible for research and education uses today.

    We have four principal concerns, and I will briefly state each one of those, I hope with a few minutes for an example or two on one that is particularly bothersome. The first concern is that the breadth and inclusiveness of the information that would be covered by the legislation appears to be extraordinarily large, sweeping into its ambit information to which universities now have appropriately unfettered access.

    The juxtaposition of an expansive definition of information with a broad proprietary control of that information would appear to draw countless uses of information for research and education programs into a new proprietary regime.

    While saying that, let me emphasize that we now understand that there are appropriate proprietary interests in data. Take, for example, our library at North Carolina State University, where we spent last year $7 million in acquisitions, nearly $1 million of the $7 million was for acquisitions of licenses for electronic databases.
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    So we in the research universities respect the appropriate proprietary claims in this arena. Our concern, however, is simply with the breadth and the inclusiveness of the information that would be swept under proprietary domain in this legislation.

    Our second concern is that the exemptions for educational, scientific, and research use appear too narrow to support current university information practices. We very much appreciate the efforts in this current piece of legislation to accommodate the interests and the needs of research universities in this regard.

    However, our people who are looking at this and worrying about it daily have concluded that with this legislation as it now stands any claim of any degree of market harm unweighted against information use benefits appears to nullify the exemption you have provided for us.

    Our third concern speaks very much to issues that are of interest to me as a teacher and a researcher. The third concern is that expanded proprietary control of information could seriously impede new opportunities for research and education programs.

    I have two examples that I would like to share here, both from my own institution, but they are both representative of what happens in research universities everywhere. The first is a research example. Mapping the genomes of living organisms has become possible with breakthroughs in recombinant DNA and other biotechnology methodologies. Already, for example, the complete DNA sequence of yeast is known, and the determination of the entire human genome is progressing rapidly.
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    Let me talk about a particular genetic database developed at NC State. A very powerful example on our campus is the Pine Gene Discovery Project funded by the Department of Energy and the forest products industry. I think our Chairman will appreciate the importance of the pine in North Carolina. However, since my 10 minutes are almost up I will cover this example in the discussion rather than delivering it in detail here.

    Let me just make my fourth point, which is that provisions in the legislation would subject universities to increased liability, constraining their ability to exploit new information uses for education and research benefits. The prospect of increased liability is chilling for our researchers. It is chilling for our administrators. I will be happy to talk about any one of these points in more detail in the discussion. Thank you.

    [The prepared statement of Dr. Stewart follows:]

PREPARED STATEMENT OF DR. DEBRA STEWART, DEAN OF THE GRADUATE SCHOOL, NORTH CAROLINA STATE UNIVERSITY

SUMMARY

    The statement of Dr. Debra Stewart, Vice Provost and Dean of the Graduate School at North Carolina State University is presented on behalf of the Association of American Universities, the American Council on Education, and the National association of State Universities and Land-Grant Colleges.

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    Research universities, working in cooperation with the federal government and industry, developed the computer networks that formed the precursor to the Internet. In continuing collaboration, universities are expanding networking capacities and developing new applications to exploit those capacities. The productivity of this government/industry/university collaboration has been made possible in large measure by open and unfettered communication of fundamental research results.

    The predominant view within the university community is that enactment of H.R. 2652 in its current form would limit or deny future access to information that is readily accessible for research and educational uses today. Our principal concerns are the following:

1. The breadth and inclusiveness of the information that would be covered by the legislation appears to be extraordinarily large, sweeping into its ambit information to which universities now have appropriately unfettered access. The juxtaposition of an expansive definition of information with a broad proprietary control of that information would appear to draw countless uses of information for research and education programs into a new proprietary regime.

2. The exemptions for educational, scientific, and research uses appear too narrow to support current university information-use practices. Any claim of any degree of market harm, unweighted against information use benefits, appears to nullify the exemption.

3. The expanded proprietary control of information could seriously impede new opportunities for research and education programs. The proposed legislation would appear to reduce or eliminate access to primary data as well as other information products which underpin research and education programs.
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4. The provisions of the legislation would subject universities to increased liability, constraining their ability to exploit new information uses for education and research benefits. The prospect of increased liability brought about by a new mode of proprietary control of information and the uncertainty about the nature and extent of its application will discourage universities from undertaking many of the promising new initiatives the networked environment and digital communication make possible.

    We urge the subcommittee not to proceed with this legislation at this time. We believe that costs to university research and education programs will be far greater than any benefits that would result. However, if you do elect to proceed with this legislation, we urge you to do so with careful attention to all aspects of the question of new forms of intellectual property management, and to craft legislation that accommodates fully the opportunities for research and education offered by the digital environment.

STATEMENT

    Mr. Chairman and Members of the Subcommittee:

    I am Debra Stewart, Vice Provost and Dean of the Graduate School at North Carolina State University. I appreciate having this opportunity to testify on H.R. 2652, the Collections of Information Antipiracy Act. My testimony is presented on behalf of the Association of American Universities, the American Council on Education, and the National Association of State Universities and Land–Grant Colleges. These organizations represent over 1,700 colleges and universities, including the nation's major public and private research universities. Their institutions conduct the preponderance of the nation's academic research, produce most of its Ph.D.s as well as Master's and professional students, and educate a substantial portion of its undergraduate students.
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    Let me state at the outset that I am not here as a legal scholar or information expert but as a university administrator, researcher, and teacher. The three organizations which I represent have assembled a group of administrative, academic, legal, and technical officials from within the university community to evaluate H.R. 2652 and I will convey our collective views, but my principal objective today is to describe the conditions under which we believe our research and education programs must operate in order to capitalize on the tremendous potential of the networked environment for university research and education programs.

    Research universities, working in cooperation with the federal government and industry, developed the computer networks that formed the precursor to the Internet. Today, university faculty and graduate students, in continuing collaboration with government and industry colleagues, are expanding network capacities and developing new applications to exploit those opportunities. The pace of change is staggering; yesterday's possibilities are breathtaking realities today.

    The extraordinary productivity of this government/industry/university collaboration has been made possible in large measure by open and unfettered communication—within and across sectors—of the fundamental research results that have formed the knowledge foundation on which new products and processes have been developed. Science is the analysis of data, accumulated over decades and generations by researchers who add what they have learned to a cumulative body of information. Breakthroughs are often achieved by the reanalysis of old data when new methods and tools become available—and digital technologies are creating new tools at an unprecedented pace. On university campuses, open communication and ready access to data not only fuel the pace and productivity of research but enrich the education of students as well. Indeed, one of the most exciting aspects of digital technologies for educators is that they enable students to analyze and manipulate primary data directly rather than relying on secondary syntheses.
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    As we in the university community look to the future, we see enormously promising possibilities for enhanced research collaboration and productivity and at least as dramatic new educational opportunities. The legislation before your committee today has profound implications for these research and educational activities since these activities are information-dependent, and H.R. 2652 would determine the rules by which a large portion of that information would be accessible.

    I must report to you that the predominant view within the university community is that enactment of H.R. 2652 in its current form would limit or deny future access to information that is readily accessible for research and educational uses today. Our principal concerns are the following:

1. The breadth and inclusiveness of the information that would be covered by the legislation appears to be extraordinarily large, sweeping into its ambit information to which universities now have appropriately unfettered access, including primary data currently in the public domain.

2. The exemptions for educational, scientific, and research uses appear too narrow to support current university information-use practices.

3. The expanded proprietary control of information could seriously impede the new opportunities we see for research and education programs.

4. The provisions of the legislation would subject universities to increased liability, constraining their ability to exploit new information uses for education and research benefits.
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    I will amplify on each of these concerns.

1. Breadth of information covered by the legislation

    The definition of information is sweeping: ''facts, data, works of authorship, or any other intangible material capable of being collected and organized in a systematic way.'' Given the inclusiveness of this definition, the boundaries of proprietary control of information provided by H.R. 2652 must rest with attendant concepts of what constitutes a collection of information and under what terms that collection can be accessed and used. But the potential problems posed by the inclusive definition of information are exacerbated rather than constrained by vague or absent specifications of attendant conditions. Key terms such as ''collection,'' ''organized,'' ''maintained,'' ''incorporate,'' ''substantial part,'' ''insubstantial part,'' ''substantial monetary or other resources,'' ''harm,'' ''actual market,'' and ''potential market'' are undefined. The juxtaposition of an expansive definition of information with an apparently broad but uncertain proprietary control of that information has generated great concern within the university community. Countless uses of information for research and education programs appear to be drawn into a new proprietary regime.

    This is not to say that university uses of such information are now always free. Universities have well-established procedures for securing permissions and, as required, making payments for use of copyrighted and other forms of proprietary material; for differentiating those circumstances from exempt uses; and for negotiating and enforcing licensing arrangements for commercial databases and other proprietary information products. NC State's library pays nearly $1 million per year for electronic database licenses. In addition, universities maintain robust access to invaluable public domain material. However, the proposed legislation is likely to move considerable amounts of public domain material into proprietary packaging and superimpose a new proprietary regime on existing and well-understood forms of intellectual property management. It appears that H.R. 2652 would allow data collected by our own researchers to be packaged and exclusively sold by commercial interests in ways that could severely limit the original researchers' access to the products of their and their colleagues' work. Moreover, the proprietary control granted by H.R. 2652 has no time limit.
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2. Narrowness of educational, scientific, and research exemption

    We very much appreciate the effort in H.R. 2652 to exempt not-for-profit educational, scientific, and research uses of protected information. However, the constraint that such use ''not harm the actual or potential market for the product or service'' effectively narrows this exemption to uses permitted to anyone under 1202 (a). Universities are not asking for a right to intrude into legitimate markets with impunity. But the proposed language appears to permit any claim of any degree of harm to any actual or putative potential market to nullify the exemption provided.

    In contrast, the fair use defense of copyright law calls for weighing the benefits of exempt use against market impacts and other considerations. In any legislation that moves forward, we would encourage you to broaden the educational, scientific, and research exemption and include specific acknowledgement of the need to assess the relative costs and benefits of any contested information use.

3. Impeding new opportunities for research and education

    I cannot state too strongly my concern with the potential of H.R. 2652 to interfere with the operation of current research and education programs and to stifle university development of expanded and enriched programs and applications in the networked environment. At North Carolina State University, our faculty work with countless data sources, some from commercial database providers with whom we negotiate contracts, some from information collections developed by collaborating scholars exerting no proprietary control, others from freely available public domain data, still others from copyrighted material used with permission or under exempt uses. Scientific and scholarly databases are constantly being created, updated, aggregated, and segregated to incorporate new information, accommodate new knowledge and understanding, test new hypotheses, and support new educational uses. These information packages are not ends in themselves but dynamic means to the ends of developing and disseminating new knowledge. Let me cite a few examples drawn from my own institution, other universities, and the scientific community:
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 Mapping the genomes of living organisms has become possible with breakthroughs in recombinant DNA and other biotechnology methodologies. Already the complete DNA sequence of yeast is known, and the determination of the entire human genome is progressing rapidly. Such information provides powerful insights into fundamental understandings of life. The information also has critical applications in the pharmaceutical, agrochemicals, medical diagnostic, food, and biotechnology industries. The DNA databases that make these advances in knowledge and applications possible are the result of international collaborations based on a tradition of free exchange of information. Molecular biologists and other researchers from many nations contribute to and draw from these databases, continually expanding our understanding of the structure of the building blocks of life.

  A powerful example from NC State is the Pine Gene Discovery Project, funded by the Department of Energy and the forest products industry. Our faculty are developing a large database of gene sequences for the loblolly pine—a database that is shared with researchers throughout the world. This shared database is in keeping with the scientific tradition, and with the philosophical position of scientists generally, that the free exchange of factual information is the best way to stimulate the development of new knowledge. Ultimately, the knowledge generated from the Pine Gene Discovery Project database will be used to improve the productivity and disease resistance of this important North Carolina resource.

 Another valuable resource at NC State is Trends '93: A Compendium of Data on Global Change, a publication of The International Council of Scientific Unions (ICSU). The council compiled data from 139 individuals in 13 countries on climate, atmospheric gas concentrations, the consumption of fossil fuels and other aspects of carbon use. Several years were required to identify, obtain, and synthesize the data, most of which were originally collected using public funds. The public worldwide has benefited from the information, which has been requested by over 13,000 individuals, libraries, and agencies, and cited approximately 80 times in the scientific literature. Our library has purchased four copies of this publication, which is in great demand.
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 Last year, NC State initiated Project 25, the development of 25 online undergraduate courses, many of which depended on electronic databases. Among these was ''Introduction to Geographic Information Systems,'' which teaches students effective use of computer technology and geographic information to facilitate analysis and decision-making. Databases used in the course include census information, vegetation zone data, and water quality data, much of which is currently available in the public domain.

 Another example would be NC State and UNC–Chapel Hill are participating in a consortium of universities to create an archive of the contemporary American South. Faculty, researchers, and students are creating a database from both published and unpublished sources as well as from government data. This database presents a variety of data, from newspaper articles to census data, that can be integrated and used by sociologists, historians, anthropologists, economists, and political scientists. Users of the database come from a variety of academic disciplines, and use is multi-institutional.

    Many universities across America are developing new databases for use in education, research, and public service:

 At one multicampus university, a graduate course in comparative politics is being taught on two campuses simultaneously, using a shared Web page. The professor and his graduate assistants keyed in data from printed reports on 40 individual countries, creating a database of comparable categories and identical formats. These data were posted on the course Web site, and the students learn methodological techniques by extracting and analyzing data from it. For students, participation in such mixing of data from various sources to support comparative analysis is a powerful lesson in the fundamentals of critical inquiry.
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 At another campus, faculty members have combined images and text data that they have created to build online databases of parasites, and these databases are available to the faculty and students on all campuses in the university system. The databases are also accessible by agricultural researchers, farmers, and gardeners dealing with crop and garden pests. All users are encouraged to contribute additional information and comment on ease of use of the databases. This collaborative model of database creation and use in teaching, research, and public service has been developed primarily through research grants and university payment of faculty salaries, but it has also been improved and expanded by ongoing contributions and suggestions from users.

    Each one of these examples of the collaborative development and use of information would be seriously impeded or precluded by overly restrictive proprietary controls over the uses of information. Clearly, the provision of economic incentives for the creation of information is an important component in the array of policies designed to expand knowledge and its benefits to society. But we are extremely concerned that the impact of the proposed legislation would extend far beyond the provision of economic incentives to create new information products, resulting in a loss of access to primary data—to facts not currently subject to proprietary control. If the economics of information put primary data and its use out of the reach of students, scientists, and scholars, society will pay a heavy price.

4. Increased university liability

    As a university teacher and researcher, I am excited by the prospect of new forms of teaching and learning, and new possibilities for research and research collaboration in the networked environment. But as a university administrator, I am chilled by the prospect of increased liability brought about by a new mode of proprietary control of information and the uncertainty about the nature and extent of its application to our university programs. I fear that, in the face of such uncertainty, universities will simply not undertake many of the promising new initiatives made possible by the networked environment and digital communication.
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    Let me conclude by stating our preference that you not proceed with this legislation at this time. We believe that costs to university research and education programs will be far greater than any benefits that would result from the legislation. However, if you do elect to continue consideration of this legislation, we urge you to proceed, as you have to date, with due deliberation and careful attention to all aspects of the question of new forms of intellectual property management. The information landscape is changing rapidly. As universities, we are interested in the production and management of information as well as its use; as the digital environment continues its rapid development, many of our institutions will no doubt develop information products which they will want to market as proprietary products. Nonetheless, from our perspective we do not yet see a compelling need for new legislation, and we are concerned that enacting legislation at this point could produce costs to society that far outweigh any benefits.

    I do not presume to pronounce for all sectors of the information world; indeed, as I said at the outset, I am not a legal or information expert. But as a university official, I ask that if you do decide to proceed with legislation, you craft that legislation to accommodate fully the exciting new opportunities for research and education offered by the digital environment.

    Mr. COBLE. Thank you, Dr. Stewart. Mr. Hammack.

STATEMENT OF WILLIAM HAMMACK, PRESIDENT, THE SUNSHINE PAGES

    Mr. HAMMACK. Thank you very much. Mr. Chairman, members of the committee, I certainly appreciate the opportunity to be here today. I am speaking on behalf of the Association of Directory Publishers, ADP. We are a century old international trade association with over 180 members who publish independent telephone directories. Independent telephone directories are those that are not associated with the provider of telephone service or the telephone companies.
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    Our members provide consumers with directories that include white and yellow page listings, plus community information. Consumers have benefited greatly from our products, from the competition, and innovation that we have brought to this industry. We introduced things such as the first community sections and enhancements to the products such as zip code listings in the white pages. These innovations were subsequently adopted by our competitive utility publishers and are now the standards of the industry.

    As telephone directory publishers, we need complete and up to date subscriber list information—the name and address and phone numbers—to produce our products. The phone companies are the only source that we can turn to for this information. They generate subscriber list information as a function of providing local telephone service. Currently, the directory publishing affiliates of the phone companies control 93 percent of the directory market.

    Many phone companies have long used their control over subscriber list information to restrict our competitive access to this essential data. Anti-competitive practices have included unreasonable prices, refusal to sell updates, and even outright refusal to sell listings at any price or on any terms.

    Two years ago, as part of the historic Telecommunications Act, Congress established a policy to guarantee fair play in the telephone directory business. Congress directed the phone companies to provide their subscriber list information to independent publishers under the terms ''nondiscriminatory and reasonable rates, terms, and conditions.''

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    I would like to commend you, Chairman Coble, for your effort to arrive at balance in this legislation that you are proposing today. ADP is especially grateful for the inclusion of a provision that ensures the preservation of our rights under the new Telecommunications Act.

    We believe that this provision, with some key modifications, can ensure that the independent publishers continue to access the phone companies' subscriber lists that was guaranteed to us by the Telecommunications Act and the Supreme Court in Feist.

    When Congress established the Federal policy guaranteeing fair competition in the directory business, it was building upon independent publishers' preexisting ability to access published listings under the 1991 Feist case. Tom Feist, an independent directory publisher and a member of our association, was left with no choice when a phone company refused to license its listings to him.

    Tom was forced to use the white page listings in the phone company's directory in order to produce a complete and accurate phonebook. As you know, the Supreme Court found that he had not violated the copyright law, since simply alphabetizing lists that the phone company had to obtain anyway did not justify copyright protection.

    However, we are concerned such use of white page listings by independent directory publishers could constitute a prohibited misappropriation under H.R. 2652. Despite passage of Section 222[e] in the Telecommunications Act, anti-competitive processes continue and practices continue.

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    Even now, some of the phone companies are refusing to provide our members with updated listings. They are charging us different prices for the same information depending on how we intend to use them, and in some cases they are still refusing to provide listings at all. These are just the kinds of abuses that Congress sought to end when they passed the Telecommunications Act.

    When independent publishers are unable to conclude a licensing agreement with a phone company for its subscriber listings, we need the last resort option of doing what Tom Feist did—use the listings out of the telephone company's book. The ability of directory publishers to turn to these listings as a last resort also constrains, as a practical matter the prices that telephone companies can charge for their listings under the Telecom Act.

    In keeping with the competition policy Congress established in 1996, we need to preserve the access to listings we now have under both the Telecommunications Act and under the Feist case. We would like to work with the subcommittee to achieve this goal as you craft this legislation, and we believe this can easily be accomplished consistent with the goal of protecting appropriate databases from misappropriation. Thank you very much.

    [The prepared statement of Mr. Hammack follows:]

PREPARED STATEMENT OF WILLIAM HAMMACK, PRESIDENT, THE SUNSHINE PAGES

SUMMARY

 The Association of Directory Publishers (ADP) consists of over 180 independent publishers who publish telephone directories in reliance on complete and up-to-date subscriber list information, which local phone companies must gather to operate their core telephone business. The phone companies' directory publishing arms control 93% of the market, and they have long used their control over subscriber list information to restrict our access to this essential data.
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 ADP commends Chairman Coble for including in his bill Sec. 1205(d), which references a subscriber list provision in the 1996 Telecommunications Act. With some key modifications, this provision can ensure directory publishers continue to have the access to published listings guaranteed to them by both the Supreme Court in Feist and the Telecommunications Act.

 In the 1996 Telecommunications Act, Congress established a clear federal guarantee of competition in the telephone directory business by requiring phone companies to provide subscriber list information to independent publishers under reasonable terms and conditions. Congress built on independent publishers' pre-existing ability to copy listings, as authorized under the 1991 Feist case. That decision upheld the right of an ADP member to access published listings for his area-wide directory after one of 11 phone companies refused to license the information to him.

 ADP members continue to rely on access to published listings under Feist because the abuses Congress sought to end in 1996 continue unabated today—excessive charges for listings, refusals to provide updates, and other unreasonable conditions. When independent publishers can't get the subscriber listings licensed to them, they are left with no alternative but to use published listings, as permitted under Feist.

 As H.R. 2652 is presently drafted, ADP members are concerned their ''last resort'' use of white pages information would be deemed a misappropriation because a phone company could argue that any use of this information could adversely affect its own directory business, or other potential markets it may enter using that information.

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 ADP members' goal is to maintain the access to listings they have today, and they feel it is possible to craft narrowly-tailored language that will avoid unintended harm to independent publishers that is consistent with federal policies promoting competition in the telephone directory marketplace.

STATEMENT

    Mr. Chairman and members of the subcommittee, thank you for inviting me to testify on H.R. 2652, the ''Collections of Information Antipiracy Act.'' I am speaking here today on behalf of the Association of Directory Publishers (ADP), a century-old international trade association of over 180 independent telephone directory publishers who employ thousands of workers throughout the country. We provide consumers with telephone directories that include white and yellow pages listings, plus community information. Our products are indispensable links in the communications network that binds our communities together.

    My company, The SunShine Pages, publishes 1.5 million directories that are delivered free to 130 cities and towns in Louisiana, Florida, Mississippi and Tennessee. We generate our revenues by selling advertising, which puts us in direct competition with local telephone companies, who also publish telephone directory advertising.

    Consumers have benefited greatly from the competition that ADP's members have brought to the directory industry. Many of the innovations we have introduced are now standard in directories today. Independent publishers were the first to introduce coupons and maps to directory products. We 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, we were the first publishers to add zip codes to the white page listings, again expanding the usefulness of our products. These enhancements were quickly copied by phone company publishers, thus making all phone books more useful to consumers and businesses.
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    As directory publishers, we need complete and up-to-date subscriber list information to produce our products. Local phone companies must gather this information as part of providing local phone service. They therefore have sole access to such information and monopoly control over it.

    The local phone companies' directory publishing arms currently control 93% of the directory market, and the telephone companies have long used their control over subscriber list information to restrict our competitive access to this essential data. Their anti-competitive practices include unreasonable prices, refusal to sell updates, and even outright refusal to sell listings at any price or on any terms.

    I want to commend you, Mr. Chairman, for your effort to arrive at balanced legislation through careful examination of the implications of database protection legislation on the wide range of database information, and particularly for examining special circumstances surrounding some databases. ADP is especially grateful to you for including in your bill Section 1205(d), to ensure the preservation of the competition policy set forth in the 1996 Telecommunications Act regarding independent directory publishers' access to subscriber listing information. Section 1205(d) provides that ''[n]othing in this chapter shall affect the operation of section 222(e) of the Communications Act.'' We believe that this provision, with some key modifications, can ensure that directory publishers continue to have access to listings as authorized by both the Supreme Court in Feist and the Telecommunications Act. We look forward to working with you to achieve this goal.

    In 1996, as part of the historic Telecommunications Act and in response to years of anticompetitive behavior by phone companies, Congress established a clear federal guarantee of competition in the telephone directory business. In the new Section 222(e), Congress enunciated in plain terms our right to access subscriber list information under reasonable rates, terms and conditions. Sections 222(e) and 222(f)(3) of the Communications Act provide:
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  Subscriber List Information.—Notwithstanding subsections (b), (c), and (d), a telecommunications carrier that provides telephone exchange service shall provide subscriber list information gathered in its capacity as a provider of such service on a timely and unbundled basis, under nondiscriminatory and reasonable rates, terms, and conditions, to any person upon request for the purpose of publishing directories in any format. [47 U.S.C. 222(e)]

  Subscriber List Information.—The term 'subscriber list information' means any information—

(A)  identifying the listed names of subscribers of a carrier and such subscribers' telephone numbers, addresses, or primary advertising classifications (as such classifications are assigned at the time of the establishment of such service), or any combination of such listed names, numbers, addresses, or classifications; and

(B)  that the carrier or an affiliate has published, caused to be published, or accepted for publication in any directory format. [47 U.S.C. 222(f)(3)]

    The legislative history on this provision clearly documents the abuses ADP members suffered over the past decade. Some examples include: local exchange carriers charging excessive and discriminatory prices, requiring us to purchase listings on a bundled statewide basis when we only needed one community, and, in some cases, outright refusals to sell listings or updates. Sec. 222(e) was enacted to prevent telephone companies from exercising their de facto monopoly over essential factual information—which arises entirely as a byproduct of their provision of regulated local telephone exchange service—to restrict or prevent competition in the unregulated and potentially competitive directory advertising business. See, e.g., House Rept. 104–204, Part 1, pp. 89–90; 142 Cong. Rec. E184 (daily ed. Feb. 6, 1996)(statement of Rep. Paxon); 142 Cong. Rec. H1160 (daily ed. Feb. 1, 1996)(statement of Rep. Barton).
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    In enacting this provision in 1996, Congress intended to build on our pre-existing ability to copy published listings, as authorized under the 1991 Feist case. The statute was meant to promote reasonable licensing agreements, not revoke the ability of independent publishers to copy listings in cases where licensing agreements are not concluded.

    The Feist case is named for Tom Feist, who is an ADP member. Tom was left with no choice but to copy listings in order to provide consumers a convenient, one-book directory covering eleven different service areas, because one of the telcos refused to license its listings to him. As you know, the Supreme Court ruled in Tom's favor, concluding that ''[f]acts, whether alone or as part of a compilation, are not original and therefore may not be copyrighted.'' (Feist Publications v. Rural Telephone Service Co., 499 U.S. 340, 350 (1991)) Nor could the phone company secure a copyright in its compilation of these facts, because the coordination and arrangement of telephone listings in alphabetical order is ''not only unoriginal, it is practically inevitable.'' (Id. at 363) Moreover, the Court noted that the phone company's selection of listings lacked the requisite originality because the state required the company to publish the names and numbers of its subscribers as a condition of its monopoly franchise. (Id.)

    As currently drafted, H.R. 2652, even with the provision recognizing Sec. 222(e) of the Communications Act, could foreclose our ability to access listings under Feist, and thus unintentionally push back the advancement of competition in the directory business.

    H.R. 2652 prohibits extraction or use of information so as to harm another person's ''actual or potential market for a product or service.'' The standard of ''harm'' to an ''actual or potential market'' is sufficiently broad to allow a phone company to argue that any use of white pages information could adversely affect its own directory business, or other potential markets it may enter using that information. We are thus concerned that H.R. 2652, as presently drafted, would terminate our access to listings by deeming use of white page listings a misappropriation.
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    The need of independent publishers to continue to rely on the ability to access listings—as affirmed by the Supreme Court in Feist—is best demonstrated by the fact that the abuses Congress sought to end in enacting Section 222(e) continue unabated today. When we cannot work out a reasonable licensing arrangement with the phone companies, we are left with no alternative but to exercise the ''last resort'' option of doing what Tom Feist did, copy listings out of the phone company's book.

    ADP believes that many local phone companies are violating Section 222(e). Actual examples of such illegal conduct include:

 Phone companies continue to earn profits only a monopolist can get away with. While one local phone company has testified that it earns a 1,300% profit when selling its listings for 4/listing, other local phone companies presumably garner even more outrageous profit margins because they sell listings for far more—40, 50, 60, 75 cents, even as much as $1.67 per listing!

 We're also seeing local phone companies charge different prices for the exact same listing depending on how the publisher intends to use the directory. For instance, some local phone companies triple their price if the listing will be used in more than one printed directory and charge still more if the listing will be used in a CD–ROM directory.

 Several local phone companies simply won't provide updates to ADP members—these are new connects, disconnects and changes of address. Other local phone companies do provide updates, but impose unreasonable prices and restrictions.
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    We are fearful that even more egregious abuses would occur without Feist. The prices telephone companies charge independent publishers to license listings now are constrained, as a practical matter, primarily by the right of independent publishers to copy white pages listings. If that right is removed and copying is now deemed a misappropriation, particularly in the absence of an FCC rulemaking establishing what constitutes a reasonable price, then Congress' goal of ensuring reasonable pricing under Section 222(e) of the Communications Act will be seriously undermined.

    The Copyright Office has recognized the special circumstances relating to phone listings in its August 1997 Report on Legal Protection for Databases. In cases involving sole source data, of which telephone subscriber information is a ''prototypical example,'' the Copyright Office observes, ''[u]nless the producer chooses to make such data freely available, it is simply not possible for anyone else to obtain it independently.'' (Copyright Office Report, 1997, p. 102)

    Dr. Laura D'Andrea Tyson similarly has noted the special circumstances relating to telephone listings in her study, Statutory Protection for Databases: Economic & Public Policy Issues. She observes, ''the factual situations of the Feist case [i.e., telephone listings] are in reality much closer to the kinds of concerns addressed in the antitrust law under the rubric of so-called 'essential facilities' than they are to the kinds of concerns raised by a typical 'database piracy' case.'' She concludes, ''[w]hen data is generated by a government-created monopolist, it is not appropriate to allow the monopolist to control database products building on that data.'' (Tyson and Sherry, 1997, pp. 24–25)

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    Our goal is to maintain the access to listings as guaranteed under Section 222(e) and the Feist decision. We believe it is possible to craft narrowly-tailored language that will avoid unintended harm to our independent publishers and is consistent with federal policies promoting competition in the telephone directory marketplace. On behalf of all independent publishers, I want to thank you for listening to our concerns.

    Mr. COBLE. Thank you, Mr. Hammack. Folks, we are bound by the red light too so if you all can keep your responses tersely, Mr. Frank and I will appreciate it. Dr. Stewart, regarding researchers, scientists, and librarians at your university, what legitimate uses of databases are they making today that enactment of this bill would preclude their making?

    Ms. STEWART. Let me tell you first, Congressman, that these are concerns that we have. The Pine Gene Discovery Project is an example that I would like to talk a little bit about. This is a project, as I said, that was funded by the Department of Energy and the forest products industry and is centered in our College of Forest Resources.

    The faculty here are developing large databases of gene sequences of the loblolly pine, a database that is shared with researchers throughout the world and contributed to by researchers throughout the world. The shared database, of course, is in the scientific tradition.

    The philosophical position of scientists generally supports the free exchange of ideas, and this information is currently being used for research, for teaching, and ultimately will be used as part of our extension program in North Carolina, in the Southeast, and around the world. The fear is that this information currently in the public domain is packaged and repackaged in a variety of ways for the user purpose; sometimes for instruction, sometimes for extension, sometimes for research.
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    It is available to anybody. One could extract from this database, then assert proprietary control over it. The university then would be in a position of having to, as we understand it, justify that the particular formulation that we are using, was not an inappropriate use of proprietary material, even though it may be exactly the same formulation as someone constructed after extracting data from our database.

    Mr. COBLE. I want to go to these other folks too, Dr. Stewart, so I may have to cut you off.

    Ms. STEWART. Okay.

    Mr. COBLE. You say it is a fear. Not unlike many fears, that fear may well be unfounded.

    Ms. STEWART. Yes.

    Mr. COBLE. We can plow that field later, but I am not convinced that it would preclude your people from doing what they are doing now. And I don't think you are firmly convinced of that.

    Ms. STEWART. Well, what we are firmly convinced of is that if we get into a situation where we have to litigate our activity, it will have a chilling effect on research and instruction.

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    Mr. COBLE. All right. Let me go to Mr. Aber. Some have charged, and I am sure you are familiar with this, that you are attempting to ''lock up facts'' with this legislation, and, therefore, that is why you support it. Let us hear from you about that.

    Mr. ABER. Mr. Chairman, nothing could be farther from the truth. I mean, the entire direction, the entire emphasis of the industry is exactly the opposite. The foundation certainly of securities law is disclosure, and the hallmark really of the industry today is transparency, and by transparency, it is ready availability of information, anybody being able to see exactly what transactions are going on.

    All of the market centers involved in the industry today are making information freely available. They make it available either to professionals at a certain paid level or to nonprofessionals very, very inexpensively. Literally, you can buy Nasdaq data today—real time continuous data for as little as $4 a month—you, I, anyone—or you could take it for a penny a quote through various means, or you could call up the Washington Post and ask for post-haste and get a particular stock quote for free. It is 15 minutes delayed, or you can pull up our website.

    Any of the brokers will provide it to you absolutely free, either by calling them up or if you have some kind of wired connection into them through a computer terminal being able to get that information. So, no, it is exactly the opposite.

    Probably the most important thing for the securities industry is to get more information out there. More information provides more interest and more capability on the part of investors to invest, and that is what we are trying to meet today. So absolutely not.
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    Mr. COBLE. Well, what do you see as the consequences for the financial markets nationally and internationally if we do not proceed with this legislation?

    Mr. ABER. Well, I think the primary thing for the financial markets is that we are going to continue to be able to use only the tools that we have today to protect our datastreams and to protect our revenue sources. And what I inevitably see is I see that in conflict with the interests of various participants in this industry and investors generally.

    We need to make information more readily available, more flexibly available. Technology is expanding. There are additional sources for distribution of this information which are difficult to utilize right now because of the lack of protection that we have.

    Database protection will provide us the capability to go in and prevent somebody through injunctive relief or whatever from stealing information and making it available in competition with the marketplaces, with the various vendors that are out there offering this data.

    And that is the problem with contracts. If you don't have privity, how are you going to get to them? You have got to go down the route of misappropriation law, and your bill is providing a national misappropriation law, if you really think of it. And national markets need a national misappropriation law, as international markets need an international form of protection of this type, Mr. Chairman.
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    Mr. COBLE. Thank you, sir. Mr. Frank.

    Mr. FRANK. Thank you, Mr. Chairman. First, let me put into the record if I could get unanimous consent the statement of the ranking member of the full committee, Mr. Conyers, in which he commends you for taking the lead in organizing these hearings.

    Mr. COBLE. Without objection, it will be accepted.

    [The prepared statement of Mr. Conyers follows:]

PREPARED STATEMENT OF JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

    I want to commend Mr. Coble for his active agenda in considering the tricky dynamic between copyright and trademark law and the internet in yet three more important areas today.

    When the Supreme Court limited copyright protections for data base compilations such as telephone-book-directories in Feist, many believed that the law would no longer protect the ''sweat-of-the-brow''—major investments of time to develop useful data bases for the public which are then vulnerable to cyber-piracy by commercial competitors. So today, the question is how do we use other theories, such as misappropriation, to protect legitimate investments in data base compilations without further diminishing the ever-shrinking public domain.

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    A similar thorniness characterizes the intersection of law and technology with respect to domain names—those precious internet name identities that guide internet users to products and services on the internet. What is the proper public vs. private role in selecting and maintaining these domain names? That's a critical question as we foster the growth of commerce on the internet.

    Finally, as businesses invest millions into so-called ''trade dress'', this Committee has to make some judgement as to at what point, if any, does such ''trade dress'' amount to the type of creative authorship worthy of protection. So I thank the Chairman for his foresight in holding hearings on these cutting edge intellectual property issues.

    Mr. FRANK. Dr. Stewart, I am puzzled by your example, and I understand that you are not a lawyer, and I am not looking for a legal response. I am merely looking for a substantive response, I think as was the Chairman. What we are interested in is what are the specific examples of things that the law would interfere with that it shouldn't and then we will write the language around it.

    But I was puzzled by your example. As I understood it, you were saying that here is this project which was compiled by the university. The data was compiled by the university, and you are afraid that the university having compiled this data, someone else would draw on it, and because the other person had drawn on it, that would interfere with the university's ability to use the data? I am skeptical of that in the extreme.

    Ms. STEWART. I am sorry I wasn't very clear in explaining our concern. As we read the legislation, it says—and this is how the data——
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    Mr. FRANK. Which part?

    Ms. STEWART. The 1201, prohibition against misappropriation, ''Any person who extracts or uses in commerce all or a substantial part of a collection of information gathered or organized, . . . maintained.'' Now, in the first case, the university researchers construct this database, and, in fact, maintained the database and from that database will create other databases for very special purposes—research or instruction.

    Mr. FRANK. University people will?

    Ms. STEWART. University people will. But because it is in the public domain, anybody can extract from this database and construct a product, a product that would be useful, for example, in advising farmers.

    Mr. FRANK. A database product?

    Ms. STEWART. A database product. Now, that could happen to be the same, in a sense, product, the same organization of the data in a new database that we construct regularly as part of our extension program, as part of our teaching program. We then are in a situation where that new database has been constructed out of our primary data——

    Mr. FRANK. And you think that that would then preempt—in other words, your view is people take your data and they make a particular use of it, and you believe that the law would somehow then prevent you from using your original data?
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    Ms. STEWART. Well, it would——

    Mr. FRANK. I agree that is wrong. I don't think the bill does that, but I would be glad to put in a couple lines saying you can't have that happen.

    Ms. STEWART. Okay. Sir, could I say that would be one concern, of course——

    Mr. FRANK. Well, what are you concerned about?

    Ms. STEWART [continuing]. But a more serious concern would be even if we—that person could then bring action against us——

    Mr. FRANK. For using your own data?

    Ms. STEWART [continuing]. For using our data in exactly the same form that he or she had constructed.

    Mr. FRANK. But I understand that. Now, that is exactly what I said. You are afraid that you compile the data, somebody uses your data——

    Ms. STEWART. Right.

    Mr. FRANK [continuing]. And by using your data, preempts you from using your data in some way. Correct?
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    Ms. STEWART. Creates a situation where we would have to demonstrate in Court that it was ours originally and that the particular form in which it is constructed was our original construction.

    Mr. FRANK. Well, if they took it from you, that shouldn't be hard to prove that you had the original compilation. I must say I think what happened is some of the really smart people around said—I would like to be honest with you here—I think what we have are very well-intentioned people, and we come into this in the World Intellectual Property Organization Treaties and elsewhere.

    We have very well-intentioned people, especially in the academic community and in libraries, who are afraid that very useful information that ought to be shared will be priced out of the market because in this society, unfortunately, we don't give you enough resources. I wish we gave you more, but I think we underfund libraries, and we underfund some of the research efforts.

    And you are afraid that you will be confronted with too high a price, and you would like the law to prevent that from happening so that people can't price you out of using the data. I am sympathetic that I am going to examine that.

    What happens though is I think people are reluctant to simply come out and say that. So they get some very smart people to look for horrible stories that they can concoct, and I think to be honest, and I realize you are presenting what people told you, I think they got the best lawyers the university could find and they said, ''Read this bill and come up with the worst possible sounding abuse,'' which really nobody thinks is going to happen, and which I would go a step further. I would be prepared to write some language that says it can happen.
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    I think one of the things that we should be doing in legislation is we will take all the fears people have and assuage the fears. We will say if, in fact—we will put it in legal language—if, in fact, you compile the data, someone who has drawn on your data cannot use his or her effort to preempt you from using your data in any reasonable way. We could do that easily.

    My guess is that won't really alleviate the problems. I don't think that is the real problem, and I think what we need to do, and I urge people in the academic and library communities—I just had a meeting with some of them—come forward. I think the fear is that people are going to go do this research, and they are going to charge you too much, and you are going to get priced out of the market. And especially what is happening is, if I could have another——

    Mr. COBLE. Sure.

    Mr. FRANK [continuing]. Two minutes, Mr. Chairman, because I am just convinced of this—what is happening is this. With technology, technology does two things. It allows proprietary people to create wondrous new kinds of data that we could not have compiled before, but also it could be very expensive, and they can price it too high. And, therefore, what we are looking for is some form of what we would call a compulsory license.

    And I think we would be much better off if you will let us address that one directly—what are the rules that we ought to make—because to be honest with you, I don't think there is any serious likelihood of the situation you mentioned. But even if there was, I think we could legislate against it. So that is what I would urge people in the academic and library communities to come forward with. And I think if we have the concern more straightforwardly laid out, we could deal with it better. Thank you for your indulgence, Mr. Chairman.
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    Mr. COBLE. Oh, you bet, Barney. I said that it was my belief, Dr. Stewart, that your fears may well be unfounded. I think Mr. Frank said it a little more eloquently than I did, but, folks, we are not trying to make life difficult for you all. Mr. Aber I think hit it on the head. We are trying to open the lines of communication. That is why we are here to listen to you all and hearing from you. The gentleman from Utah.

    Mr. CANNON. Thank you, Mr. Chairman. I apologize for being in and out and don't want to bore people here with repeats. I just want to ask one question, Mr. Hammack. You have had some experience with the Bell operating companies especially since the passage of the Telecommunications Act. Could you tell us a little bit about your experience with the Bell companies and how that has worked for you and then how that relates to what you need?

    Mr. HAMMACK. Certainly. Certainly, the Congress's intent with Section 222[e] of the Telecommunications Act was to prevent the regional Bell operating companies and other phone companies from doing bad things. Unfortunately, they still do bad things, and those abuses are, as I outlined in my earlier comments, things like refusal to provide listings, and exorbitant pricing for subscriber listing information.

    I happen to be purchasing listings from a telecommunications company that claims that their 1,300 percent profit margin is a reasonable return. 1,300 percent is relatively inexpensive compared to the other prices that are out there for listings. For instance, that is at four cents a listing, there is a 1,300 percent profit margin. If you look at some of the other phone companies across the country, they charge 35 cents, 50 cents, 95 cents, and in one case $1.67 a listing for subscriber list information that literally costs less than a penny to compile.
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    That is what we are really concerned about here, and we think this is very important legislation, and we appreciate the efforts of the Chairman and the committee to carefully look at all of the issues that could be impacted. But our particular needs are very narrow as far as subscriber list information is concerned.

    The U.S. Copyright Office has identified telephone listings as a prototypical example of sole source data. Our concern is that the misappropriation construction in this bill could possibly allow the phone companies to use that argument against us and prevent us from using the listings that are in the existing published directories that they produce. That is why we absolutely need to preserve the last resort option of copying those listings that we got through Feist.

    Mr. CANNON. If you copy them, I take it what you do is you take the white pages, and then you have a data entry person do the data entry manually. What does that cost you per entry?

    Mr. HAMMACK. About seven cents a listing.

    Mr. CANNON. So it costs the phone company only a penny because they have it through other sources——

    Mr. HAMMACK. Well, the phone company compiles that data, not for the purpose of publishing telephone directories, but they compile it for the purpose of being a phone company. Literally, the cost for them to provide that listing for us is the cost of pushing a button on a computer and providing us a list of those subscribers that are part of their business—of their monopolistic regulated business of being a phone company.
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    Mr. CANNON. They have a cost of creating the database and designing it, but after they have got that set, the data goes automatically, and their cost of giving it to you is not a penny, it is something much less than a penny?

    Mr. HAMMACK. Yes. Three mils is the testimony that we have received their cost of providing that information to independent publishers would be. It is testimony that we have received in various Court proceedings.

    Mr. CANNON. And I think you said some group is providing it at four cents a listing, and I am not sure—I didn't quite catch the others. Did you say 13 cents and 35 cents?

    Mr. HAMMACK. The prices are all over the landscape. Different phone companies charge different prices, and it is very common for prices to be 35 cents. Cincinnati Bell just recently announced a 95-cent-a-listing price, and it is my strong belief that is clearly an attempt to prevent competition in their marketplace, and it is a barrier that they are using to restrict competition, which is completely the opposite of what Congress intended.

    Mr. CANNON. But if you can do the data entry as an alternative, then your benchmark is seven cents, and so your cost would be something less than seven cents ultimately. Right?

    Mr. HAMMACK. Well, obviously, the reason for us to want to be able to use the published data of the existing directory is that if there is—a price barrier is so high or there is an outright refusal to provide the information, we have to have a way to get it because we cannot be in business without it.
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    Mr. CANNON. Thank you, Mr. Chairman. I yield back.

    Mr. COBLE. I thank the gentleman from Utah. The gentleman from Virginia.

    Mr. GOODLATTE. I have no questions, Mr. Chairman.

    Mr. COBLE. Folks, as evidenced by the standing-room-only crowd, there is more than mere passing interest in this subject. And with that in mind, I am going to go a second round, and I will be glad to permit the other members of the subcommittee to do the same thing if you want to.

    Mr. Hammack, I was going to get into the waters that Mr. Cannon was charting, but I think you answered that adequately. Dr. Corlin, let me put this question to you. What role do you see this legislation having in protecting the accuracy and integrity of the collections of information produced by the AMA?

    Dr. CORLIN. We believe it to be absolutely essential. The data that we collect and compile, and it is the compilation that is crucial, is updated on an ongoing and continuous basis. In both of the examples that I used of two of our databases, on the one hand, the data on physicians is absolutely crucial because physicians day-in, day-out change licensure, change certification, change where they practice, and this is necessary for a whole variety of reasons.

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    State licensing boards need to know what physician has lost their license for disciplinary action in another state, as opposed to just letting their license lapse because they left that other state. And it is not enough to say used to have a license in Pennsylvania but no longer does.

    With regard to the CPT code, progress is going on. New procedures are being developed, new technologies are being developed, and we need to have up-to-date coding so that billing and payment and data collection can go on. The comment that I made about fraud and abuse, Mr. Chairman, is not an idle one.

    As an example, there are five levels of office visit billing, level one being the lowest, five being the highest. Most physicians have 80 some odd percent of the bills that they send in level two or level three. And when a third party payer runs their data, if they see that I have 85 percent of my billing at level two and level three, a very rare level one and an occasional level five, and a physician in the next community has 90 percent of his billing as level four and five office visits, that is a key that that practice should be audited because something is going on. And we can't afford to have old or incomplete data.

    Mr. COBLE. Thank you, doctor. Mr. Aber, refresh my memory again as to the correct pronunciation of your surname.

    Mr. ABER. Aber.

    Mr. COBLE. Aber. I think I butchered it earlier.

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    Mr. ABER. It is perfectly all right, Mr. Chairman.

    Mr. COBLE. Mr. Aber, opponents of this bill argue that the misappropriation doctrine as articulated in the NBA case helps negate the need for this new legislation. How would the NBA doctrine help a publisher such as Warren Publishing a small publisher—which does not engage in ''hot news''? How does it help in a noncompetitive situation such as where a cyberprankster copies and disseminates the facts in a database just for the fun of it?

    Mr. ABER. Well, I think actually the answer really lies in the question if you think about it because you have articulated it very well. The real difficulty with the NBA case—it is actually helpful to us in our industry because of the time sensitivity of it, as long as there is some competing business out there. If there is not a competing business out there such as the cyberprankster, you are without protection under that.

    Now, in the case of somebody like Warren, he is completely unprotected. And you will not have the time sensitivity of a lot of these databases which provide all sorts of different historical information—what I would call historical information, as opposed to what we have, which is real time information. So they lose on all counts is the answer.

    Mr. COBLE. Thank you, lady and gentlemen, for your contribution. We appreciate you all being with us. Mr. Cannon or Mr. Goodlatte, any additional questions? All right. You all, we will excuse you, and we will bring forward the second panel.

    The first witness on the second panel will be Professor Jane Ginsberg, who is the Morton L. Janklow Professor of Literary and Artistic Property Law at Columbia University School of Law. She has lectured and written extensively on various aspects of domestic and international intellectual property law. Dr. Ginsberg received her Master's from the University of Chicago, her J.D. from the Harvard Law School, and her Doctor of Law from the University of Paris.
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    Our second witness is Jonathan Band, who is a partner with Morrison & Foerster LLP. Mr. Band's area of practice include intellectual property, administrative litigation, and banking regulation. His work in the intellectual property field has focused on appellate litigation in software copyright cases, and he has lectured and written extensively on various intellectual property matters. Mr. Band received his B.A. from Harvard College and a J.D. from the Yale School of Law.

    Our final witness on this panel is Mr. Tim Casey representing the Information Technology Association of America. He serves as Chairman of the ITAA Intellectual Property Initiative-Intellectual Property Council's Round Table. We have written statements of all the witnesses on this panel, and I ask unanimous consent to submit these statements into the record in their entirety.

    Again, we will remind you all of the ever-present red light as it illuminates. That will be your warning as to your 5 minutes. And, Professor Ginsberg, apparently you folks at the Columbia School of Law have become desperately in need of a speaker because I have been invited to address you people later this spring. I look forward to being up there. And I thank you for the invitation, and why don't we start with you, Professor.

STATEMENT OF JANE C. GINSBURG, COLUMBIA UNIVERSITY SCHOOL OF LAW

    Ms. GINSBURG. Thank you very much, Mr. Chairman. I would be delighted to put in a plug for your speech. Mr. Chairman, thank you for inviting me to testify on H.R. 2652. I believe that this bill strives toward a sensitive accommodation of two important public policies in potential tension.
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    The first is to supply incentives to gather and disseminate collections of information. We are all better off if more people respond to encouragements to invest in locating, assembling, and organizing information into publicly accessible collections.

    The second policy both complements and limits the first. While we want to promote collections, we do not want to do so at the risk or cost of restricting knowledge or curtailing academic inquiry. Thus, any scheme of protection for collections must also incorporate safeguards sufficient to ensure the free flow of the information itself.

    I believe that Section 1201's articulation of the elements of the claim of misappropriation substantially achieves that balance. I also believe that the initial text of H.R. 2652 does reveal some gaps and ambiguities that have given rise to legitimate concerns as to the scope of the misappropriation right.

    The Chairman's opening statement this morning identified many of these areas of concern in the list of amendments that he will be offering. I would like to devote the remainder of my oral remarks to some suggestions for clarifying or modifying certain of the bill's provisions, largely in the areas identified by the Chairman.

    First, regarding the investment of substantial monetary or other resources that qualifies a collection for protection under Section 1201, I believe it is important to ensure that protection extends only to that investment. But if the user must ascertain the nature of the collector's contribution to the information, many users may abstain from extracting the information or will pay for what should be free.
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    It may, therefore, be most appropriate to require collectors to bear the burden of identifying the nature and the date of the contribution that forms the basis of their protection.

    Second, regarding the nature of the harm to an actual or potential market, harm that the collector must demonstrate to make out a prima facie case under Section 1201, it is important to limit the concept of potential market, lest the standard degenerate into any use that the collector could conceivably have licensed.

    Looking to copyright law's fourth fair use factor and its judicial interpretation, the bill might be drafted to limit the definition of potential market to markets that the person claiming protection has current and demonstrable plans to exploit, or that are commonly exploited by producers of similar collections of information.

    Third, regarding sole source government information, the bill denies coverage to collections prepared by the government itself or by its exclusive licensees. Thus, there will be no de jure protected sole source for government information.

    But if the information is no longer available from government sources, then the private collector becomes the de facto sole source. To avoid this result, the bill should either disqualify de facto sole source collections of government information or require the collector to license substantial extracts at reasonable rates.

    Finally, the bill should include a limitation on the duration of the misappropriation right. To remain consistent with the misappropriation framework of the bill, the drafters might add a second time bar to the statute of limitations:
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    A collector must bring an action within 3 years after the cause of action arose, and I would propose in no event more than whatever term you select—15 for the EC or something shorter—no more than 15 years from the first public dissemination of the substantial portion that is extracted or used in commerce without the authority of the collector. I look forward to your questions. Thank you very much.

    [The prepared statement of Ms. Ginsburg follows:]

PREPARED STATEMENT OF JANE C. GINSBURG, COLUMBIA UNIVERSITY SCHOOL OF LAW

SUMMARY

    H.R. 2652 would provide a federal misappropriation claim against the substantial extraction and offering in commerce of material taken from a collection of information, when the collection was the fruit of the investment of substantial monetary or other resources, and when the extraction or use in commerce harms the information collector's actual or potential market for the collection. The right is narrowly stated, and is accompanied by important exceptions and limitations.

    Many persons who care about dissemination of information and the promotion of learning are—appropriately—concerned that a proliferation of new intellectual property rights will impoverish the public domain and will curtail access to knowledge, without a corresponding need for protection on the part of content providers. But this bill would not create a ''new'' intellectual property right. Rather, the bill would largely restore the status quo ante–Feist Pubs., Inc. v. Rural Telephone Serv. Co., 499 U.S. 340 (1991), by reinstating protection for the ''sweat of the brow'' expended by information compilers, that the Supreme Court declared beneath the subject matter of copyright.
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From the inception of our copyright law through to the eve of Feist, information compilations were, by and large, and regardless of originality, not only covered against direct copying, but in the later decisions were to some extent also protected against indirect competitors' rearrangement of their contents. Courts from the beginning have consistently emphasized at the same time that protection for the compilation conferred no rights in the information itself; second-comers were always free to engage in their own gathering of the same information. If justification for coverage of unoriginal compilations under the 1976 Act began to seem anomalous, many courts and commentators nonetheless concluded that protection was too well-entrenched to abandon. That is why the Feist decision provoked such surprise: as the then–Register of Copyrights exclaimed, in Feist, the Supreme Court ''dropped a bomb.''

    How does the scope of protection articulated in H.R. 2652 compare with the old ''sweat copyright''? On the whole, H.R. 2652 establishes a narrowly tailored version of ''sweat rights,'' with an exception for verification of independently-gathered information that is at least as broad (if not broader) than the judge-made version, and with scholarship and news reporting exceptions that courts in compilation copyright cases had not devised. Like the later sweat copyright cases, H.R. 2652 does not limit the scope of protection to copying the totality of the compilation in the form presented by the first compiler, but extends to at least some rearrangements of the copied material. But where some of the sweat copyright decisions reprimanded rearrangement without a showing that the rearranged version competed with or harmed the first compiler, H.R. 2652 requires both that the taking be substantial, and that it ''harm [the compiler's] actual or potential market for a product or service that incorporates that collection of information . . .''
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    H.R. 2652 does not, it should be stressed, create a sub-species of copyright. The rights set forth in proposed section 1201 are rights against misappropriation. Defining the new sweat rights as a misappropriation claim is desirable for at least two reasons. First, it responds more precisely to the nature of the problem of copying from collections of information. Second, given the Supreme Court's frequent reiteration in Feist that originality is ''constitutionally mandated'' for copyright protection, limiting information collectors' rights to misappropriation claims should avoid constitutional conflict.

    H.R. 2652 protects against misappropriation of all or a substantial part of a collection of information that required an ''investment of substantial monetary or other resources.'' At first blush, it would seem that almost any collection containing large amounts of data should easily meet the criteria. But some kinds of ''collections'' of information may not qualify as a ''substantial'' ''investment'' because they were neither expensive nor laborious to gather. Because this bill is intended to restore incentives to invest in information-gathering by reestablishing ''sweat rights,'' it is important to ensure that protection attaches only to the ''sweat'' expended, and not to material ''gathered, organized, or maintained'' without substantial expenditure of labor or money. Similarly, because more and more information is becoming readily accessible and alphabetizable at the click of a mouse, it should become increasingly important to ascertain whether the compiled information truly required a substantial investment to collect, organize or maintain.

    There is no misappropriation unless the extraction harms a ''potential market for a product or service that incorporates that collection of information.'' Looking to the copyright law fair use provision's fourth factor (which this portion of sec. 1201 evokes), one should, as courts interpreting section 107(4) have done, limit the scope of the ''potential market'' for the collection to markets the collector has actual plans to exploit, or which are typically exploited by collectors of that kind of information. Cf. American Geophysical Union v. Texaco, 60 F.3d 913 (2d Cir. 1995) (construing fourth factor potential markets to be limited to ''traditional, reasonable or likely to be developed markets'').
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    The ''permitted acts'' H.R. 2652 sets forth include important limitations favoring educational and research use. In fact, most aspects of the section on permitted acts are implicit in the articulation of the scope of the misappropriation claim; nonetheless their explicit statement should make clear the narrow scope of the proposed sweat right, and should allay concern that the bill will promote monopolization of information. Moreover, it should be clear from both sections 1201 and 1202(a) that the facts themselves are not protected; the bill covers the substantial extraction of the collection.

STATEMENT

    Mr. Chairman, Members of the Subcommittee, my name is Jane C. Ginsburg; I am the Morton L. Janklow Professor of Literary and Artistic Property Law at Columbia University, in New York City, where I teach copyright law, trademark law, and international intellectual property law. I have published several articles on the subject of copyright and sui generis protection of works of information.(see footnote 44) In addition, I serve on a committee of the American Association of Universities [AAU] that is addressing the needs and role of universities and libraries regarding copyright and other issues arising out of electronic publishing and the internet. I stress, however, that my testimony is solely as an individual academic; the views I express do not purport to be those of the AAU.

    Thank you for inviting me to discuss H.R. 2652, the ''Collections of Information Antipiracy Act.'' This bill would provide a federal misappropriation claim against the substantial extraction and offering in commerce of material taken from a collection of information, when the collection was the fruit of the investment of substantial monetary or other resources, and when the extraction or use in commerce harms the information collector's actual or potential market for the collection. The right is narrowly stated, and is accompanied by important exceptions and limitations.
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    Before examining the bill's provisions, I would like to set this proposal in historical context. Many persons who care about dissemination of information and the promotion of learning are—appropriately—concerned that a proliferation of new intellectual property rights will impoverish the public domain and will curtail access to knowledge, without a corresponding need for protection on the part of content providers. But this bill would not create a ''new'' intellectual property right. Rather, the bill would largely restore the status quo ante–Feist(see footnote 45), by reinstating protection for the ''sweat of the brow'' expended by information compilers, that the Supreme Court declared beneath the subject matter of copyright. Restoration of ''sweat'' protection is intended to provide incentives to gather and disseminate information, and would lessen compilers' need to resort to self-help measures such as technological locks on content and contractual restraints on disclosure or copying.

    I will compare the bill's coverage to the scope of protection under pre–Feist ''sweat'' copyright, and then will consider whether the current text strikes an appropriate balance between incentives to content providers to collect and disclose information on the one hand, and public access to and use of compiled information on the other.

I. Protection for Information Compilers' ''Sweat of the Brow'' in Historical Perspective

    Throughout the nineteenth and well into the twentieth centuries, U.S. courts consistently recognized copyright protection for labor-intensive works of information, despite these works' low (if any) quotient of creativity. Hence, courts protected catalogues, telephone books, and similar exhaustive and conventionally-arranged compilations of information. Reference to some nineteenth-century decisions demonstrates just how overt was judicial protection for the labor and money invested in information gathering.
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    For example, in an 1875 decision concerning a compilation of New York State rules of court practice, a federal district court declared:

  The rights and duties of compilers of books which are not original in their character, but are compilations of facts from common and universal sources of information, of which books, directories, maps, guide books, road books, statistical tables and digests are the most familiar examples, are well settled. No compiler of such a book has a monopoly of the subject of which the book treats. Any other person is permitted to enter that department of literature and make a similar book. But, the subsequent investigator must investigate for himself, from the original sources which are open to all. He cannot use the labors of a previous compiler, animo furandi, and save his own time by copying the results of the previous compilor's study, although the same results could have been attained by independent labor. The compiler of a digest, a road book, a directory, or a map can search or survey for himself in the fields which all laborers are permitted to occupy, but cannot adopt as his own the products of another's toil.(see footnote 46)

More succinctly, in an 1876 decision regarding financial news bulletins, a New York State court insisted:

  It would be an atrocious doctrine to hold that dispatches, the result of the diligence and expenditure of one man, could with impunity be pilfered and published by another. . . . The mere fact that a certain class of information is open to all that seek it, is no answer to a claim to a right of property in such information made by a person who, at his own expense and by his own labor, has collected it.(see footnote 47)
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Thus, the first author's copyright could compel a second author to retread the same ground, lest the second-comer gain competitive advantage through reliance on his predecessor's research.(see footnote 48)

    These examples should suffice to indicate the longstanding practice of protecting information, qua information, when a rival engaged in what the courts perceived to be inadequate effort of its own. In effect, courts throughout the nineteenth and into the twentieth centuries readily reprimanded as copyright infringement conduct that came to be known as the broader unfair competition tort ''misappropriation.''(see footnote 49)

    But longstanding judicial acceptance of the existence of copyright protection for laboriously gathered factual material does not mean that courts also conferred substantial scope on the copyright coverage of fact-based works. It is important to distinguish these two factors: the availability of copyright did not automatically entail an expansive protective reach. The statement that informational works were copyrighted does not reveal what U.S. courts would or would not deem an infringement.

    In fact, the scope of coverage was initially rather modest. The first author might forbid the second comer's copying from the first production, but he could not prohibit a second comer from creating a competing work—-if the competitor acquired the same information from primary sources. The copyright proprietor thus might prevent competitors from using the first work to save the time and money of original research, but could claim no rights in the information itself. Others always remained free to do their own fact-gathering. Moreover, the same policies favoring the advancement of knowledge and the rewarding of labor that endowed informational works with copyright exculpated a second comer's reliance on the copyrighted work when he added considerable personal effort to what he copied. Copyright would protect the first author against thieves, but not against those whose investment of their borrowings from the initial source produced a higher net yield.(see footnote 50) Thus, what I might call the ''sweat rights'' of the first compiler did not bar the second compilor who, despite copying from the first compilation, invested ''added sweat value'' to the new endeavor.
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    In the later twentieth-century, copyright controversies concerning informational works revealed rifts both in the conception of copyrightable subject matter, and in the delineation of the scope of protection. With respect to the subject matter of copyright, some courts stressed the originality prerequisite to copyright protection under the 1976 Copyright Act.(see footnote 51) These courts viewed sweat copyright as an historical anomaly.(see footnote 52)

    With respect to the scope of protection, many pre–Feist courts that continued to recognize copyright protection under the 1976 Act for compiled information also extended copyright protection not merely to the information in the particular form presented in plaintiff's work, but to other formats that might be imposed upon the collected data.(see footnote 53) These courts admitted that the primary bases for their rulings were the desire to avoid the economic harm to plaintiffs that would result from a contrary ruling, and the inclination to reprimand the free rider.(see footnote 54) These courts perceived that the concept of economic harm reached beyond direct competition, for new technologies so facilitated not only copying but preparation of derivative works, that a scope of copyright protection for informational works limited to plaintiff's initial format would afford little meaningful protection. Underlying these decisions was the concern to preserve copyright as an effective incentive to prepare these kinds of informational works.

    On the eve of Feist, then, information compilations were, by and large, not only covered against direct copying, but to some extent, were also protected against indirect competitors' rearrangement of their contents. If justification for this coverage under the 1976 Act began to seem anomalous, nonetheless, many courts and commentators nonetheless concluded that protection was too well-entrenched to abandon.(see footnote 55) That is why the Feist decision provoked such surprise: as the then-Register of Copyrights exclaimed, in Feist, the Supreme Court ''dropped a bomb.''(see footnote 56) By contrast, courts from the beginning have consistently emphasized that protection for the compilation conferred no rights in the information itself; second-comers were always free to engage in their own gathering of the same information.
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    How does the scope of protection articulated in H.R. 2652 compare with the old ''sweat copyright''? On the whole, H.R. 2652 establishes a narrowly tailored version of ''sweat rights,'' with an exception for verification of independently-gathered information that is at least as broad (if not broader) than the judge-made version, and with scholarship and news reporting exceptions that courts in compilation copyright cases had not devised. Like the later sweat copyright cases, H.R. 2652 does not limit the scope of protection to copying the totality of the compilation in the form presented by the first compiler, but extends to at least some rearrangements of the copied material. But where some of the sweat copyright decisions reprimanded rearrangement without a showing that the rearranged version competed with or harmed the first compiler,(see footnote 57) H.R. 2652 requires both that the taking be substantial, and that it ''harm [the compiler's] actual or potential market for a product or service that incorporates that collection of information . . .''

    H.R. 2652 does not, it should be stressed, create a sub-species of copyright. The rights set forth in proposed section 1201 are rights against misappropriation. Defining the new sweat rights as a misappropriation claim is desirable for at least two reasons. First, it responds more precisely to the nature of the problem of copying from collections of information. Second, given the Supreme Court's frequent reiteration in Feist that originality is ''constitutionally mandated'' for copyright protection,(see footnote 58) limiting information collectors' rights to misappropriation claims should avoid constitutional conflict.

II. Analysis of H.R. 2652's substantive provisions
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Section 1201. Prohibition against misappropriation

    Proposed section 1201 is drafted to be limited to copying that causes commercial harm to the information collector. The elements of the claim require the collector to show:

1. That the collector

a. has made an investment of substantial monetary or other resources;

b. offers [or, with respect to potential markets, would offer] the product or service that incorporates the collection in commerce.

2. That the defendant extracted or used in commerce

a. all or a substantial part of the collection;

b. so as to harm the collector's actual or potential market for a product or service that incorporates that collection.

    I have some questions or observations concerning several of these elements. First, what is an ''investment of substantial monetary or other resources''? At first blush, it would seem that almost any collection containing large amounts of data should easily meet the criteria. But some kinds of ''collection'' of information may not qualify as a ''substantial'' ''investment'' because they were neither expensive nor laborious to gather. For example, telephone companies do not go out and collect subscriber information; subscribers furnish it to the service. Similarly, databases comprising government-generated information, such as census data, may entail an investment of substantial effort by the government employees who gather and systematize the data, but not by the non government-employee database producer who simply incorporates the data. (Databases produced by ''governmental entities'' are excluded from the scope of the bill's protection, see sec. 1203(a).) The database producer may still qualify for protection, but on the basis of the value added through verification or presentation of the contents. Because this bill is intended to restore incentives to invest in information-gathering by reestablishing ''sweat rights,'' it is important to ensure that protection attaches only to the ''sweat'' expended, and not to material ''gathered, organized, or maintained'' without substantial expenditure of labor or money. Similarly, because more and more information is becoming readily accessible and alphabetizable at the click of a mouse, it should become increasingly important to ascertain whether the compiled information truly required a substantial investment to collect, organize or maintain.
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    Second, what is a ''potential market for a product or service that incorporates that collection of information''? It is possible to consider that a ''potential market'' is any market the information collector could conceivably license. That interpretation, however, is probably too generous to collectors. Looking to the copyright law fair use provision's fourth factor (which this portion of sec. 1201 evokes), one should, as courts interpreting section 107(4) have done, limit the scope of the ''potential market'' for the collection to markets the collector has actual plans to exploit, or which are typically exploited by collectors of that kind of information. Cf. American Geophysical Union v. Texaco, 60 F.3d 913 (2d Cir. 1995) (construing fourth factor potential markets to be limited to ''traditional, reasonable or likely to be developed markets''). Similarly, with respect to a state-law claim of misappropriation of ''hot news,'' in NBA v. Motorola, 105 F.3d 841 (2d Cir. 1997), the claimant was already exploiting some aspects of the subsidiary market for sports score information, and had imminent plans to enter the pager submarket for real-time transmission. It is less clear that the misappropriation doctrine, as applied in NBA, would extend to a third party's new and different reuses of information initially gathered by the claimant when the claimant is not itself exploiting derivative markets for the information. Moreover, the concern to avoid too generous a definition of ''potential markets'' grows stronger the more independent ''value added'' the second-comer contributes to the copied information.

Section 1202. ''Permitted acts''

    Most aspects of this section are implicit in section 1201; nonetheless their explicit statement should make clear the narrow scope of the proposed sweat right, and should allay concern that the bill will promote monopolization of information. First, this section declares the corollary to the section 1201 standard: third parties are liable for extracting or using ''all or a substantial part . . .'' Section 1202(a) states that the bill does not prevent the extraction or use of individual items or ''[an]other insubstantial part'' of a collection. Moreover, it should be clear from both sections 1201 and 1202(a) that the facts themselves are not protected; the bill covers the substantial extraction of the collection.
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    Section 1201 protects the collector's investment; section 1202(b) makes clear that this protection in no way impedes a third party from independently gathering information. Section 1202(c) is a sensible adjunct to the right to expend one's own sweat in independent information gathering: this section permits independent gatherers to verify their information against the prior collector's information.

    Section 1202(d) follows from section 1201's limitation of sweat rights to extractions or uses that harm the collector's actual or potential markets: it explicitly authorizes not-for-profit educational, scientific, or research purposes so long as these do not harm actual or potential markets. In practice, this may mean that a researcher may download and redisseminate extractions from collections whose principal customers are not educational or research establishments.

    The section 1202(e) news reporting exemption, by contrast, is not limited to extractions that do not harm the actual or potential market for the collection. While it is important to remain sensitive to the first-amendment concerns underlying news reporters' information-gathering, it is not clear to me why the bill permits competing news reporting extractions that harm actual or potential markets. Indeed, it seems to me that omission of the market harm element could lead to anomalous results. For example, a newspaper need no longer subscribe to a wire service; it could simply extract the desired information for free.

Section 1203. Exclusions

    Section 1203(a) excludes collections ''gathered, organized, or maintained'' by, or within the scope of employment by the employee or agent of, a federal, state, or local governmental entity. The exclusion extends to exclusive licensees of governmental entities. This would mean, for example, that private entities who receive from governmental entities exclusive authority to gather, organize, or maintain the information, will not be able to monopolize that information. Suppose, for example, that a state had ceased publishing its own collections of laws or of court decsions, and instead granted a publisher the exclusive right to gather and disseminate those legal documents. Despite its investment, the publisher would not be able to prevent others from extracting and reusing the texts of the laws or the judicial decisions. The exclusive commission the information collector receives to gather the information cannot prevent others from copying.
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    By contrast, if an information collector gathers material that a government agency subsequently finds useful, the agency's subsequent adoption of the material should not cast the collection into the public domain, lest the adoption effect a ''taking''. It is one thing if the government transportation authority exclusively commissions me to measure the mileage between all major cities in the U.S., and another if I have already prepared the mileage table, and the state later informs me that it finds my table so useful, it plans to adopt it. Since I was not an ''agent'' of the government at the time of the table's preparation, the table should not retroactively be considered a government collection.

    The meaning of ''governmental entities'' may require clarification. To the extent that it covers legislatures, administrators, the judiciary, and other bodies whose determinations constitute norms of conduct, due process principles may mandate the public domain status of their collections of information. By contrast, when the information collector is a state university or other public educational or research institution, it may not be desirable to rule out protection against misappropriation. With respect to these institutions, the due process constraints cited above would no longer appear to be present, and the incentive effects of this bill can apply to public as well as private educational and research institutions. The sub-committee should consider, for example, whether the electronic catalogue of a state university library should receive less protection than the electronic catalogue of a private university library.

    Section 1203(b) provides that computer programs are not ''collections of information.'' The bill distinguishes the collected information from the computer program used to access the information. Thus, a collection of information is not disqualified from protection under the bill simply because a computer program is used to produce or operate it—otherwise the bill's coverage would be limited to print collections, and electronic databases would be excluded. On the other hand, the computer program itself is not eligible; this exclusion avoids extending misappropriation protection to computer programs (or components of programs) that fail to meet copyright's originality requirement.
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Section 1204. Definitions

    This provision defines ''information'' and ''commerce.'' The former definition is very broad-gauged, as befits a statute designed to promote the collection of information. One feature may warrant an observation: the definition includes ''works of authorship.'' It should nonetheless be clear that the information-collector's rights do not extend to the work of authorship itself, but to the ''collection.''

    The definition of ''commerce'' as ''all commerce which may lawfully be regulated by the Congress'' makes clear that this bill is proposed pursuant to the Constitution's Commerce Clause, rather than under the Patent–Copyright Clause. The Supreme Court in Feist appears to have foreclosed the latter source of legislative authority. (See discussion infra.)

Section 1205. Relationship to other laws

    Section 1205(a) identifies the other rights, notably copyright and ''the law of contract,'' that are ''not affected'' by the bill. Section 1205(b), echoing section 301of the Copyright Act, provides that equivalent state law rights in collections of information are preempted, but specifies the state law rights that ''shall not be deemed to provide equivalent rights for purposes of this subsection.'' These non equivalent state law rights include those provided by ''the law of contract.'' Secton 1205(c) reinforces the preservation of contract law by specifying that H.R. 2652 does not ''restrict the rights of parties freely to enter into licenses or any other contracts with respect to the use of information.''
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    The non preemption of state contract law may be a controversial feature of H.R. 2652, especially to the extent that mass market contracts may afford greater rights in collected information than does H.R. 2652. For example, a mass market, ''shrink wrap'' or click-on license might prohibit the user from extracting or using insubstantial amounts, or from extracting or using for educational and research purposes, regardless of market harm.

    A threshold question, which is beyond the purview of the bill, is whether such mass market agreements are valid as a matter of contract law. The drafters of the emerging article 2B of the Uniform Commercial Code are currently examining that issue, following the rejection by the National Commissioners on Uniform State Law of an amendment that would have barred mass market licenses that were ''inconsistent with the applicable provisions of copyright law.''(see footnote 59)

In light of the significant concerns expressed by federal regulatory agencies, the major stock commodity and mercantile exchanges and the software, publishing, entertainment and information industries, the Committee of the Whole believes that Article 2B should not address in its text the subject matter of the so-called McManis motion, but should adopt a position of neutrality on the issues which are being activly debated at federal and international levels. This position of neutrality should be stated in the official comments. In light of the concerns articulated and this view, the Committee of the Whole respectively suggests that ALI revisit the position expressed in a narrow vote at its 1997 Annual Meeting.

    In the event that UCC 2B determines, as has at least one federal appellate court,(see footnote 60) that mass market agreements to restrict user privileges are valid, the next question is whether these agreements should be vulnerable to federal preemption. Not all such agreements conflict with federal information policy. For example, H.R. 2652 covers only the ''use in commerce'' of substantial extracted information. This might not reach limited distribution uses that do not involve transmissions over federally-regulated communications media. Suppose, for example, that the collector sold a print compilation to a corporation, together with a license permitting a limited number of copies. (Suppose also that the compilation lacks sufficient originality for copyright.) The purchaser nonetheless exceeds the license, by making more photocopies of substantial portions of the collection, for internal office use, than the license permitted. It is not clear that these copies were made ''in commerce''; the application of H.R. 2652 to this conduct is therefore uncertain. But little if anything in federal information policy suggests that the customer in these circumstances should be permitted to disregard its agreement.
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    By contrast, other provisions of a mass market license might appear more in tension with the federal information policy implicit in the Constitutional Patent–Copyright clause and the Copyright Act; these provisions might therefore be held preempted under the Supremacy Clause. I believe that the non preemption provision of H.R. 2652 does not preclude inquiry into whether a given contractual provision violates broader intellectual property norms. Patent preemption doctrine reinforces this conclusion. The Patent Act does not contain a preemption clause; nonetheless, the Supreme Court found that a state law protecting unpatented boat hulls conflicted with patent law's exclusion of protection for insufficiently novel or nonobvious designs. See Bonito Boats v. Thundercraft Boats, 489 U.S. 141 (1989). Similarly, H.R. 2652 does not preclude a finding that a contract that prohibits the copying of insubstantial amounts of information is preempted under the Supremacy Clause. H.R. 2652 does not protect information per se. The preemption provisions of H.R. 2652 thus neither uphold nor condemn contractual protection of information. However, the policy implicit in H.R. 2652, as well as in the Copyright Act, that information qua information remains free for copying, should render vulnerable to preemption a mass market prohibition on copying discrete bits of information.

    Thus, I believe that H.R. 2652 leaves open to courts the possibility of holding preempted under the Supremacy Clause as in conflict with federal intellectual property policy some mass market contracts that forbid acts that H.R. 2652 permits. Contracts vulnerable under this analysis might include those whose reach is so pervasive that the functional difference between the ''contract'' and a ''property right'' is slim, and which forbid conduct that, had a copyrighted work been at issue, would have been deemed fair use (or, under H.R. 2652, would have been deemed not to harm actual or potential markets).(see footnote 61)
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Other issues

    Three issues not explicitly addressed in H.R. 2652 warrant consideration: sole source data; duration; and the constitutionality of enacting a federal misappropriation statute for collections of information.

Sole source data

    Section 1202(b) reaffirms competitors' rights to gather information independently. But what if the first information collector is the only source for the information? This would not appear to be a problem for government information, given the section 1203(a) exclusion. It may be a problem for some kinds of privately-generated data, and it would be important to explore what kinds of collections are at issue, and whether or not alternative remedies, such as those afforded by antitrust law, suffice to address the problem.

Duration

    H.R. 2652 makes no provision as to duration. As a result, the misappropriation claim would in theory be available long after expiration of other intellectual property rights. But that is in theory. In fact, the commercial value of many collections (and therefore the prospect of market harm from extraction) is likely to be more fleeting. Moreover, to the extent that the collection is ''dynamic,'' continually renewing itself with fresh influxes of information, there is no practical difference between a term-less misappropriation right, and a fixed term renewable with each new substantial investment. On the other hand, if this is a bill to provide incentives, one may wonder whether a prospective collector needs potentially perpetual protection before the collector will feel sufficiently encouraged to gather the information.
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Constitutionality of H.R. 2652

    After Feist's reminders that orginality is a ''constitutionally mandated'' prerequisite to copyright, the question arises whether originality is also required of any federal statute that protects against copying. If so, then H.R. 2652 risks infirmity, since the standard for a protectible collection is ''investment,'' not originality. H.R. 2652 does not purport to derive its authority from the Patent–Copyright Clause (controlled by Feist), but from the broader Commerce Clause (see discussion supra). Nonetheless, it is doubtful that Congress could enact an ''information copyright'' statute and escape censure simply by shuffling the pertinent Article I section 8 clause from the Patent–Copyright to the Commerce Clause. Rather, a statute covering unoriginal collections of information would need to depart in substantial ways from the copyright model.

    H.R. 2652 appears to meet this standard. Unlike the Copyright Act, the bill does not establish ''exclusive rights;'' it instititutes a ''prohibition against misappropriation.'' A key element of misappropriation claims is market harm, see, e.g., NBA v. Motorola. By contrast, a copyright owner does not have to prove market harm to make out her case (although the defendant may show lack of potential harm as part of the affirmative defense of fair use). Making harm an element of the claim brings this statute closer to rights against unfair competition, afforded under sections 43 and 44 of the Lanham Federal Trademarks Act, a statute enacted pursuant to the Commerce Clause.

    [Supplemental statement of Ms. Ginsburg follows:]

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SUPPLEMENTAL STATEMENT OF JANE C. GINSBURG, COLUMBIA UNIVERSITY SCHOOL OF LAW

SUMMARY

    This additional testimony on H.R. 2652, the ''Collections of Information Antipiracy Act,'' supplements the Statement filed with the Subcommittee on October 28, 1997. That statement sets out my views on the policies underlying the bill, as well as its general approach. In this Supplemental Statement I will address in more detail the following specific issues: (1) substantial investment under sec. 1201; (2) the scope of the exemption for non profit educational scientific or research uses under sec. 1202(d); (3) government information under sec. 1203(a); (4) the problem of sole source information; and (5) duration.

    1. Regarding the ''investment of substantial monetary or other resources'' that qualifies a collection for protection under sec. 1201, it is important to ensure that protection extends only to that investment; third parties should be free to extract portions of the collection to which the collector's investment does not extend. But if the user must ascertain the nature of the collector's contribution to the information, many users will abstain from extracting the information, or will pay for what should be free. It may therefore be most appropriate to require collectors to bear the burden of identifying the nature and date of the contribution that forms the basis of their protection. It might also be desirable to provide a disincentive to false identification of the contribution, for example, by awarding attorney's fees to a prevailing defendant who was sued for having extracted falsely deesignated information.

    2. Regarding the sec. 1202(d) exemption for non profit educational and research uses, simple reiteration of the market harm test will not assist these users when they are the principal market for the collection and have a need to extract more than insubstantial portions of the collection. Perhaps those who extract for non profit educational or research purposes should be entitled to more leeway to extract than is the commercial user. The substantiality of the extraction for educational uses might therefore be assessed under a higher standard. Or the bill might reduce the remedies available to collectors against nonprofit educational or research extractors, for example, by adopting a solution similar to that set forth in 17 U.S.C. sec. 504(c)(2), remitting statutory damages in the case of a good faith non profit educational or research copyright infringer.
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    3–4. As currently drafted, sec. 1203(a) exempts from protection collections of government information created by government entities or their exclusive licensees or agents. By contrast, private collectors who gather information from government sources are entitled to protect their collections; this result is reasonable so long as others can also acquire the information from public sources. But there may be situations in which the government information is no longer available from public sources. The private collector, albeit not formally an exclusive government licensee, then becomes the de facto sole source of the government information. This outcome is not only undesirable, it may also conflict with due process and other public policies that urge the free availability of government information. The bill might therefore either exclude from protection government information contained in sole source collections, or it might require the collectors to license the contents.

    5. H.R. 2652 currently imposes no time limit on the protection collectors may enjoy. But both the logic of the bill—to provide incentives for collecting information—and broader public domain policy urge an end to the period of protection. The minimum necessary incentive probably approximates lead time advantage, with, perhaps, some additional period for investment recoupment. This suggests a significantly shorter term than the twenty-five years proposed in the previous Congress' ''Database Investment and Intellectual Property Antipiracy Act.'' The European Database Directive introduces a complicating factor, however, because that text establishes a fifteen-year term, and makes protection of non-EU databases contingent on availability of equivalent protection in the non-EU database's country of origin. Since equivalence could be interpreted to take account of duration, the U.S. may wish to provide a coextensive term.

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    H.R. 2652 sets out a ''prohibition against misappropriation,'' it does not purport to create exclusive rights: one way to retain the misappropriation framework might be to incorporate the term of protection into sec. 1208, the statute of limitations. In that case, one might add to sec. 1208, after ''unless it is commenced within three years after the cause of action arose/claim accrued,'' the following specification: ''and in no event more than [fifteen] years from the first public dissemination of the substantial portion that is extracted or used in commerce without the authority of the collector.''

SUPPLEMENTAL STATEMENT

    Mr. Chairman, thank you very much for inviting me to speak at the continued legislative hearing on H.R. 2652, the ''Collections of Information Antipiracy Act.'' I would like to submit this additional testimony to supplement the Statement filed with the Subcommittee on October 28, 1997. That statement sets out my views on the policies underlying the bill, as well as its general approach. This Supplement offers further analysis of some of the issues raised in my previous statement. These are (1) substantial investment; (2) the scope of the exemption for non profit educational scientific or research uses; (3) government information; (4) the problem of sole source information; and (5) duration.

1. Sec. 1201: Substantial investment

    Section 1201 covers a ''collection of information gathered, organized, or maintained . . . through the investment of substantial monetary or other resources . . .'' In my previous statement, I noted that because H.R. 2652 essentially protects the ''sweat'' of information collectors, it was important to ensure that the collector in fact ''sweated'' before s/he will qualify for protection. I believe it is important to limit H.R. 2652's coverage in this way because the justification for legislation of this kind is to supply an incentive to engage in the effort, and incur the expense, of collecting information. If there is little effort or expense, then no statutory incentive should be needed. Given the fears expressed, notably by some members of the educational and research community, that this bill will in practice protect ''information,'' not ''collections,'' I believe it is all the more necessary to supply guidance as to what constitutes a substantial investment in generating a covered collection.
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    If the bill seeks to protect the collector's investment in ''gather[ing], organiz[ing], or maintain[ing]'' the collection of information, it is important to ensure that protection covers only that investment; third parties should be free to extract portions of the collection to which the collectors investment does not extend. This would mean, for example, that if the collector is updating a preexisting compilation, third parties should be free to extract even substantial parts of the preexisting collection of information. Cf. 17 U.S.C. sec. 103(b) (compilor's copyright protection does not extend to preexisting material contained in a compilation).

    One might object that, in practice, third parties will not know which portions of a collection represent the collectors value-added, and which are either preexisting or did not require a substantial investment on the part of the collector. If the user must ascertain the nature of the collector's information, many users will abstain from copying the information, or will pay for what should be free. It may therefore be most appropriate to require collectors to bear the burden of identifying the nature and date of the contribution that forms the basis of their protection. For example, for collections in digital form, collectors might be obliged to designate the portions of the collection that constitute the collector's value-added. A somewhat analogous practice exists regarding copyright registration: registration forms require a description of the ''nature of authorship;'' in the case of collections, the ''nature of the investment in gathering, organizing, or maintaining'' the collection should be disclosed in the collection itself. It might also be desirable to provide a disincentive to false identification of the contribution, for example, by awarding attorney's fees to a prevailing defendant who was sued for having extracted falsely designated information.

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2. Sec. 1202(d): Scope of the exemption for non profit educational scientific or research uses

    In my original testimony, I observed that proposed section 1202(d) ''explicitly authorizes not-for-profit educational, scientific, or research purposes so long as these do not harm actual or potential markets. In practice, this may mean that a researcher may download and redisseminate extractions from collections whose principal customers are not educational or research establishments.'' But what if the principal customers are educational or research establishments? In that case, arguably any substantial extraction will harm an actual or potential market for the collection. But if there is to be a fair use analogue in HR 2652, then perhaps those who extract for non profit educational or research purposes should be entitled to more leeway to extract than is the commercial user.

    How might this leeway be achieved? One way would be to set a higher standard of substantiality before the extraction were actionable. That would mean that a nonprofit educational or research user could extract more than her commercial counterpart. Another way might be to reduce the remedies available to collectors against nonprofit educational or research extractors, for example, by adopting a solution similar to that set forth in 17 U.S.C. sec. 504(c)(2), remitting statutory damages in the case of a good faith non profit educational or research copyright infringer.

3. Sec. 1203(a): Government information

    I believe the category of information obtained from government sources presents two types of problems. One is the ''sole source'' issue, that arises when the collector is the only source for the government information. That issue will be treated below (see 4). The other issue arises when the private collector who reproduces and disseminates government information is the most convenient source of government information. Suppose, for example, that a state or local court system does not put its decisions online. The decisions are publicly accessible in typed form from the clerk's office. Collector #1 goes through the effort of collecting, systematizing, and digitizing the decisions so that they are conveniently available online (or on CD–ROM). Under H.R. 2652, as currently drafted, if Collector #2 wishes to publish a substantial number of the decisions of the state or local court system, Collector #2 will either have to obtain a license from #1, or will have to go to the clerk's office and do its own work of collecting, systematizing, and digitizing. Is this an undesirable result?
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    This result is fully consistent with the ''sweat protection'' principle of the bill: every collector should expend his/her own sweat. Protecting Collector #1's efforts should encourage #1 to undertake them. The public is better off as a result of #1's efforts in putting the decisions in a more accessible form and making them more readily available to the public. Of course, the public would be even better off if Collector #1, facing competition from Collector #2, had to keep its prices reasonable, but still had sufficient incentive to undertake the collection in the first place. Where the government information (or, for that matter, any information) is generally available, Collector #1 always faces the prospect that #2 will commit the resources to locate and collect the same or similar information. If #1's collection is protected, then #1 at least enjoys the lead time advantage of having been the first to gather, systematize and disseminate the information. Without protection for the collection, #1's lead time advantage vanishes in the time it takes #2 to download #1's collection. With protection, the incentive is ensured, but the information remains free for others to compete, in the time it takes them to gather the information themselves.

    The analysis may be different when the government information is not generally available. This is the problem of sole source information.

4. Sole source information

    When the private collector is the sole source of information, government-related or otherwise, should that collector be obliged to share substantial portions of it with market rivals? Under section 1203(a), as currently drafted, a private collector cannot be the de jure sole source of government information: collections generated by the government itself, or by its exclusive licensees are not protected. But the private collector might be the de facto sole source, because alternative sources no longer exist (e.g., the government entity does not keep the records at issue). With respect to non government information, there may never have been alternative sources, because the private collector itself originated the information.
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    In the case of sole source government information, public domain policy favors making the information available to market rivals. One possibility would be simply to preclude protection for sole source government information collections. Alternatively, the bill might compel the collector to license the collection. Mandatory licensing need not take the form of ''compulsory licensing'' of the administratively burdensome kind implemented in some sections of the 1976 Copyright Act, see, e.g., 17 U.S.C. sec. 111(d). Instead, the bill might direct the parties to come to an agreement on licensing fees; failing agreement, the amount of compensation would be determined by a Federal district judge, cf. 17 U.S.C. sec. 104A(d)(3).(see footnote 62) Or, failing agreement, the rate might be referred to a royalty arbitration panel, cf. 17 U.S.C. sec. 114(f)(2) (arbitration royalty panel determines rates for licenses for nonexempt subscription transmissions of sound recordings). The second approach to mandatory licensing carries higher administrative costs than the first.

In the absence of an agreement between the parties, the amount of compensation shall be determined by an action in the United States district court, and shall reflect any harm to the actual or potential market for or value of the restored work, as well as compensation for the relative contributions of expression of the author of the restored work and the reliance party to the derivative work.

A solution of this kind applied to rival collectors of sole source government information might similarly take into account in determining the licensing fee the independent value added by the second collector.

    Where the collector is the sole source of non government information, the due process concerns underlying the government information public domain policy would not seem to be present. Nonetheless, the concern that the collector is monopolizing ''information'' persists. One response might be to apply one of the mandatory licensing schemes outlined above. Another would be simply to leave the problem to resolution through application of antitrust norms or other regulatory measures. Cf. 47 U.S.C. sec. 222(e) (mandatory licensing of telephone subscriber list information).
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5. Duration

    The current version of H.R. 2652 contains no provision as to the duration of the misappropriation right. At common law, as characterized in the Restatment (Third) of the Law of Unfair Competition, the appropriate limits of the misappropriation claim were inherently time-bound, because the claim was best understood as applying to ''hot news,'' or time-sensitive information. See Restatement (Third), sec. 38, comment c (1995). While ''time sensitivity'' has no precise definition, I believe the concept is understood to address information of evansecent commercial value, such as stock market quotations and news tickers. H.R. 2652, by contrast, sweeps more broadly, and would include static as well as dynamic collections of information, apparently without reference to the vintage of the information collected.

    Arguably, the sec. 1201 market harm standard supplies some limit to the duration of the claim, since once enough time has passed that the collection has lost commercial value, then there can be no violation if the collection is substantially copied. But this limitation proves circular: if an old collection is substantially copied, then it probably still has commercial value.

    Reference to the incentive policy underlying H.R. 2652 should mandate a limit to the duration of protection: the bill seeks to provide an incentive to collect and disseminate information; it does not attempt to guarantee the collector the exclusive right to squeeze the last drop of commercial value from the collection. ''How long is long enough?'' then, should be assessed in terms of necessary incentives. The minimum necessary incentive probably approximates lead time advantage, with, perhaps, some additional period for investment recoupment. This suggests a significantly shorter term than the twenty-five years proposed in the previous Congress' ''Database Investment and Intellectual Property Antipiracy Act,'' H.R. 3531, sec. 6, 104th Cong. 2d Sess. (1996). The European Database Directive introduces a complicating factor, however, because that text establishes a fifteen-year term, and makes protection of non-EU databases contingent on availability of equivalent protection in the non-EU database's country of origin. Since equivalence could be interpreted to take account of duration, the U.S. may wish to provide a coextensive term.
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    To the extent that the database is dynamic, any attempt to specify duration may seem formalistic, at least if Congress seeks to provide incentives to collectors to make new investments in adding to the collection: each substantial new investment would then warrant its own term. Nonetheless, new increments of protection for new investments should not permit the collector to ''bootstrap'' older investments to the new ones. Cf. 17 U.S.C. sec. 103(b) (protection for a compilor's contributions does not affect the duration of copyright in preexisting material). The proposal I made for an amendment to sec. 1201, requiring the collector to mark or identify the substantial investment that forms the basis of its protection, also addresses this concern, that the designation identifies not only the nature of the new additions, but their date as well.

    If there is to be a limit on the duration of a collection's protection, how should it be set forth? Because this statute would draw its authority from the Commerce Clause, rather than the Patent-Copyright Clause, it would be preferable not to articulate a term of protection in the ''protection endures for a term of [x] years'' formulation found in sec. 302 of the Copyright Act. H.R. 2652 sets out a ''prohibition against misappropriation,'' it does not purport to create exclusive rights: one way to retain the misappropriation framework might be to incorporate the term of protection into sec. 1208, the statute of limitations. In that case, one might add to sec. 1208, after ''unless it is commenced within three years after the cause of action arose/claim accrued,'' the following specification: ''and in no event more than [fifteen] years from the first public dissemination of the substantial portion that is extracted or used in commerce without the authority of the collector.''

    Mr. COBLE. Thank you, professor. Mr. Band.
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STATEMENT OF JONATHAN BAND, PARTNER, MORRISON & FOERSTER LLP

    Mr. BAND. Mr. Chairman, members of the committee, I am here today as general counsel of the Online Banking Association. I very much appreciate this opportunity to explain OBA's opposition to H.R. 2652. This bill rests on four incorrect assumptions. Once the flaws of these assumptions are uncovered, the need for this legislation disappears.

    The first incorrect assumption is that the Supreme Court's Feist decision upset the prevailing intellectual property standard governing the database industry. In fact, sweat of the brow was never the prevailing approach for database protection. It always existed in tandem with the more mainstream approach of protecting only the expression in the compilation. Sweat of the brow started to decline after Congress overhauled the Copyright Act in 1976, and by the early 1980's, the doctrine was in full retreat. Feist in 1991 was just the final blow.

    The fundamental point is that the database industry has been operating without the full benefit of the sweat of the brow doctrine for over 20 years. Ever since the 1976 Act, database publishers have been creating new databases knowing full well that they could not rely on sweat of the brow.

    The second incorrect assumption is that Feist has left databases vulnerable to piracy. To the contrary, copyright still applies to the original selection, coordination, and arrangement of the collected material. The bill's proponents respond that comprehensive electronically stored databases cannot meet this standard.
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    Significantly, the only case on point reaches the opposite conclusion. Corsearch v. Thomson & Thomson teaches that data and electronic databases typically are not floating around independently waiting to be identified by a search engine. Rather, the author arranges the data in files consisting of linked fields. The selection of those fields and the arrangement of bits of data within them represent creativity.

    The bill's proponents counter this argument by citing the Warren Publishing case. Based on my understanding of the facts, the Eleventh Circuit reached the wrong conclusion. Unfortunately, courts make mistakes, particularly in areas as complicated as copyright, but Congress cannot and should not pass a new law every time a lower court makes a mistake. Looking at all the post-Feist Decisions together, copyright provides adequate protection for databases.

    In this context, it should be noted that the AMA's current procedure terminology database, which Dr. Corlin referred to, was found by the Ninth Circuit recently to be protected by copyright. The Ninth Circuit, however, also found that the AMA had misused its copyright in that database by its restrictive licensing procedures. So let us understand what the courts are doing and why.

    The third incorrect assumption is that there is a market failure in the database industry requiring government intervention. The statistics referred to by Dr. Tyson in her testimony do not support her conclusion. To the contrary, they show that between 1991 and 1997 the number of databases increased by 35 percent. In that period, the number of files contained within databases increased by 180 percent. Also, in that period, the number of online searches increased by 80 percent.
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    In short, the database industry has grown remarkably since Feist. It is creating thousands of new databases and collecting far more information than ever before.

    Just as significant as the growth of the industry is its changing structure. In 1977, government and academic entities produced 78 percent of all databases, while the private sector produced only 22 percent. By 1997, the situation had reversed. The government and academic share had fallen to 22 percent and the private sector share soared to 78 percent. This shift, combined with the increase in the absolute number of databases, indicates that private investment in database creation has increased since Feist.

    Notwithstanding these positive trends, a serious problem does exist in the database industry—concentration of ownership. Some of the larger database publishers have gone on a buying spree this decade acquiring other publishers. Not surprisingly, this increased concentration has led to a significant increase in price.

    Fortunately, it is my understanding that the Antitrust Division has initiated an investigation of these acquisitions. Similarly, the European Commission is also investigating these acquisitions. The House Judiciary Committee should hold hearings on the impact of this concentration on competition and creativity in the database industry.

    The fourth incorrect assumption is that the European Database Directive necessitates adoption of H.R. 2652. While the directive will deny sui generis protection for U.S. databases if similar protection does not exist here, the Directive will still afford copyright protection to those U.S. databases. Further, it appears that U.S. companies can receive sui generis protection if they simply establish subsidiaries in Europe.
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    One last point if I may. Because H.R. 2652 applies so broadly, it covers most copyrightable works but without term limits or copyright's other exceptions. Thus, H.R. 2652 threatens to swallow copyright whole. Mr. Chairman, my time is up. Once again, the OBA thanks you for this opportunity and welcomes any questions the subcommittee may have.

    [The prepared statement of Mr. Band follows:]

PREPARED STATEMENT OF JONATHAN BAND, PARTNER, MORRISON & FOERSTER LLP

SUMMARY

I. The industry supporters of H.R. 2652 base their position on four incorrect assumptions.

    Once the flaws in these assumptions are uncovered, the need for this legislation disappears.

A. The Supreme Court's 1991 Feist decision did not upset the prevailing intellectual property standard—sweat of the brow—governing the database industry.

    In fact, the database industry has been operating without the full benefit of the sweat of the brow doctrine for over twenty years, ever since Congress overhauled the Copyright Act in 1976.

B. Feist has not left databases vulnerable to piracy.
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    Many forms of protection are available to database publishers, most notably copyright. Copyright still applies to the original selection, coordination, and arrangement of the collected material. Significantly, a comprehensive electronically stored database can meet this standard because the information is arranged in linked fields reflecting creativity. In addition, database publishers can rely on numerous other forms of protection, including trademark, trade secret, contract, state common law misappropriation, and technology.

C. There is no market failure in the database industry requiring government intervention.

    The statistics referred to by Dr. Tyson in her testimony do not support her conclusion. To the contrary, they show:

 Between 1991 and 1997, the number of databases increased from 7637 to 10338, an increase of 35%.

 Between 1991 and 1997, the number of files contained within databases increased from 4 billion to 11.2 billion, an increase of 180%.

 Between 1991 and 1996, the number of online searches increased from 44.4 million to 79.9 million, an increase of 80%.

    Just as significant as the growth of the industry is its changing structure. In 1977, government entities and academic/non-profit institutions produced 78% of all databases, while the private sector produced 22%. By 1997, the situation had reversed: the government and academic share had fallen to 22%, and the private sector share soared to 78%. The shift in market share, combined with the increase in the absolute number of databases, indicates that private investment in database creation has increased since Feist.
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    Notwithstanding these positive trends, a serious problem does exist in the database industry: concentration of ownership. The Antitrust Division has initiated an investigation of the growing concentration in the industry, and the resulting increase in prices.

D. The European database directive does not necessitate adoption of H.R. 2652.

    While the Directive will deny sui generis protection for U.S. databases if similar protection doe' not exist here, the Directive will still afford copyright protection to those U.S. databases. Further, it appears that U.S. companies can receive sui generis protection if they simply establish subsidiaries in Europe.

II. H.R. 2652 is a misappropriation bill in name only.

    Using the label ''misappropriation'' in connection with H.R. 2652 suggests that the bill descends directly from the long standing state common law misappropriation doctrine. H.R. 2652 actually is far broader than the traditional misappropriation doctrine.

 Traditional misappropriation is limited to time sensitive information—hot news—while H.R. 2652 applies to collections of information regardless of their age.

 Traditional misappropriation applies only where the defendant competes directly with the collector; H.R. 2652 prohibits extraction or use by anyone.

 Under the traditional misappropriation doctrine, liability attaches only if the defendant's use completely undermines the plaintiff's incentive to create the work. H.R. 2652, conversely, finds misappropriation if there is any harm to an actual or potential market for product. Harm presumably could result from the loss of even one sale.
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    Because H.R. 2652 applies so broadly, it covers most copyrightable works, but without term limits or copyright's other exceptions. Thus, H.R. 2652 threatens to swallow copyright whole.

III. H.R. 2652 will harm OBA members both in their capacity as financial institutions and as vendors of Internet products and services.

    H.R. 2652 will increase the costs of the databases produced by others on which banks rely to make mission critical decisions. It also might allow software developers to exercise control over critical Internet interface specifications, thereby leading to monopoly power in electronic commerce.

STATEMENT

    My name is Jonathan Band, and I am a partner in the Washington, D.C. office of the law firm Morrison & Foerster. I appear before you today as general counsel of the Online Banking Association. The OBA is an industry trade group representing banks and other financial institutions involved in the online delivery of financial services, as well as payment systems providers and companies providing products and services related to online banking. My testimony has three parts. First, I discuss four incorrect assumptions which underlie this bill. Second, I describe the significant differences between H.R. 2652 and the traditional misappropriation doctrine. Third, I explain the harmful impact H.R. 2652 would have on OBA members.

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I. H.R. 2652 Rests Upon Four Incorrect Assumptions.

    The industry supporters of H.R. 2652 base their position on four assumptions: (1) the Feist(see footnote 63) decision upset the prevailing intellectual property standard—sweat of the brow—governing the database industry; (2) the Feist decision left little legal protection for databases; (3) the database industry has been harmed, and will be harmed in the future, by this absence of protection; and (4) the European Database Directive necessitates the adoption of additional database protection. Once the flaws in these assumptions are revealed, the rationale for this legislation disappears.

A. The Feist Decision Did Not Disrupt the Prevailing Intellectual Property Standard Governing the Database Industry.

    The proponents of H.R. 2652 suggest that before 1991, the database industry flourished under the sweat of the brow or industrious collection doctrine. This judicial interpretation of the Copyright Act enabled a database publisher to prevent others from copying the content of its database by virtue of the effort it expended in collecting that content. The proponents of H.R. 2652 imply that the Supreme Court destroyed this halcyon environment in 1991 with its Feist decision.

    In fact, sweat of the brow was never the prevailing approach for the protection of databases. From the early part of the century, the doctrine existed in tandem with the more mainstream approach of protecting only the expression in the compilation. Sweat of the brow started to decline after Congress overhauled the Copyright Act in 1976. In the 1976 Act, Congress provided that the copyright in a compilation applied only to original selection, coordination, and arrangement of the compiled material. Courts soon recognized that the sweat of the brow doctrine extended beyond the bounds of the new statute. By the early 1980s, the sweat of the brow doctrine was in full retreat. The Feist decision in 1991 was just the final blow. Of course, the Supreme Court went further than just interpreting the Copyright Act, and based its ruling on the copyright clause of the U.S. Constitution.
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    The fundamental point, however, is that the database industry has been operating without the full benefit of the sweat of the brow doctrine for over twenty years. Ever since the 1976 Act, database publishers have been deciding to create new databases knowing full well that they could not rely on the sweat of the brow doctrine. Moreover, even before 1976, sweat of the brow was not universally accepted. Thus, the proponents of H.R. 2652 are not trying to ameliorate the recent disruption caused by the Supreme Court; rather, they are trying to overturn the status quo of at least the past twenty years.

B. The Feist Decision Has Not Left Databases Vulnerable to Piracy.

    Many forms of protection are available to database publishers, most notably copyright. Copyright still applies to the original selection, coordination, and arrangement of the collected material. H.R. 2652's proponents respond that comprehensive electronically stored databases can not meet this standard. Because the databases are digital, they claim, the data are not ''arranged'' in a traditional sense; instead, the data are ''arranged'' by the user employing a search engine. Moreover, the compilers make no selection because the databases are comprehensive.

    Significantly, the only reported decision involving a comprehensive electronically stored database of something other than phone listings reaches the opposite conclusion. In Corsearch v. Thomson & Thomson, decided in the Southern District of New York the year after Feist, the court considered a database of trademark information Thomson & Thomson had assembled from all 50 states.(see footnote 64) Thomson & Thomson developed a set of fields, and then input the information for each trademark by field. Thomson & Thomson had to correct and standardize the information it received. It also added its own information to each file, such as a code indicating whether the trademark consisted of a word, a design, or a word with a design. The court found that Thomson & Thomson ''offered sufficient evidence of its selection, coordination, enhancement and programming of the state trademark data, as well as other contributions that establish the originality and requisite creativity, and thus copyrightability, of the . . . database.''(see footnote 65)
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    The point this case makes is that information in electronic databases typically is not floating around independently waiting to be identified by a search engine. Rather, the author arranges the data in files consisting of linked fields. For a telephone directory, these fields are trivial—name, address, and phone number. But most commercially valuable databases contain far more fields. The selection of those fields, and the arrangement of bits of data within them, represent at least a minimal level of creativity. To be sure, many of these fields are functionally dictated, yet some reflect the compiler's choice and judgment. Copyright prevents the wholesale copying of such a database. Indeed, copyright prohibits the copying of even a few complete files with linked fields of data, to the extent that the selection of the fields reflects creativity. Therefore, copyright, even after Feist, gives database publishers significant protection.

    The proponents of H.R. 2652 counter this argument by citing the Eleventh Circuit's recent decision in Warren Publishing.(see footnote 66) Based on my understanding of the facts, the Eleventh Circuit reached the wrong conclusion in that case. The selection of the primary city in a service area, and the selection of which information to include for each service area, in my opinion constitute protectable expression. Unfortunately, courts make mistakes, particularly in areas as complicated and subjective as copyright. But Congress cannot, and should not, pass a new law every time a lower court makes a mistake. If we were to review every compilation case decided since Feist, I believe that both the proponents and opponents of H.R. 2652 would agree with the result, as a matter of law and equity, in the vast majority of cases. Further, for every case where a court may have extended too little protection, there probably is a case where a court extended too much protection. This is typical of intellectual property law. But looking at all the cases together, copyright provides adequate protection for databases.
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    In addition to copyright, database publishers can rely on numerous other forms of protection, including trademark, trade secret, contract, state common law misappropriation, and technological protection. I will not discuss each in detail, but note some recent developments which have enhanced these other forms of protection:

 The 104th Congress passed the Trademark Antidilution Act, which allows holders of famous marks to prevent others from using them even in different product lines where there is no likelihood of confusion. This Act will enhance the value of the names of the established leaders in the database industry.

 Judge Easterbrook in the Seventh Circuit recently found a shrink-wrap license prohibiting the copying of telephone listings stored in a CD–ROM enforceable as a matter of state contract law and not preempted by the Copyright Act.(see footnote 67) Although this decision has generated controversy, it is the law within the Seventh Circuit.

 Judge Winters in the Second Circuit recently reaffirmed the state common law misappropriation cause of action.(see footnote 68)

 The World Intellectual Property Organization Copyright Treaty requires signatories to take adequate measures to prevent the circumvention of copy protection technologies for the purpose of infringement. This Subcommittee, of course, is considering how to implement this obligation. Either approach on the table—H.R. 2281 or H.R. 3048—will significantly enhance database publishers' ability to prevent infringement.(see footnote 69)
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    Just like the copyright law, none of these forms is perfect, and not every form of protection will apply in every circumstance. Still, at least one form will apply in virtually all circumstances, and often more than one will apply.

    Finally, for an online database whose value derives from its constant updating, the publisher has an easy remedy if it discovers that a subscriber is making unauthorized copies. It can simply discontinue service to that subscriber, and thereby solve the problem. Often self-help works more quickly and effectively than legal relief.

C. There is No Market Failure in the Database Industry Requiring Government Intervention.

    Reed–Elsevier and Thomson, the leading proponents of H.R. 2652, retained Laura D'Andrea Tyson, former Director of the National Economic Council, to prepare an economic justification for additional statutory protection for databases. Despite its length, Dr. Tyson's paper lacked what one would expect most from an economic analysis: a serious discussion of the numbers. To be sure, Dr. Tyson included some statistics in an appendix, but the paper itself did not carefully analyze these numbers. And for good reason—they do not support her conclusion that the database industry needs additional protection.

    Dr. Tyson's statistics derive from ''The State of Databases Today: 1997,'' an article contained in the Gale Directory of Databases. The article, prepared by Martha Williams of the University of Illinois, bases its analysis on the Gale Directory itself, which is recognized as the most comprehensive database directory. The most current version of the Williams article, ''The State of Databases Today: 1998,'' shows the following:
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 Between 1991 and 1997, the number of databases increased from 7637 to 10338, an increase of 35%.(see footnote 70)

 Between 1991 and 1997, the number of files contained within databases increased from 4 billion to 11.2 billion, an increase of 180%.(see footnote 71)

 Between 1991 and 1996, the number of online searches increased from 44.4 million to 79.9 million, an increase of 80%.(see footnote 72)

    In short, the database industry has grown remarkably since the issuance of the Feist decision. Not only has the industry created thousands of new databases, but each database on average contains twice as much information. The industry, therefore, is collecting dramatically more information than ever before. Dr. Tyson's response to this evidence of phenomenal growth is that the industry would have grown faster had additional protection been available.

    Just as significant as the growth of the industry is its changing structure. In 1977, government, academic, and non-profit entities produced 78% of all databases, while the private sector produced only 22%. By 1991, the government, academic and non-profit share dropped to 30%, while the private sector share increased to 70%. Since 1991, this ''privatization'' has continued; by 1997, the government, academic, and non-profit share had fallen to 22%, and the private sector share soared to 78%.(see footnote 73) The shift in market share, combined with the increase in the absolute number of databases, indicates that private investment in database creation has increased since Feist. These extremely positive trends fly in the face of the proponents' claims that they need additional government assistance in the form of H.R. 2652.
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    Notwithstanding these positive trends, a serious problem does exist in the database industry which does deserve Congressional scrutiny: concentration of ownership. While the total number of databases has increased 35% since 1991, the number of database producers has increased less than 10%.(see footnote 74) Moreover, a handful of the larger database publishers have gone on a buying spree this decade, acquiring other publishers. For example, Reed–Elsevier, which was formed by a merger of a Dutch company and a British company in 1993, purchased LEXIS–NEXIS in 1994, and recently announced its intention to acquire Engineering Information, Inc., Information Handling Services Group, Beilstein Information System, and Wolters Kluwer (itself formed by a merger). Not surprisingly, this increased concentration has led to a significant increase in price. According to figures collected by the Association of Research Libraries, the price of one online service provided by Reed–Elsevier will increase 250% this year, while the price of another Reed–Elsevier compilation will increase 235%.

    Fortunately, it is my understanding that the Antitrust Division of the Department of Justice has initiated an investigation of these Reed–Elsevier acquisitions, as has Directorate–General IV of the European Commission. The House Judiciary Committee should hold hearings on the impact of this concentration of ownership in the hands of a few foreign publishers on competition and creativity in the U.S. database industry. In any event, because of this increasing concentration, the last thing this Subcommittee should do is erect new barriers to entry in the form of additional database protection.

D. The European Database Directive Does Not Necessitate Adoption of H.R. 2652

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    Proponents of H.R. 2652 argue that Congress must enact additional database protection in order to satisfy the reciprocity requirements of the European Union's Database Directive. In the absence of such a provision, the proponents claim, databases produced by U.S. companies will be vulnerable to predation by European companies. This is an odd argument for Reed–Elsevier and Thomson to make, given their foreign ownership. The argument has no merit, however, regardless of who puts it forth.

    While the Directive will deny sui generis protection for U.S. databases if similar protection does not exist here, the Directive will still afford copyright protection to those U.S. databases. And since several countries within Europe currently do not offer adequate copyright protection for databases, the Directive will actually improve matters for U.S. databases relative to the status quo. In other words, U.S. companies will be no worse off than they are now, and indeed might be better off. Given that the proponents have produced no evidence of rampant piracy in Europe at present, they have no grounds for complaining that the Directive will harm them. Of course, the Directive will prevent U.S. companies from extracting substantial parts of European databases. But since the proponents of H.R. 2652 presumably do not engage in such ''free-riding'' now, this prohibition should not interfere with their activities.

    Further, it appears that U.S. companies can receive sui generis protection if they simply establish subsidiaries in Europe. Without doubt, most of the proponents of H.R. 2652 already have European subsidiaries, and thus will automatically receive sui generis protection when the European Union's member states implement the Directive.

II. H.R. 2652 Is A Misappropriation Bill in Name Only
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    The proponents of H.R. 2652 contend that it addresses the concerns of the opponents of H.R. 3531 introduced by Chairman Moorhead in the 104th Congress because it is a misappropriation bill as opposed to a sui generis intellectual property bill. From a strictly formal point of view, H.R. 2652 may not create a property right as such. As a practical matter, however, H.R. 2652 grants database publishers as much protection—indeed, in some respects more protection—than H.R. 3531.

    Moreover, by using the label ''misappropriation,'' proponents of H.R. 2652 create the misimpression that the bill descends directly from the long standing state common law misappropriation doctrine. The following chart compares the most recent articulation of the traditional misappropriation doctrine, NBA v. Motorola, 105 F.3d 841 (2d Cir. 1997), with H.R. 2652. This comparison reveals that H.R. 2652 is far broader than the traditional misappropriation doctrine.

Table 1



    The chart shows three significant differences. First, traditional misappropriation is limited to time sensitive information—hot news—while H.R. 2652 applies to collections of information regardless of their age. This means that it applies retroactively, to information already collected without the incentive provided by this bill. It also applies indefinitely into the future. In other words, there is no term limit; a publisher can protect its collection for ever.

    Second, the traditional misappropriation doctrine applies only where the defendant competes directly with the collector. H.R. 2652, by contrast, prohibits extraction or use by anyone.
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    Third, under the traditional misappropriation doctrine, liability attaches only if the defendant's use completely undermines the plaintiff's incentive to create the work. H.R. 2652, conversely, finds misappropriation if there is any harm to an actual or potential market for product. Harm presumably could result from the loss of even one sale.

    The bill contains several exceptions and limitations, but they provide little comfort. The exception for non-profit scientific or educational use applies only if the use ''does not harm the actual or potential market for the product.'' This proviso renders the exception useless, given that even one lost sale harms the market for the product.

    Because H.R. 2652 applies so broadly, it covers most copyrightable works, but without term limits or copyright's other exceptions. Thus, H.R. 2652 threatens to swallow copyright whole.

III. H.R. 2652 Will Harm OBA Members

    H.R. 2652 will harm OBA members both in their capacity as financial institutions and as vendors of Internet products and services. As financial institutions, OBA members produce and use databases. On the producer side, banks develop customer lists which they sell to third parties. They also assemble financial information, such as information concerning the economy or the performance of certain financial products, which they make available to their customers through newsletters or web sites. On the consumer side, banks rely on databases prepared by others for the information they need to make mission critical decisions. For example, every day a bank will study the information contained in a wide variety of databases before deciding what interest rate to charge for various loan products such as mortgages.
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    Database legislation like H.R. 2652 may enable banks to charge more for the databases they sell, and to prevent other institutions from copying the databases they distribute to customers free of charge. At the same time, H.R. 2652 would increase the cost of the information upon which banks rely, because they would have to pay for information they now receive free or at a nominal cost. Banks have no way of knowing whether the added cost resulting from the legislation would outweigh the benefit, but we suspect it would; banks typically consume more databases than they produce.

    H.R. 2652 also would harm OBA members as vendors of Internet products and services. The Internet will achieve its fullest potential as an avenue for electronic commerce if it remains open to all participants and free from domination by one vendor. Recent court decisions have held that copyright does not protect interface specifications, the rules for communication between parts of computer programs. H.R. 2652, however, could grant a developer control over a critical Internet interface specification. The developer could then prevent a product developed by another firm from using these specifications, thereby precluding the product from the Internet market. Accordingly, granting protection for interface specifications could threaten competition on the Internet.

    H.R. 2652 does contain an exception for computer programs, but this exception as currently drafted might not exclude interface specifications from the scope of the legislation. At the very least, the Subcommittee should clarify this exception.

    The OBA very much appreciates this opportunity to testify, and welcomes any questions the Subcommittee may have.
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BIO

     Mr. Band is a partner in the Washington, D.C. office of Morrison & Foerster. Mr. Band s areas of practice include intellectual property, administrative litigation, and banking regulation. His intellectual property work has focused on appellate litigation in software copyright cases. Mr. Band is the author of Interfaces on Trial: Intellectual Property and Interoperability in the Global Software Industry (Westview Press 1995). Mr. Band received his B.A., magna cum laude, Phi Beta Kappa, in 1982 from Harvard College, and a J.D. from Yale School in 1985.

Statement Pursuant to House Rule XI, Clause 2(g)(4)

     Neither Morrison & Foerster LLP nor the Online Banking Association has received a federal grant, contract or subcontract in the current or preceding two fiscal years.

    Mr. COBLE. Thank you, Mr. Band. Mr. Casey.

STATEMENT OF TIM CASEY, INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA [ITAA]

    Mr. CASEY. Thank you, Mr. Chairman, members of the committee, for inviting me to testify on this bill. While I am chief technology counsel for MCI, I am appearing today on behalf of the Information Technology Association of America, a leading trade association representing over 11,000 direct and affiliated member companies involved in every facet of the information technology industry. I am also authorized to state that the Commercial Internet Exchange Association, a nonprofit trade association of Public Data Internetwork service providers, supports this testimony.
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    2652 proposes to add existing copyright law prohibitions on access to and use of compilations of information that are very similar to those once enforced under the so-called sweat of the brow copyright doctrine. That doctrine, as members before us have stated, was held unconstitutional in 1991 by the U.S. Supreme Court.

    Intellectual property protections are granted by the government to provide inventors and other creators with an economic incentive to produce useful and valuable works. Such incentives ensure a never-ending flow of benefits to the public. The monopolies created by such protection should never be broader than necessary to achieve the desired incentive to invent and create.

    Intellectual property laws must, therefore, strike a balance between the public's interest and a private party's incentives. The ultimate goal is to ensure that the public benefit from an intellectual property monopoly exceeds the social costs imposed by that monopoly.

    On behalf of the American public, Congress must ensure that our access to information and ideas is vigorously protected from the efforts of private interests to slow the pace of progress for their benefit. It would be a great disservice to extend unnecessary protection to private interests at the expense of the American people.

    It is equally important to be mindful of the unintended consequences almost certain to flow from any change in the balance. The risk of such consequences ought to be incurred only where there is a greater social benefit to be obtained.

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    In determining whether to grant new protections, we must first ask if there is a problem associated with the incentives afforded the developers of compilations of information. ITAA believes that there is no evidence of such a problem or at most, such evidence is extremely weak.

    In fact, despite the absence of the sweat of the brow doctrine, officially, since 1991, innovative products and services continue to be produced, and the U.S. database industry has become a world leader. The question is then why change the existing incentives?

    There is no evidence that existing protections, including copyright, contract, trade secrets, misappropriation, and technological measures, except in very isolated incidences, are inadequate. In addition, there is no connection between any decrease in production in databases and a lack of incentives. It is more likely that changes in the industry as we know it today are attributable to advances in technology that make it possible for businesses to supply their own data needs.

    For example, businesses increasingly are able to collect and publish data on the Internet. As long as the public's access to information continues to improve, it would be inappropriate to intervene and protect the economic interests of incumbent database producers.

    The misappropriation claim provided by 2652 is not consistent with traditional notions in misappropriation law and may not be compatible with the Constitution. I understand from the Chairman's introductory remarks that certain helpful amendments will be introduced, but presently the legislation includes no expiration or sunset on the prohibitions imposed by the law, has no requirement that the plaintiff prove that the defendant's use is actually harmful to the availability or quality of that plaintiff's work, and does not include the narrow limitations set forth in NBA v. Motorola regarding time sensitivity and free-riding.
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    Far from supplementing existing copyright law, 2652 would actually obliterate the doctrine of compilation copyright since a compiler would have no reason to rely on copyright if he or she could characterize the compilation as a collection of information rather than a compilation.

    Finally, I would like to caution the committee against any impulse to emulate the European Union Database Directive. Most likely, its net effect will be to increase the cost of databases in Europe compared to the U.S.

    As a result, any attempt to match the provisions set out in the EU Directive runs the risk of undermining the U.S.'s database industry's competitive advantage. Thank you again for inviting me to testify before you today, and I am happy to answer any questions you may have.

    [The prepared statement of Mr. Casey follows:]

PREPARED STATEMENT OF TIM CASEY, INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA [ITAA]

SUMMARY

    H.R. 2652 proposes to add to existing copyright and misappropriation law prohibitions on access to and use of compilations of information that are very similar to those once available under the so-called ''sweat of the brow'' copyright doctrine. That doctrine was held unconstitutional in 1991 by the U.S. Supreme Court.
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    Intellectual property protections are granted by the government to provide inventors and other creators with a sufficient economic return on their creations to induce them to produce useful and valuable works. The rationale for granting such protections is that they ensure a never-ending flow of benefits to the public. Intellectual property monopolies should therefore be no broader than necessary to achieve the desired incentive to invent and create. Intellectual property laws must seek to strike a balance between the public's interest and a private party's incentives. The goal is to ensure that the societal benefit from an intellectual property monopoly exceeds the social cost inevitably imposed by the monopoly.

    Congress must ensure that the public's interest in access to information and ideas is vigorously protected from the efforts of private interests to slow the pace of progress for their benefit. It would be a great disservice for Congress to extend unnecessary protection to private interests at the expense of the American people. Furthermore, unintended consequences are almost certain to flow from any change in the balance, and the risk of such consequences ought to be incurred only where there is a plain societal benefit to be obtained.

    On the present record, ITAA believes that the evidence of a problem that would justify a new law is weak-to-nonexistent. The fact that innovative compilations of information continue to be produced is evidence that sufficient incentives are in place. Despite the absence of the sweat of the brow doctrine since 1991, the U.S. database industry has become a world-leading industry. The question is, then: why change?

    There has been no clear evidence that existing protections—including copyright, contract, trade secrets, misappropriation, and technological measures—are inadequate. In addition, there is no nexus between any decrease in production and an inadequacy of incentives; any changes in the industry are just as likely to be attributable to advances in technology that make it possible for businesses to supply their own data needs. For example, businesses increasingly are able to collect and publish data on the Internet. As long as the public's access to information continues to improve, it would be inappropriate for Congress to step in and protect the economic interests of traditional database producers.
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    The misappropriate claim provided for in H.R. 2652 is not consistent with traditional notions of misappropriation doctrine and case law and may not be compatible with the Constitution. H.R. 2652 would inhibit non-competitive uses, includes no expiration or sunset on the prohibitions imposed by the law, and has no requirement that the plaintiff prove that the defendant's use is actually harmful to the availability or quality of the plaintiff's work. Far from supplementing existing copyright law, H.R. 2652 would actually obliterate the doctrine of compilation, copyright, since a compiler would have no reason to rely on copyright if he or she could characterize the compilation as ''as collection of information.''

    Finally, Congress should be cautioned against competing in any sense with the European Union for levels of protection. The net effect of the EU Directive on database protection will be to increase the costs of databases in Europe compared to similar products in the U.S. As a result, additional protections for databases here could erode the competitive advantage America promises to enjoy under the Directive.

INTRODUCTION

    I am Tim Casey and I am appearing before you today on behalf of ITAA—the Information Technology Association of America. ITAA is the leading United States trade association of the information technology industry, representing over 11,000 direct and affiliated member companies involved in every facet of the information technology industry, including computer hardware, software, the Internet, and telecommunications. The members are copyright owners, database compilers and users, Internet access and service providers, and content users. I am Chief Technology Counsel for MCI and I serve as the Chair of ITAA's Intellectual Property Initiative. Major ITAA member companies, including MCI, Dun & Bradstreet, Fujitsu USA, Netscape, and AT&T specifically endorse my testimony. I am also authorized to inform the Subcommittee that the Commercial Internet eXchange Association, a non-profit trade association of Public Data Internetwork service providers, is in general agreement with the positions taken in this testimony.
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    ITAA greatly appreciates the opportunity to appear at this hearing to address the very important issues relating to the pending bill, H.R. 2652. While we share with Chairman Coble and the Subcommittee the belief that those issues deserve the most careful consideration, we believe that the Congress should proceed very slowly and cautiously in this area. In our view, the risk of adverse consequences from upsetting what we see as a healthy and dynamic status quo in the database industry far outweighs the arguments advanced to date in support of new intellectual property protection for databases.

FIRST PRINCIPLES

    H.R. 2652 proposes to add to existing copyright and misappropriation law new prohibitions on access to and use of compilations of information that are very similar in substance and effect to those once available under the so-called ''sweat of the brow'' doctrine of copyright law. That doctrine arose early in this century,(see footnote 75) was the object of persistent scholarly criticism, fell from favor by the 1980s,(see footnote 76) and in 1991 was held to be unconstitutional by the Supreme Court.(see footnote 77) ITAA does not today see a good reason to revive the sweat of the brow doctrine. To explain why, I want to begin by laying a foundation of what I believe are unarguable first principles.

    As provided for in the Copyright Clause of the Constitution,(see footnote 78) intellectual property protections are creatures of statute, granted by the government to create incentives for innovation and creativity. These laws function by creating limited monopolies that are intended to provide inventors and other creators with a sufficient economic return on their creations to induce them to produce useful and valuable works. The rationale for granting such limited monopolies is that they ensure a never-ending flow of benefits to the public. The laws are not principally intended to protect the economic interests of creators; rather the interests of creators are granted limited protection for the purpose of benefiting the public. Just as the antitrust laws are said to protect the public's interest in competition—and not to protect individual competitors(see footnote 79)—intellectual property laws exist to protect the public's interest in obtaining access to innovations and creations, not to protect the profits of proprietors of intellectual property.
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    Given our society's general aversion to the costs and inefficiencies inherent in all monopolies, intellectual property monopolies must be no broader than minimally necessary to achieve the desired incentives to invent and create. The American intellectual property laws thus seek to strike a balance between the interest of all Americans in free access to information and ideas on the one hand, and the limits on such free access necessary to provide incentives to produce such information and ideas, on the other. The goal is to ensure that the societal benefit from an intellectual property monopoly exceeds the social cost inevitably imposed by the monopoly.(see footnote 80)

    Arguments for and against changes to intellectual property laws invariably focus on commercial enterprises whose economic interests are either threatened or enhanced by a proposed change in the balance struck by existing law. The American public, as such, is rarely represented explicitly in the debates.(see footnote 81) It is therefore the function of Congress to ensure that the public's interest in access to information and ideas is vigorously protected from the efforts of private interests to slow the pace of progress that those interests find threatening. It would be a great disservice for Congress to extend unnecessary protection to private interests at the expense of the American people.

    For Congress to perform its function, therefore, it must impose a heavy burden on those advocating changes in the law to demonstrate that: (1) change is necessary to redress a genuine problem (i.e. insufficient incentives exist to encourage the creation of innovative compilations of information); and (2) the proposed change will not disrupt the delicate balance between public and private interests that is at the heart of all intellectual property protections. This burden, the proponents of H.R. 2652 have not met.
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    In addition, in an area of the economy as dynamic as the information technology sector (''IT''), special attention must be paid to the potential consequences of legislative disruption to the established status quo. The IT industry is characterized by dynamic, market-driven progress. Technology creates tremendous uncertainties (as well as opportunities) in the information industry. As a result, businesses—including ITAA's member companies—need as much certainty as the law can provide in order to make investments in the future.

    Changes in the legal rules of the game inevitably cause uncertainty, may impede progress, and should be made only where absolutely necessary. Unintended consequences are almost certain to flow from any change, and the risk of such consequences ought to be incurred only where there is a plain societal benefit to be obtained. Some of the potential consequences of the protection proposed by H.R. 2652 are set forth below.

PRINCIPLES IN PRACTICE

    Putting these principles of balance and merited protection into practice is indeed difficult. In ITAA's view, however, there are two basic questions that will assist us in this endeavor:

1. Is there a problem of insufficient incentives? And,

2. if there is, what is the least costly and least disruptive solution to that problem?

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ITAA wants to emphasize its admiration and support for the efforts of this Subcommittee to start the process of addressing these questions.

    On the present record, however, ITAA believes that the evidence of a problem that would justify a new law is weak-to- nonexistent. The fact that innovative compilations of information continue to be created provides evidence that sufficient incentives already exist. Furthermore, the fact that the U.S. database industry is so strong and dynamic surely rebuts any evidence alleging that U.S.-based information providers are actively leaving the business or refusing to produce new products due to inadequate protection. Moreover, the proposed law is far broader than would be necessary to address any of the alleged problems identified to date, even if a new law were needed to address such problems.

FEIST CONFIRMED, NOT CHANGED, THE STATUS QUO

    It is important to note that ''sweat of the brow'' protections for compilations were not the status quo when the Supreme Court found them unconstitutional in 1991. The courts that developed that doctrine—the Second and Ninth Circuits—had rejected it by the early 1980s.(see footnote 82) The doctrine lived on in the 1980s in the Seventh Circuit largely as a special rule for telephone directories,(see footnote 83) and in the Eighth Circuit for telephone directories and legal casebooks.(see footnote 84) When the Tenth Circuit moved against the general tide and tried to revive the sweat of the brow doctrine in its unpublished opinion in Feist,(see footnote 85) the Supreme Court stepped in and said ''no.''

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    As a result, the American database industry as we know it today has largely developed in the legal environment ratified in Feist; the sweat of the brow doctrine was largely absent from that environment. Despite the absence of the sweat of the brow doctrine during this period, the U.S. database industry has become a world- leading industry. The question is, then: why change?

    It is easy enough to understand why publishers of legal casebooks would like to bring back the sweat of the brow doctrine—they were among the very small number of interests to benefit from the doctrine in its declining years. It is, of course, entirely possible that America's interest in the availability of compilations of court decisions might require some particular, targeted intellectual property incentive in addition to existing copyright law; ITAA is simply not in a position to know what might be required in that specific area and would not be likely to oppose such specific protection if it were shown to be necessary. We note that telephone company directory publishers—the other major beneficiary of the doctrine in modern times—are not appearing in support of H.R. 2652.

    Nonetheless, there has been no clear demonstration that existing protections for database investments—including copyright, contract, trade secrets, misappropriation, and technological measures—are inadequate. While there have been assertions that such protections are inadequate, the evidence of inadequacy is very thin indeed, and may, in fact, be more due to inadequate legal representation. For example, Warren Publishing testified last Fall about its inability to employ copyright law to prevent competition; so far as can be determined from the published decisions, Warren made no effort to invoke existing laws against misappropriation. It would be entirely inappropriate to award existing database providers with additional protection merely because they failed to take advantage of the protections that already exist.
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    There is also no hard evidence of any meaningful ''leveling off'' of database production. There is no nexus between any decrease in production and a lack of incentives. It is therefore just as likely that changes in the industry are attributable to advances in computer technology that make it increasingly possible for businesses to supply their own data needs rather than procure them from third parties. Even more significantly, businesses and individuals are now able to interactively collect and publish data on the Internet and through on-line services, and such opportunities may well be replacing the market for more traditional data sources. While traditional data providers may be disadvantaged by these changes if they themselves don't change with their industry, remember it is the net benefit to the public that is paramount: As long as the American people's access to information continues to improve, as, indeed, it has, it would be inappropriate for Congress to step in and protect the economic interests of traditional database producers.

    By analogy, if improvements in microwave ovens made it less attractive for family's to dine out, surely Congress would not pass a law designed to force people to frequent restaurants; likewise, Congress should not legislate here against what may be only the beneficial consequences of advancing technology. Indeed, this always has been—and should remain—the goal of intellectual property laws: to promote the progress of the useful arts, not the financial interests of declining industries.

UNINTENDED CONSEQUENCES

    The unintended consequences of new legislation could have a severely destructive effect on the dynamic growth of the information technology industry in which the U.S. is a world leader. For example, businesses are increasingly using expansive ''intranets'' that must interface with the databases of suppliers, vendors, distributors, and customers. The proposed changes in the existing legal framework may lead to a decrease in the level of cooperation that ensures the interoperability of such databases.
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    In a general sense, moving information between and among databases is difficult. The more difficult it becomes, the greater the impediment to progress and innovation. Among the most debilitating problems in data exchange are proprietary definitions and proprietary systems. Extending property rights to databases would create incentives to make data interchange and comparison difficult. It is no exaggeration to assert that the resulting decrease in the interoperability of databases could at least in some way detrimentally affect virtually every aspect of the economy, and, indeed, the daily life of every American.

    Customers of ITAA members have expressed concern about potential restrictions on their ability to share data between and among computer networks. One member recently experienced a dispute with a competitor that highlights this potential problem:

A major U.S. manufacturer had contracted with a firm to design and operate its intranet. The manufacturer supplied all of the data used to develop the databases employed in the operation of the system. When the intranet operator defaulted on its contract, the manufacturer sought to contract with a new firm. When the manufacturer sought to have its data transferred to the new intranet service provider, however, the original firm claimed proprietary rights, under the sweat of the brow argument, in the databases it had compiled using the manufacturer's data.

    It simply strains credulity to suggest that compilations of a company's important customer, pricing, or inventory data could become the ''property'' of the data compiler. Yet, this is precisely the sort of unintended consequence that could result under the proposed legislation.

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    It should be remembered that the contents of many databases are either derivations of facts of nature or purely arbitrary (albeit important) information. Such is the case, for example, with many of the databases that control telecommunications and computer networks, including the Internet. Claiming ownership rights to such data that might prevent others from using them is on a par with ownership of numbers or turning a dictionary into a database and then claiming ownership of all the words.

    To a great degree, the value of technology is cumulative. We cannot make progress without building freely on the data and results of the past. H.R. 2652's proposal to exclude certain types of databases from protection will not serve to limit the chilling effect that the Bill would have on technological innovation. It would be a mistake to assume that only databases produced for educational, scientific, or research purposes serve to promote and perpetuate technological innovation such that their free access is in the public interest.

    In the Internet environment, we copy data out of databases, and the databases themselves, all the time, for both operational purposes and to teach us things that permit us to grow and learn from the network. The domain name system is basically a large and distributed database. Anything that would restrict copying information from one location, or one domain, to another would be very detrimental to performance and ultimately undermine the Internet's great potential for the world economy and society at large.

THERE IS A BIG DIFFERENCE BETWEEN COMPETITION AND PIRACY

    The principal supporters of new database legislation have gathered in the Coalition Against Database Piracy (''CADP''), and a representative of that coalition testified before this Subcommittee last October. ITAA is also adamantly opposed to database piracy. The question, of course, is not whether piracy should be prohibited but what constitutes ''piracy.''
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    Mr. Warren of Warren Publishing testified in October about his company's disappointment with a copyright decision in which his company was ultimately unsuccessful in blocking another firm from producing a product based on factual information about cable television systems taken from Warren Publishing's Factbook. Neither his testimony in October nor the published court decisions in Warren Publishing's copyright case indicate how much actual financial injury Warren suffered from the copying of facts that occurred in that case. There is no suggestion at all that Warren's—or the Factbook's—survival, quality, or availability were in any way threatened by the defendant's acts. Perhaps they were, but the record does not indicate that. There is a world of difference, in our view, between piracy—which truly harms the quality and availability of useful products and services—and competition, which may reduce an incumbent firm's profits but will also increase the supply and quality of goods and services available to the public.

    If what was really at issue was whether Warren Publishing would or would not face competition in a business in which it would remain healthy and profitable—indeed, dominant—despite that competition, it is hard to imagine how the public interest would be served by passing a new law in response to Warren Publishing's experience in court.(see footnote 86)

    Another member of the CADP is the Canadian publishing company, Thomson, which—after the Feist decision—paid about one billion dollars to acquire the legal publishing business of West Publishing. Thomson's decision to purchase West—and the price it was willing to pay—would certainly suggest that the business of West Publishing is in no immediate need of new legislation.
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    One may well ask whether CADP-member Reed Elsevier's ''LEXIS'' legal research service would even exist today had the proposed legislation been the law 15 years ago.(see footnote 87) You may recall that West Publishing obtained an injunction against the inclusion in LEXIS of page number references to West's printed reporters. That case settled when LEXIS agreed to pay West for a license.(see footnote 88) The settlement no doubt reflected West's uncertainty about the likelihood of prevailing in the Supreme Court on its sweat of the brow copyright theory. If H.R. 2652 had been the law, there would have been no such uncertainty and LEXIS would have been out of that business. West no doubt thought of LEXIS as a pirate; yet, history confirms that West suffered no real harm and America has benefited from competition in the computer assisted legal research business ever since.

    The silence in the record to date on the actual magnitude of the threat—if any—to Warren, Thomson, and other supporters of new database protection legislation leaves a large and unanswered question: what, if any, genuine problems exist to which H.R. 2652 would be an appropriate and necessary response?

    It is understandable that traditional database producers are feeling threatened by the advent of new and innovative forms of competition. No doubt they will continue to feel the force of competition in the absence of such legislation. In our view, however, there is no public interest to be served by enacting a law that serves only to protect incumbent database publishers against healthy, resourceful new forms of competition and/or natural changes in the marketplace demand for their products.

H.R. 2652 PROHIBITS FAR MORE THAN ''MISAPPROPRIATION''
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    H.R. 2652 uses the term ''misappropriation.'' That term invokes legal principles developed in federal and state case law beginning with the Supreme Court's 1918 decision in International News Service v. Associated Press.(see footnote 89) The legislative history of the 1976 Copyright Act(see footnote 90) and the Supreme Court's Feist decision(see footnote 91) both confirm that the misappropriation doctrine of INS v. AP may coexist in constitutional harmony with copyright law. The law of misappropriation took a tortuous path in the state and federal courts in the years following INS v. AP.(see footnote 92) However, a recent decision of the Second Circuit, National Basketball Association v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997), provides a coherent restatement of the essential principles of the traditional tort of misappropriation and a useful starting point for potential federal legislation directed against misappropriation.

    In NBA, the Second Circuit considered the National Basketball Association's claim that a service providing sports scores to sports fans through pocket pager-like devices misappropriated the NBA's rights in its basketball games. The defendant got the scores by having people attend the games and report the scores by telephone. No information proprietary to the NBA was taken and the NBA was not in the pager sports score business (although it said that it might one day want to be in that business). The court defined misappropriation under New York law (derived initially from INS v. AP) as incorporating the following elements:

1. The plaintiff must have generated or gathered information at a cost;

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2. The information must be time-sensitive;

3. The defendant, by using the plaintiff's information, is free-riding on the plaintiff's efforts;

4. The defendant is a direct competitor of a product or service offered by the plaintiff; and

5. Free-riding by the defendant and others on the plaintiff's efforts would so reduce the incentive to produce the product or service in question that its existence or quality would be substantially threatened.

    Applying these criteria, the Second Circuit found that nothing that the defendant did inflicted any harm on the NBA. Thus, there was no basis for a claim of misappropriation. The court noted that the result might well have been different if the defendant had been taking its data from a competing sports score pager service and thereby free-riding on the efforts of the first service.

    To some extent, the limitations set out in NBA arise from the need to harmonize misappropriation claims under state law with the preemption of state law mandated by Section 301 of the 1976 Copyright Act. To that extent, they could be adjusted by a Congress that sought to enact a federal misappropriation law—in contrast to the sui generis protection proposed by H.R. 2652. However, these limits are probably also necessary to some extent to meet the constitutional limitations on intellectual property protections.(see footnote 93) Exactly where those lines would have to be drawn is a question to which ITAA does not yet have an answer, because, absent a need for new legislation, we don't see a need to resolve the issue. We would, of course, be happy to address this and other issues at a future time if the Subcommittee would find that helpful.
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    The misappropriation claim provided for in H.R. 2652 is not consistent with the traditional notion of misappropriation, summarized in NBA, and may not, therefore, be compatible with the Constitution. H.R. 2652 would inhibit non-competitive uses (including uses that harm only future or prospective markets of the plaintiff),(see footnote 94) includes no expiration or sunset on the prohibitions imposed by the law on any given set of information, and has no requirement that the plaintiff prove that the defendant's use is actually harmful to the availability or quality of the plaintiff's work.

    Far from supplementing existing copyright law, H.R. 2652 would actually obliterate the entire doctrine of compilation copyright, since a compiler would have no reason at all to rely on copyright if he or she could characterize the compilation as ''a collection of information.'' In at least these respects, therefore, H.R. 2652 goes beyond misappropriation as a traditional complement to copyright and erects monolithic prohibitions that are more likely to harm than to advance commerce and innovation.(see footnote 95)

THE EU DATABASE DIRECTIVE IS A RED HERRING

    So far as ITAA can tell, the concerns expressed about the effects of the European Union's Database Directive—and particularly, its reciprocity provisions—are a red herring. The European Directive does not deny any existing protection to U.S. databases. It is a gross exaggeration to say, for example, that products of U.S. database producers will be ''free for the taking'' in the EU. At most, the EU Directive imposes more stringent restrictions on access to, and use of, databases of EU-domiciled producers than would be applicable to databases of non–EU-domiciled producers. The U.S. database producers likely to have any serious concern about the issue are also more likely than not to have EU- domiciled affiliates and subsidiaries in a position to invoke any protections available in those EU member countries that have enacted the necessary enabling legislation (at present, only Great Britain and Germany).(see footnote 96)
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    In addition, Congress should be cautioned against competing in any sense with the EU for levels of protection. The net effect of the EU Directive will be to increase the costs of databases in Europe compared to similar products in the U.S. As a result, a ''more-protectionist-than-thou'' attitude could erode the competitive advantage America promises to enjoy under the Directive.

    For over two hundred years, Americans have steered a course independent of Europe. On matters of technology and information, the U.S. is and always has been a leader, not a follower. Americans have favored—and benefited greatly from—competition and innovation, and have rejected protectionism and stagnation. There is no apparent reason for the U.S. to follow Europe's unduly protectionist model.

CONCLUSION

    Mr. Chairman, on behalf of ITAA, we are appreciative of your holding this important hearing. We feel strongly, however, that the evidence is lacking to support passage of the legislation as currently drafted. Indeed, given the healthy status of the U.S. database industry, a change in the status quo seems particularly unwarranted. Moreover, the risk of unintended consequences that would be harmful to the industry and to the U.S. economy far outweigh any private benefits that may result. We therefore respectfully recommend that the Subcommittee continue to gather facts about this issue and put off further legislative effort on this bill until compelling evidence of its need is established.

    Conversely, if you and the Members of the Subcommittee are satisfied that compelling evidence has been shown for such legislation, then an amended bill, narrowly drawn, based on all the criteria in NBA v. Motorola, would be the most that should be considered at this time. Anything more far-reaching is likely to do more harm than good, and, in fact, may be found unconstitutional by the United States Supreme Court. I thank you again, and look forward to your questions.
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    Mr. COBLE. Thank you, Mr. Casey. Professor Ginsburg, you authored a 1992 article in the Columbia Law Review discussing the issue of the constitutionality of Federal protection for databases. What is your view on the constitutionality of the bill at hand?

    Ms. GINSBURG. I believe that the bill in its current form, but even more so if some of the amendments that we have discussed particularly regarding duration were to be added, is constitutional because it is not simply a shadow copyright enacted under a different clause of legislative power—the commerce clause as opposed to the copyright clause.

    There are substantial differences between a copyright regime, which is a property right—exclusive rights—and the misappropriation claim defined in Section 1201, which, among other things, makes demonstration of market harm an element of the prima facie case.

    If one has an exclusive right as in copyright, all one has to demonstrate is that one was copied and that there was substantial similarity. The plaintiff does not have to demonstrate market harm to make out the case. When you build harm into the claim, you have a tort system rather than a property system. I think that is the substantial difference.

    I do think that if there were a short term that would further enhance the distinctions between this new form of protection and something that might be considered to be copyright masquerading as a misappropriation right.

    Mr. COBLE. Thank you, professor. Mr. Casey, some people confuse the difference between copyright and the protection afforded under this bill. I am not suggesting that you are one of those, but many people do confuse it. Copyright, as we all know, rewards an actor's creativity.
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    This bill creates the incentives for investment in collecting and verifying information that is and remains available to anyone else willing to make the same investment. The issue is not monopoly, in my opinion, or free access to information. The issue is theft of services. Now, maybe I am being too inflexible when I say that, but if I am wrong, let someone here convince me that I am wrong.

    Let me give a simplified example, Mr. Casey. I own a restaurant. I buy and prepare food and serve you a meal. I am entitled to be paid for the value of my investment in the food and my services in preparing it. Now, this does not mean that I own a monopoly over spaghetti or fried chicken or that some right to be free from hunger is violated.

    Anyone who does not want to pay for the convenience of using my collection of information can put together his or her collection of the same information. Mr. Casey, my question is twofold. Why should not people either collect their own information or pay someone else to collect it, A, and, B, why should they be able to steal it? Now, again, folks, strong language but I feel strongly about it.

    Mr. CASEY. Thank you, Mr. Chairman.

    Mr. COBLE. Let me hear from Mr. Casey.

    Mr. CASEY. Certainly. Our association is not arguing that there should not be laws against the theft—outright theft of databases. That is far from the point that we were trying to make. The point we are trying to make is that most of the facts or data that is in databases, just like information that is in recipes, is cumulative knowledge that people have gathered over time.
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    And if you upset the ability to be able to cumulate knowledge and allow people to utilize that unincumbered, then you upset the possibility for people to utilize that knowledge for further activity such as creating additional new recipes for use in their restaurants or something to that effect.

    And so what you have here is, because of the breadth of the bill as presently structured, you are creating a regime in which outright publicly available data is being protected simply because somebody spent money to put it into a compilation. And it is that aspect of it that we are concerned about.

    And the restrictions that are in the bill right now don't actually go to the heart of the major concerns that we have in terms of what happens with databases that are being generated as part of computer programs, that are being utilized in network environments, in telecommunication systems and many other aspects. That is not addressed by the bill, and it is a major concern.

    Mr. COBLE. Mr. Band, if you ask the EU why it developed its directive on database protection, they would likely tell you that for well over 100 years the United States followed the sweat of the brow doctrine and Europe did not.

    Because of that, the United States developed a much larger and healthier information industry. In an effort to catch up, the Europeans are now adopting sweat of the brow. Should we adopt the system that failed in Europe and abandon our own tradition?

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    Mr. BAND. Well, Mr. Chairman, I guess——

    Mr. COBLE. I think I know the answer to that question, but let me hear it from you.

    Mr. BAND. I think there are several assumptions in that question that I don't think are entirely correct. First of all, some people in Europe may now say that the reason they adopted the Database Directive or the sui generis part was to emulate our sweat of the brow doctrine. But certainly when they were in the process of enacting it, that is the last thing they referred to.

    Second, and I think more importantly, in the UK, for example, they have under copyright something very similar to sweat of the brow doctrine, and they have had that probably even before we have. So what you had in Europe was an effort to harmonize different systems.

    They had copyright in some places, they had sweat of the brow in the other places, and I think they decided to make a harmonization and try to have both systems exist side by side in the European Union as part of an overall harmonization effort. But still the point remains that, again, in certain countries they have had the equivalent to sweat of the brow all along.

    Mr. COBLE. Well, the intimidating red light appears, and I will conclude my questioning. And I will recognize the gentleman from Michigan, Mr. Conyers, the ranking member of the full committee. Good to have you with us, John.
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    Mr. CONYERS. Thank you, Chairman Coble. First of all, Professor Ginsburg, I think your suggestions should be studied by the subcommittee, and I am sure they will. And I would like to welcome Mr. Casey to these hearings and turn to the general counsel, Mr. Band, to talk with him about the Warren and Feist Decisions. Let us see. Are you in general agreement with Feist?

    Mr. BAND. Yes.

    Mr. CONYERS. Okay. Are you in general disagreement with Warren?

    Mr. BAND. Yes.

    Mr. CONYERS. Okay. You gave us four reasons why. Now, one of them, the European database reason, I agree with, but it is not the worry, because we are not doing what you are worried about, and we have no plans to.

    Mr. BAND. Well, no, my worry is that people are using the existence of the database directive as a justification for doing something similar here, and I am suggesting that that is unnecessary, that the existence of the database directive does not necessitate this Congress enacting something along the same lines. But I think in your question you do make a valid point.

    I think it would not surprise me at all if this subcommittee went ahead and enacted this bill, that the folks in the EU who are not interested in playing fair would say that this bill, because it is ''misappropriation'' as opposed to ''sui generis property,'' is not equivalent and that they would not extend reciprocity.
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    So I think ironically even though the justification here is that we have to enact something because they enacted something, it wouldn't surprise me if we enacted this, they would still say it is not good enough.

    Mr. CONYERS. So not to worry?

    Mr. BAND. Well, I think we should not worry about what they are doing and just because they are making mistakes doesn't mean we should make mistakes too.

    Mr. CONYERS. Okay. Now, the Eleventh Circuit. They make mistakes, don't they?

    Mr. BAND. Yes, they do.

    Mr. CONYERS. Okay. Now, what do we tell the people at Warren Publishing if we were to follow your views? What about their employees? I mean, what will happen to them if we do the corrections that you suggest?

    Mr. BAND. Well, my suggestion is that we don't do anything, that we just let the law evolve. I think that in that specific case, my understanding is that Warren is still in business and still doing well. It did have to go through the cost of litigation, and it does have this other company out there that I don't know if it is still competing against.

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    But I would suggest that if someone else starts competing with it and does something similar, that they maybe litigate the case somewhat differently, emphasize different arguments; and even better, bring the case in the Seventh Circuit, which is much, much more generous than the Eleventh Circuit. We lawyers specialize in forum shopping.

    Mr. CONYERS. Are you promoting a law practice here?

    Mr. BAND. Yes, I am.

    Mr. CONYERS. Yes, well, nothing wrong with that. Don't misunderstand me. I just want to identify it for when I hear it. Okay. Now, misappropriation theory. You know, that varies from state to state, doesn't it?

    Mr. BAND. Just somewhat, yes.

    Mr. CONYERS. Yes, a lot somewhat. I mean, one state's misappropriation theory may not embrace the concepts in another. Every state legislature does its thing. So, you know, we are trying to say that creative or not, you can't steal it. That is what this all gets down to. Does that theory offend you?

    Mr. BAND. No, not at all and I think my sense is that no one system is perfect. That is clear. But if you look at the whole list of protections that are available, taken together there is an awful lot of protection available for databases.

    One that we really haven't talked about a lot but that was mentioned before in passing was the issue of trademark. Again, the AMA, for example, talked about how they want to ensure the integrity of their information. Nasdaq said the same thing. Well, trademark is a great way to assure that kind of integrity.
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    Someone who is looking—who wants to make sure that their database is an accurate database, they look for the AMA logo, and they know that that is a good one. And in Warren Publishing, that would be the same case, that if you want to make sure it is accurate, the Warren folks really do the job, and you know the other guys are ripping him off.

    Mr. CONYERS. Let me close with this. Do you want us to forget about this bill, or do you want to improve on it?

    Mr. BAND. I think that right now there doesn't seem to me to be——

    Mr. CONYERS. You want to forget about it?

    Mr. BAND [continuing]. Any need for additional legislation.

    Mr. CONYERS. You are one of the forget-about-its. Right?

    Mr. BAND. No. You could say that maybe I am conservative and I don't see a need to change the law whenever a court makes a mistake.

    Mr. CONYERS. So we could be engaging our time with other things far more important than this?

    Mr. BAND. In my personal opinion, yes.
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    Mr. CONYERS. Well, that is what you are here for, and I thank you very much for being so candid. And thank you, Mr. Chairman.

    Mr. COBLE. I thank the gentleman from Michigan. The gentleman from Utah is recognized for 5 minutes, Mr. Cannon.

    Mr. CANNON. Thank you, Mr. Chairman. I tend to agree with Mr. Band just for the record. I am not sure that we need to jump in and do legislation quickly especially in an area so complicated. We have heard from my Chairman and friend words of theft—talking about theft, and I think he used the term stealing.

    And Mr. Conyers also talked about stealing, and Mr. Conyers also pointed out the difficulty of having 50 or more state regimes to deal with misappropriation. Professor Ginsburg, could I ask you first of all do we need a Federal law here, or is it something that we can let the states develop on their own?

    Ms. GINSBURG. I would think that it would be desirable to have a Federal law even if all it did was to codify ''hot news''-type misappropriation. I actually think the law should do more, as this bill does. But for the reasons that Mr. Conyers indicated, misappropriation is a state law doctrine, and it is by and large a common law doctrine. And, therefore, there is the potential for 50 different variations on the doctrine, but we are dealing with subject matter that is intensely interstate in nature.

    Even print compilations are intensely interstate, and, of course, anything that is distributed electronically is intensely interstate. So there is much to be said for uniformity, and this bill would preempt state misappropriation regulation. So even if you were to go with the most modest form of some kind of misappropriation protection, I think that there is much to be said for having Federal uniformity.
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    Mr. CANNON. On the other hand, you have two people representing various aspects of the industry on the panel with you who are both saying go slow, state law will do it at least as a band-aid in the interim. Do we need to pass a law soon, or is this something we can watch develop?

    Ms. GINSBURG. Well, they also said forum shop, and I am not sure that that is something we want to encourage.

    Mr. CANNON. Do we need to do something? I guess my question is I recognize that forum shopping, those other kinds of issues, are going to be out there with this, and I think that the other two members of the panel probably understand that as well. Does this subcommittee need to do something soon, or can we watch the law develop as Mr. Band has suggested?

    Ms. GINSBURG. Well, I think we have watched the law develop, and the law can continue to develop; if the goal, however, is to provide predictable incentives for the creation of these collections, which we all think are good things, then legislation may be desirable. I think everybody thinks it is a good thing to have collections.

    The question is whether or not this law will really promote that, or will it end up having the opposite consequence. Some of the prior speakers spoke about alternative methods of protection. We have seen that misappropriation, if it is limited to ''hot news,'' does not cover the range of concerns for those who collect information and for those who would like to access information. There is also contract and there is technological protection, and those have been evolving in the gap created by Feist.
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    But one could ask the question whether that is the most desirable way to secure protection because contracts, first of all, only bind the co-contractants, and the problem here is not necessarily limited to co-contractants. And also there is the problem of complexity that was alluded to.

    With technological controls, the net effect of both contract and technological controls is to make the collection of information less accessible than if it were protected by a tort—a misappropriation-type claim—because in order to protect your rights, you have to lock up the information, make it harder for people to get it. If you want it to be easier for people to get it, if you have a predictable Federal right, that is a more secure way of proceeding.

    Mr. CANNON. I suspect the other two panel members would suggest that the market is a robust place and can handle a lot of complexity. Thank you for that answer. If I can just shoot a question to both Mr. Band and Mr. Casey. If you will, supposing this panel decided to act now and produce a law, what would be the minimum or maximum you think would be appropriate to do at this point in time?

    Mr. CASEY. Well, I wouldn't see anything necessarily wrong with enacting something along the lines of NBA v. Motorola. While I acknowledge that it includes the time sensitivity limitation, the more important aspect of it is that it includes this free-riding definition where it requires that the defendant using the plaintiff's information is actually free-riding off of the plaintiff's effort.

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    And it defines free-riding by the defendant and others on the plaintiff's effort to be such that it would so reduce the incentive to produce the product or service in question that its existence or quality would be substantially threatened.

    I think if you have a limitation in there like that, perhaps even without, you know, such a strict time sensitivity provision, then you protect what a number of the members have stated that they have concerns about, about theft or stealing the information, and you place the incentive properly. So I think something along the lines of that fairly narrowly constructed would be a more appropriate way to go.

    Mr. BAND. Well, with the caveat as when I was in discussion with Congressman Conyers that I wouldn't think that this subcommittee should spend time at all on this issue that could be better spent somewhere else. But if the subcommittee decided that it had to go forward, then I would agree with what Tim is suggesting, something that is very, very limited to the NBA v. Motorola decision would probably be the most that I think would be acceptable.

    My concern is as it moves through Congress, things happen, and it might start to change. And so that is why, again, I would be very hesitant for this subcommittee to do something at this time.

    Mr. CANNON. Thank you very much, Mr. Chairman. I yield back.

    Mr. COBLE. Thank you, Mr. Cannon. The gentleman from Virginia.

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    Mr. GOODLATTE. I have no questions, Mr. Chairman.

    Mr. COBLE. Folks, this has been a spirited session this morning and I think illuminating. Mr. Band, you know, some of the copyright owners complained to me that we are spending too much time on OSP. Would you agree with that? My point is, folks, much of this is subject to interpretation.

    Mr. Casey, or Mr. Band, I think one of you said that some people are saying that the European directive is justification for this bill. Folks, I can assure you that nobody on this subcommittee represents a district that includes Europe when I last checked. I think perhaps justification for the bill, among other reasons, may well be small businesses with limited funds going under, but we will talk about that at another time. Lady and gentlemen, thank you all for being here.

    And we will invite the third panel to come forward. As the third panel is coming forward, the committee will come to order, and we will introduce our third and final panel. Our first witness on our final panel is Jeffrey M. Samuels of the law office of Jeffrey M. Samuels, P.C.

    Mr. Samuels specializes in the practice of trademark and related unfair competition law and copyright law. Mr. Samuels has served as an Assistant Commissioner for Trademarks at the U.S. Patent and Trademark Office and is also a professional lecturer at the George Washington School of Law and George Mason University School of Law.

    Our next witness on this panel is unknown to none of us, Mr. Mike Kirk, Executive Director of the American Intellectual Property Law Association. And our third witness is David Stimson, who is President of the International Trademark Association, (INTA). He is also responsible for the worldwide trademarks and copyrights of the Consumer Imaging, Kodak Professional, and Entertainment Imaging Divisions of the company.
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    Our final witness is Theodore Davis, who is testifying on behalf of the American Bar Association. Mr. Davis is a partner in the Atlanta Office of Kilpatrick, Stockton, LLP, and is a member of the Georgia and the District of Columbia Bars. Mr. Davis has written extensively on the Lanham Act and was graduated from the University of Virginia, School of Law at Charlottesville.

    We have written statements for all the witnesses on this panel, and I will ask unanimous consent to submit them into the record in their entirety. I will again remind you, gentlemen, of the ominous red light as it illuminates.

    And prior to hearing from you, Mr. Samuels, let me submit for the record without objection a letter of support for H.R. 3163, which we have received from the Administration. As always, I thank the Department of Commerce for their input and their continued support of this subcommittee's legislation.

    [The information referred to follows:]


General Counsel of the
U.S. Department of Commerce,
Washington, DC, February 11, 1998.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

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    DEAR MR. CHAIRMAN: Thank you for you or letter requesting the Administration's comments on H.R. 3163, a bill dealing with the registration and protection of trade dress. In general, we support the purpose and provisions of the bill.

    Section 2 of H.R. 3163 makes several important changes in the Trademark Act of 1946, as amended (Act). First, H.R. 3163 amends Section 2(e) of the Act to add Section 2(e)(5). It provides that any mark, which is comprised of matter that, as a whole is functional, must be refused registration. Second, H.R. 3163 amends Section 2 of the Act to add a Section 2(g) that sets out the test from Seabrook Foods Inc. v. Bar-Well Foods, Limited, 568 F.2d 1343, 1344 (C.C.P.A. 1977) to determine when trade dress can be protected as a trademark without a showing of distinctiveness. The first of these amendments clarifies that trade dress that is functional is not registrable. The second sets out the conditions under which trade dress is registrable without proof of secondary meaning. These amendments should provide useful guidelines to examining attorneys in making a determination as to the registrability of certain marks.

    The bill also amends Section 23 of the Act to clarify that any matter which is not functional and which is capable or distinguishing the applicant's goods and services may be registered on the Supplemental Register.

    H.R. 3163 amends Section 45 of the Act to add a definition of both the term ''trade dress'' and the term ''functional.'' Both definitions reflect current case law. However, the last phrase in the definition of ''trade dress,'' ''except that trade dress shall not be registered or protected under this Act if it is functional'', seems unnecessary because H.R. 3163 already amends Section 2 of the Act to prohibit the registration of matter which is functional. Nevertheless, these definitions should provide useful guidance to examining attorneys in making a determination as to what constitutes trade dress and when particular trade dress is functional.
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    Section 43(a) of the Act is amended to provide that in a civil action for trade dress infringement, where the trade dress is not registered on the principal register, the person who asserts trade dress protection has the burden of proving that the matter sought to be protected is not functional. This section clarifies who has the burden of proof in such circumstances.

    We have been advised by the Office of Management and Budget that there is no objection to the submission of this report to the Congress from the standpoint of the Administration's program.

Sincerely,
Andrew J. Pincus


    Mr. COBLE. And I would also like to submit without objection for the record a copy of the Department of Commerce's green paper proposal on Internet domain names.

    [The information referred to follows:]


U.S. Department of Commerce,
National Telecommunications and
Information Administration,
Washington, DC, February 11, 1998.
MR. VINCE GARLOCK, Counsel,
Subcommittee on Courts and
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Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR MR. GARLOCK: Pursuant to our conversation on February 10, enclosed is a copy of the Department of Commerce's draft proposal on Internet Domain Names. Please make this part of the official hearing record for the House Judiciary Committee Courts and Intellectual Property Subcommittee's February 12 hearing on Electronic Intellectual Property Protection. Should you have any questions, do not hesitate to contact me.

Sincerely,

J. Beckwith Burr.

U.S. DEPARTMENT OF COMMERCE NEWS

FOR IMMEDIATE RELEASE:
January 30, 1998

COMMERCE DEPARTMENT RELEASES PROPOSAL TO PRIVATIZE INTERNET DOMAIN REGISTRATION

WASHINGTON, DC—The Commerce Department today released a draft proposal suggesting ways to improve the current management of Internet names and addresses by establishing a private sector policy oversight body and introducing competition into the domain name registration system. The paper is available on the Commerce Department's National Telecommunications and Information Administration's website at http://www.ntia.doc.gov.
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    The draft proposal is intended to elicit comment from the stakeholder community and will be published in the Federal Register to give all interested parties an opportunity to participate in the process. ''We expect that this proposal will spark a lively debate, requiring thoughtful analysis. But, we are hopeful that reasonable consensus can be found and that, after appropriate modifications, implementation can begin in April 1998,'' said J. Beckwith Burr, associate administrator, NTIA, Office of International Affairs (OIA). Comments should be mailed to U.S. Department of Commerce, NTIA/OIA, 14th and Constitution, NW, Room 4701, Washington, DC 20230 or e-mailed to dns@ntia.doc.gov. (The Federal Register notice will establish the official deadline for when comments must be received.)

    ''Our goal is to transition to private sector management of Internet names and addresses in a way that maintains the stability of the Internet; that is competitive, encouraging innovation and maximizing individual freedom; that results in private, bottom-up coordination; and that reflects that diversity of the Internet's users and their needs,'' said Burr.

    In order to achieve these goals, today's proposal would privatize the management of Internet names and addresses through the creation of a new not-for-profit corporation. This organization would set policy for the allocation of number blocks to regional number registries; oversee operation of the root server system; determine when new top-level-domain names should be added to the root system; and coordinate development of protocol parameters for the Internet. It also proposes to create competition among registries that manage top-level domains and among registrars who provide services to Internet end users; and terminate the existing surcharge on Internet registration now allocated to the Internet Intellectual Infrastructure Fund.
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    The proposal is an outgrowth of the Clinton Administration's Framework for Global Electronic Commerce, which was released by President Clinton in July 1997. At that time, the President directed the Commerce Department to seek ways to privatize, increase competition in, and promote international participation in the domain name system in order to reach the full potential of electronic commerce.

    In the Fall, the Commerce Department sought public input on issues relating to the overall framework for the registration of domain names, the creation of new top level domains, policies for registrars, and trademark issues. Over 430 comments were received, amounting to nearly 1500 pages, in response to this request. Today's discussion draft was shaped by this public input.

    NTIA serves as the principal adviser to the executive branch on domestic and international telecommunications issues. To receive a hard copy of the draft proposal, please contact Mary Wallach, NTIA Public Affairs, at 202-482-3999.

     

    The paper set forth below, concerning ways to improve technical management of the Internet Domain Name System, is a proposed rule of the Department of Commerce. This same document will be published in the Federal Register in the near future. While the Department will accept comments on the paper starting today, the Federal Register publication will establish the official deadline for the acceptance of public comment on this proposed rule. Comments may be mailed to U.S. Department of Commerce, NTIA/OIA, 14th and Constitution Avenue, N.W., Washington, D.C. 20230 or sent via electronic mail to dns@ntia.doc.gov. Though it is not intended or expected, should any discrepancy occur between the document set forth below and that published in the Federal Register, the Federal Register publication controls. All comments received will be considered exclusively in the context of issuing a final rule. The paper is being made available through the Internet solely as a means to facilitate the public's access to this document and to provide an additional means of notifying the public of the solicitation of public comment on the proposed rule.
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A PROPOSAL TO IMPROVE TECHNICAL MANAGEMENT OF INTERNET NAMES AND ADDRESSES
DISCUSSION DRAFT 1/30/98

    Domain names are the familiar and easy-to-remember names for Internet computers (e.g. ''www.ecommerce.gov''). They map to unique Internet Protocol (IP) numbers (e.g. 98.37.241.30) that serve as routing addresses on the Internet. The domain name system (DNS) translates Internet names into the IP numbers needed for transmission of information across the network.

History

    Today's Internet is an outgrowth of U.S. government investments in packet-switching technology and communications networks carried out under agreements with the Defense Advanced Research Projects Agency (DARPA), the National Science Foundation (NSF) and other U.S. research agencies. The government encouraged bottom-up development of networking technologies through work at NSF, which established the NSFNET as a network for research and education. The NSFNET fostered a wide range of applications, and in 1992 the U.S. Congress gave the National Science Foundation statutory authority to commercialize the NSFNET, which formed the basis for today's Internet.

    As a legacy, major components of the domain name system are still performed by or subject to agreements with agencies of the U.S. government.

1) Assignment of numerical addresses to Internet users.
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    Every Internet computer has a unique IP number. The Internet Assigned Numbers Authority (IANA), headed by Dr. Jon Postel of the Information Sciences Institute (ISI) at the University of Southern California, coordinates this system by allocating blocks of numerical addresses to regional IP registries (ARIN in North America, RIPE in Europe, and APNIC in the Asia/Pacific region), under contract with DARPA. In turn, larger Internet service providers apply to the regional IP registries for blocks of IP addresses. The recipients of those address blocks then reassign addresses to smaller Internet service providers and to end users.

2) Management of the system of registering names for Internet users.

    The domain name space is constructed as a hierarchy. It is divided into top-level domains (TLDs), with each TLD then divided into second-level domains (SLDs), and so on. More than 200 national, or country-code, TLDs (ccTLDs) are administered by their corresponding governments or by private entities with the appropriate national government's acquiescence. A small set of generic top-level domains (gTLDs) do not carry any national identifier, but denote the intended function of that portion of the domain space. For example, .com was established for commercial users, .org for not-for-profit organizations, and .net for network service providers. The registration and propagation of these key gTLDs are performed by Network Solutions, Inc. (NSI), a Virginia-based company, under a five-year cooperative agreement with NSF. This agreement includes an optional ramp-down period that expires on September 30, 1998.

3) Operation of the root server system.

    The root server system contains authoritative databases listing the TLDs so that an Internet message can be routed to its destination. Currently, NSI operates the ''A'' root server, which maintains the authoritative root database and replicates changes to the other root servers on a daily basis. Different organizations, including NSI, operate the other 12 root servers. In total, the U.S. government plays a direct role in the operation of half of the world's root servers. Universal connectivity on the Internet cannot be guaranteed without a set of authoritative and consistent roots.
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4) Protocol Assignment.

    The Internet protocol suite, as defined by the Internet Engineering Task Force (IETF), contains many technical parameters, including protocol numbers, port numbers, autonomous system numbers, management information base object identifiers and others. The common use of these protocols by the Internet community requires that the particular values used in these fields be assigned uniquely. Currently, IANA, under contract with DARPA, makes these assignments and maintains a registry of the assigned values.

The Need for Change

    From its origins as a U.S.-based research vehicle, the Internet is rapidly becoming an international medium for commerce, education and communication. The traditional means of organizing its technical functions need to evolve as well. The pressures for change are coming from many different quarters:

 There is widespread dissatisfaction about the absence of competition in domain name registration.

 Mechanisms for resolving conflict between trademark holders and domain name holders are expensive and cumbersome.

 Without changes, a proliferation of lawsuits could lead to chaos as tribunals around the world apply the antitrust law and intellectual property law of their jurisdictions to the Internet.
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 Many commercial interests, staking their future on the successful growth of the Internet, are calling for a more formal and robust management structure.

 An increasing percentage of Internet users reside outside of the U.S., and those stakeholders want a larger voice in Internet coordination.

 As Internet names increasingly have commercial value, the decision to add new top-level domains cannot continue to be made on an ad hoc basis by entities or individuals that are not formally accountable to the Internet community.

 As the Internet becomes commercial, it becomes inappropriate for U.S. research agencies (NSF and DARPA) to participate in and fund these functions.

The Future Role of the U.S. Government in the DNS

    On July 1, 1997, as part of the Clinton Administration's Framework for Global Electronic Commerce, the President directed the Secretary of Commerce to privatize, increase competition in, and promote international participation in the domain name system.

    Accordingly, on July 2, 1997, the Department of Commerce issued a Request for Comments (RFC) on DNS administration, on behalf of an inter-agency working group previously formed to explore the appropriate future role of the U.S. government in the DNS. The RFC solicited public input on issues relating to the overall framework of the DNS system, the creation of new top-level domains, policies for registrars, and trademark issues. During the comment period, over 430 comments were received, amounting to some 1500 pages.1\
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    This discussion draft, shaped by the public input described above, provides notice and seeks public comment on a proposal to improve the technical management of Internet names and addresses. It does not propose a monolithic structure for Internet governance. We doubt that the Internet should be governed by one plan or one body or even by a series of plans and bodies. Rather, we seek to create mechanisms to solve a few, primarily technical (albeit critical) questions about administration of Internet names and numbers.

PRINCIPLES FOR A NEW SYSTEM

    Our consultations have revealed substantial differences among Internet stakeholders on how the domain name system should evolve. Since the Internet is changing so rapidly, no one entity or individual can claim to know what is best for the Internet. We certainly do not believe that our views are uniquely prescient. Nevertheless, shared principles have emerged from our discussions with Internet stakeholders.

1. Stability.

The U.S. government should end its role in the Internet number and name address systems in a responsible manner. This means, above all else, ensuring the stability of the Internet. The Internet functions well today, but its current technical management is probably not viable over the long term. We should not wait for it to break down before acting. Yet, we should not move so quickly, or depart so radically from the existing structures, that we disrupt the functioning of the Internet. The introduction of a new system should not disrupt current operations, or create competing root systems.
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2. Competition.

The Internet succeeds in great measure because it is a decentralized system that encourages innovation and maximizes individual freedom. Where possible, market mechanisms that support competition and consumer choice should drive the technical management of the Internet because they will promote innovation, preserve diversity, and enhance user choice and satisfaction.

3. Private, Bottom-Up Coordination.

Certain technical management functions require coordination. In these cases, responsible, private-sector action is preferable to government control. A private coordinating process is likely to be more flexible than government and to move rapidly enough to meet the changing needs of the Internet and of Internet users. The private process should, as far as possible, reflect the bottom-up governance that has characterized development of the Internet to date.

4. Representation.

Technical management of the Internet should reflect the diversity of its users and their needs. Mechanisms should be established to ensure international input in decision making. In keeping with these principles, we divide the name and number functions into two groups, those that can be moved to a competitive system and those that should be coordinated. We then suggest the creation of a representative, not-for-profit corporation to manage the coordinated functions according to widely accepted objective criteria. We then suggest the steps necessary to move to competitive markets in those areas that can be market driven. Finally, we suggest a transition plan to ensure that these changes occur in an orderly fashion that preserves the stability of the Internet.
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THE PROPOSAL

The Coordinated Functions

    Management of number addresses is best done on a coordinated basis. As technology evolves, changes may be needed in the number allocation system. These changes should also be undertaken in a coordinated fashion.

    Similarly, coordination of the root server network is necessary if the whole system is to work smoothly. While day-to-day operational tasks, such as the actual operation and maintenance of the Internet root servers, can be contracted out, overall policy guidance and control of the TLDs and the Internet root server system should be vested in a single organization that is representative of Internet users.

    Finally, coordinated maintenance and dissemination of the protocol parameters for Internet addressing will best preserve the stability and interconnectivity of the Internet.

    We propose the creation of a private, not-for-profit corporation (the new corporation) to manage the coordinated functions in a stable and open institutional framework. The new corporation should operate as a private entity for the benefit of the Internet as a whole. The new corporation would have the following authority:

1. to set policy for and direct the allocation of number blocks to regional number registries for the assignment of Internet addresses;
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2. to oversee the operation of an authoritative root server system;

3. to oversee policy for determining, based on objective criteria clearly established in the new organization's charter, the circumstances under which new top-level domains are added to the root system; and

4. to coordinate the development of other technical protocol parameters as needed to maintain universal connectivity on the Internet.

    The U.S. government would gradually transfer existing IANA functions, the root system and the appropriate databases to this new not-for-profit corporation. This transition would commence as soon as possible, with operational responsibility moved to the new entity by September 30, 1998. The U.S. government would participate in policy oversight to assure stability until the new corporation is established and stable, phasing out as soon as possible and in no event later than September 30, 2000. The U.S. Department of Commerce will coordinate the U.S. government policy role. In proposing these dates, we are trying to balance concerns about a premature U.S. government exit that turns the domain name system over to a new and untested entity against the concern that the U.S. government will never relinquish its current management role.

    The new corporation will be funded by domain name registries and regional IP registries. Initially, current IANA staff will move to this new organization to provide continuity and expertise throughout the period of time it takes to establish the new corporation. The new corporation should hire a chief executive officer with a background in the corporate sector to bring a more rigorous management to the organization than was possible or necessary when the Internet was primarily a research medium. As these functions are now performed in the United States, the new corporation will be headquartered in the United States, and incorporated under U.S. law as a not-for-profit corporation. It will, however, have and report to a board of directors from around the world.
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    It is probably impossible to establish and maintain a perfectly representative board for this new organization. The Internet community is already extraordinarily diverse and likely to become more so over time. Nonetheless, the organization and its board must derive legitimacy from the participation of key stakeholders. Since the organization will be concerned mainly with numbers, names and protocols, its board should represent membership organizations in each of these areas, as well as the direct interests of Internet users.

    The board of directors for the new corporation should be balanced to equitably represent the interests of IP number registries, domain name registries, domain name registrars, the technical community, and Internet users (commercial, not-for-profit, and individuals). Officials of governments or intergovernmental organizations should not serve on the board of the new corporation. Seats on the initial board might be allocated as follows:

1. three directors from a membership association of regional number registries, representing three different regions of the world. Today this would mean one each from ARIN, APNIC and RIPE. As additional regional number registries are added, board members could be designated on a rotating basis or elected by a membership organization made up of regional registries. ARIN, RIPE and APNIC are open membership organizations that represent entities with large blocks of numbers. They have the greatest stake in and knowledge of the number address system. They are also representative internationally.

2. two members designated by the Internet Architecture Board (IAB), an international membership board that represents the technical community of the Internet.

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3. two members designated by a membership association (to be created) representing domain name registries and registrars.

4. seven members designated by a membership association (to be created) representing Internet users. At least one of those board seats could be designated for an individual or entity engaged in non-commercial, not-for-profit use of the Internet, and one for individual end users. The remaining seats could be filled by commercial users, including trademark holders.

5. the CEO of the new corporation would serve on the board of directors.

    The new corporation's processes should be fair, open and pro-competitive, protecting against capture by a narrow group of stakeholders. Its decision-making processes should be sound and transparent; the bases for its decisions should be recorded and made publicly available. Super-majority or even consensus requirements may be useful to protect against capture by a self-interested faction. The new corporation's charter should provide a mechanism whereby its governing body will evolve to reflect changes in the constituency of Internet stakeholders. The new corporation should establish an open process for the presentation of petitions to expand board representation.

    In performing the functions listed above, the new corporation will act much like a standard-setting body. To the extent that the new corporation operates in an open and pro-competitive manner, its actions will withstand antitrust scrutiny. Its standards should be reasonably based on, and no broader than necessary to promote its legitimate coordinating objectives. Under U.S. law, a standard-setting body can face antitrust liability if it is dominated by an economically interested entity, or if standards are set in secret by a few leading competitors. But appropriate processes and structure will minimize the possibility that the body's actions will be, or will appear to a court to be, anticompetitive.
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The Competitive Functions

    The system for registering second-level domain names and the management of the TLD registries should become competitive and market-driven.

    In this connection, we distinguish between registries and registrars. A ''registry,'' as we use the term, is responsible for maintaining a TLD's zone files, which contain the name of each SLD in that TLD and each SLD's corresponding IP number. Under the current structure of the Internet, a given TLD can have no more than one registry. A ''registrar'' acts as an interface between domain-name holders and the registry, providing registration and value-added services. It submits to the registry zone file information and other data (including contact information) for each of its customers in a single TLD. Currently, NSI acts as both the exclusive registry and as the exclusive registrar for .com, .net, .org, and .edu.

    Both registry and registrar functions could be operated on a competitive basis. Just as NSI acts as the registry for .com, .net, and .org, other companies could manage registries with different TLDs such as .vend or .store. Registrars could provide the service of obtaining domain names for customers in any gTLD. Companies that design Web sites for customers might, for example, provide registration as an adjunct to other services. Other companies may perform this function as a stand-alone business.

    There appears to be strong consensus that, at least at this time, domain name registration—the registrar function—should be competitive. There is disagreement, however, over the wisdom of promoting competition at the registry level.
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    Some have made a strong case for establishing a market-driven registry system. Competition among registries would allow registrants to choose among TLDs rather than face a single option. Competing TLDs would seek to heighten their efficiency, lower their prices, and provide additional value-added services. Investments in registries could be recouped through branding and marketing. The efficiency, convenience, and service levels associated with the assignment of names could ultimately differ from one TLD registry to another. Without these types of market pressures, they argue, registries will have very little incentive to innovate.

    Others feel strongly, however, that if multiple registries are to exist, they should be undertaken on a not-for-profit basis. They argue that lack of portability among registries (that is, the fact that users cannot change registries without adjusting at least part of their domain name string) could create lock-in problems and harm consumers. For example, a registry could induce users to register in a top-level domain by charging very low prices initially and then raise prices dramatically, knowing that name holders will be reluctant to risk established business by moving to a different top-level domain.

    We concede that switching costs and lock-in could produce the scenario described above. On the other hand, we believe that market mechanisms may well discourage this type of behavior. On balance, we believe that consumers will benefit from competition among market oriented registries, and we thus support limited experimentation with competing registries during the transition to private sector administration of the domain name system.

The Creation of New gTLDs

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    Internet stakeholders disagree about who should decide when a new top-level domain can be added and how that decision should be made. Some believe that anyone should be allowed to create a top-level domain registry. They argue that the market will decide which will succeed and which will not. Others believe that such a system would be too chaotic and would dramatically increase customer confusion. They argue that it would be far more complex technically, because the root server system would have to point to a large number of top-level domains that were changing with great frequency. They also point out that it would be much more difficult for trademark holders to protect their trademarks if they had to police a large number of top-level domains.

    All these arguments have merit, but they all depend on facts that only further experience will reveal. At least in the short run, a prudent concern for the stability of the system requires that expansion of gTLDs proceed at a deliberate and controlled pace to allow for evaluation of the impact of the new gTLDs and well-reasoned evolution of the domain space. The number of new top-level domains should be large enough to create competition among registries and to enable the new corporation to evaluate the functioning, in the new environment, of the root server system and the software systems that enable shared registration. At the same time, it should not be so large as to destabilize the Internet.

    We believe that during the transition to private management of the DNS, the addition of up to five new registries would be consistent with these goals. At the outset, we propose that each new registry be limited to a single top-level domain. During this period, the new corporation should evaluate the effects that the addition of new gTLDs have on the operation of the Internet, on users, and on trademark holders. After this transition, the new corporation will be in a better position to decide whether or when the introduction of additional gTLDs is desirable.
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    Individual companies and consortia alike may seek to operate specific generic top-level domains. Competition will take place on two levels. First, there will be competition among different generic top-level domains. Second, registrars will compete to register clients into these generic top-level domains. By contrast, existing national registries will continue to administer country-code top-level domains if these national government seek to assert those rights. Changes in the registration process for these domains are up to the registries administering them and their respective national governments.

    Some have called for the creation of a more descriptive system of top-level domains based on industrial classifications or some other easy to understand schema. They suggest that having multiple top-level domains is already confusing and that the addition of new generic TLDs will make it more difficult for users to find the companies they are seeking.

    Market driven systems result in innovation and greater consumer choice and satisfaction in the long run. We expect that in the future, directory services of various sorts will make it easy for users to find the sites they seek regardless of the number of top-level domains. Attempts to impose too much central order risk stifling a medium like the Internet that is decentralized by nature and thrives on freedom and innovation.

The Trademark Dilemma

    It is important to keep in mind that trademark/domain name disputes arise very rarely on the Internet today. NSI, for example, has registered millions of domain names, only a tiny fraction of which have been challenged by a trademark owner. But where a trademark is unlawfully used as a domain name, consumers may be misled about the source of the product or service offered on the Internet, and trademark owners may not be able to protect their rights without very expensive litigation.
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    For cyberspace to function as an effective commercial market, businesses must have confidence that their trademarks can be protected. On the other hand, management of the Internet must respond to the needs of the Internet community as a whole, and not trademark owners exclusively. The balance we strike is to provide trademark holders with the same rights they have in the physical world, to ensure transparency, to guarantee a dispute resolution mechanism with resort to a court system, and to add new top-level domains carefully during the transition to private sector coordination of the domain name system.

    There are certain steps that could be taken in the application process that would not be difficult for an applicant, but that would make the trademark owner's job easier. For instance, gTLD registrants could supply basic information—including the applicant's name and sufficient contact information to be able to locate the applicant or its representative. To deter the pirating of domain names, the registry could also require applicants to certify that it knows of no entity with superior rights in the domain name it seeks to register.

    The job of policing trademarks could be considerably easier if domain name databases were readily searchable through a common interface to determine what names are registered, who holds those domain names, and how to contact a domain name holder. Many trademark holders find the current registration search tool, Whois, too limited in its functioning to be effective for this purpose. A more robust and flexible search tool, which features multiple field or string searching and retrieves similar names, could be employed or developed to meet the needs of trademark holders. The databases also could be kept up to date by a requirement that domain name registrants maintain up-to-date contact information.
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    Mechanisms that allow for on-line dispute resolution could provide an inexpensive and efficient alternative to litigation for resolving disputes between trademark owners and domain name registrants. A swift dispute resolution process could provide for the temporary suspension of a domain name registration if an adversely affected trademark holder objects within a short time, e.g. 30 days, of the initial registration. We seek comment on whether registries should be required to resolve disputes within a specified period of time after an opposition is filed, and if so, how long that period should be.

    Trademark holders have expressed concern that domain name registrants in faraway places may be able to infringe their rights with no convenient jurisdiction available in which the trademark owner could file suit to protect those rights. At the time of registration, registrants could agree that, in the event of a trademark dispute involving the name registered, jurisdiction would lie where the registry is domiciled, where the registry database in maintained, or where the ''A'' root server is maintained. We seek comment on this proposal, as well as suggestions for how such jurisdictional provisions could be implemented.

    Trademark holders have also called for the creation of some mechanism for ''clearing'' trademarks, especially famous marks, across a range of gTLDs. Such mechanisms could reduce trademark conflict associated with the addition of new gTLDs. Again, we seek comment on this proposal, and suggested mechanisms for trademark clearance processes.

    We stop short of proposals that could significantly limit the flexibility of the Internet, such as waiting periods or not allowing any new top-level domains.

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    We also do not propose to establish a monolithic trademark dispute resolution process at this time, because it is unclear what system would work best. Even trademark holders we have consulted are divided on this question. Therefore, we propose that each name registry must establish minimum dispute resolution and other procedures related to trademark considerations. Those minimum procedures are spelled out in Appendix 2. Beyond those minimums, registries would be permitted to establish additional trademark protection and trademark dispute resolution mechanisms.

    We also propose that shortly after their introduction into the root, a study be undertaken on the effects of adding new gTLDs and related dispute resolution procedures on trademark and intellectual property right holders. This study should be conducted under the auspices of a body that is internationally recognized in the area of dispute resolution procedures, with input from trademark and domain name holders and registries. The findings of this study should be submitted to the board of the new corporation and considered when it makes decisions on the creation and introduction of new gTLDs. Information on the strengths and weaknesses of different dispute resolution procedures should also give the new corporation guidance for deciding whether the established minimum criteria for dispute resolution should be amended or maintained. Such a study could also provide valuable input with respect to trademark harmonization generally.

    U.S. trademark law imposes no general duty on a registrar to investigate the propriety of any given registration.2\ Under existing law, a trademark holder can properly file a lawsuit against a domain name holder that is infringing or diluting the trademark holder's mark. But the law provides no basis for holding that a registrar's mere registration of a domain name, at the behest of an applicant with which it has an arm's-length relationship, should expose it to liability.3\ Infringers, rather than registrars, registries, and technical management bodies, should be liable for trademark infringement. Until case law is fully settled, however, registries can expect to incur legal expenses in connection with trademark disputes as a cost of doing business. These costs should not be borne by the new not-for-profit corporation, and therefore registries should be required to indemnify the new corporation for costs incurred in connection with trademark disputes. The evolution of litigation will be one of the factors to be studied by the group tasked to review Internet trademark issues as the new structure evolves.
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The Intellectual Infrastructure Fund

    In 1995, NSF authorized NSI to assess new domain name registrants a $50 fee per year for the first two years, 30 percent of which was to be deposited in a fund for the preservation and enhancement of the intellectual infrastructure of the Internet (the ''Intellectual Infrastructure Fund '')

    In excess of $46 Million has been collected to date. In 1997, Congress authorized the crediting of $23 Million of the funds collected to the Research and Related Activities Appropriation of the National Science Foundation to support the development of the Next Generation Internet. The establishment of the Intellectual Infrastructure Fund currently is the subject of litigation in the U.S. District Court for the District of Columbia.

    As the U.S. government is seeking to end its role in the domain name system, we believe the provision in the cooperative agreement regarding allocation of a portion of the registration fee to the Internet Intellectual Infrastructure Fund should terminate on April 1, 1998, the beginning of the ramp-down period of the cooperative agreement.

THE TRANSITION

    A number of steps must be taken to create the system envisioned in this paper.

1. The new not-for-profit organization must be established and its board chosen.
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2. The membership associations representing 1) registries and registrars, and 2) Internet users, must be formed.

3. An agreement must be reached between the U.S. government and the current IANA on the transfer of IANA functions to the new organization.

4. NSI and the U.S. government must reach agreement on the terms and conditions of NSI's evolution into one competitor among many in the registrar and registry marketplaces. A level playing field for competition must be established.

5. The new corporation must establish processes for determining whether an organization meets the transition period criteria for prospective registries and registrars.

6. A process must be laid out for making the management of the root server system more robust and secure, and, for transitioning that management from U.S. government auspices to those of the new corporation.

The NSI Agreement

    The U.S. government will ramp down the NSI cooperative agreement and phase it out by the end of September 1998. The ramp down agreement with NSI should reflect the following terms and conditions designed to promote competition in the domain name space.

1. NSI will effectively separate and maintain a clear division between its current registry business and its current registrar business. NSI will continue to operate .com, .net and .org but on a fully shared-registry basis; it will shift operation of .edu to a not-for-profit entity. The registry will treat all registrars on a nondiscriminatory basis and will price registry services according to an agreed upon formula for a period of time.
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2. As part of the transition to a fully shared-registry system, NSI will develop (or license) and implement the technical capability to share the registration of its top-level domains with any registrar so that any registrar can register domain names there in as soon as possible, by a date certain to be agreed upon.

3. NSI will give the U.S. government a copy and documentation of all the data, software, and appropriate licenses to other intellectual property generated under the cooperative agreement, for use by the new corporation for the benefit of the Internet.

4. NSI will turn over control of the ''A'' root server and the management of the root server system when instructed to do so by the U.S. government.

5. NSI will agree to meet the requirements for registries and registrars set out in Appendix 1.

Competitive Registries, Registrars, and the Addition of New gTLDs

    Over the past few years, several groups have expressed a desire to enter the registry or registrar business. Ideally, the U.S. government would stay its hand, deferring the creation of a specific plan to introduce competition into the domain name system until such time as the new corporation has been organized and given an opportunity to study the questions that such proposals raise. Should the transition plan outlined below, or some other proposal, fail to achieve substantial consensus, that course may well need to be taken.

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    Realistically, however, the new corporation cannot be established overnight. Before operating procedures can be established, a board of directors and a CEO must be selected. Under a best case scenario, it is unlikely that the new corporation can be fully operational before September 30, 1998. It is our view, based on widespread public input, that competition should be introduced into the DNS system more quickly.

    We therefore set out below a proposal to introduce competition into the domain name system during the transition from the existing U.S. government authority to a fully functioning coordinating body. This proposal is designed only for the transition period. Once the new corporation is formed, it will assume authority over the terms and conditions for the admission of new top-level domains.

Registries and new gTLDs

    This proposal calls for the creation of up to five new registries, each of which would be initially permitted to operate one new gTLD. As discussed above, that number is large enough to provide valuable information about the effects of adding new gTLDs and introducing competition at the registry level, but not so large as to threaten the stability of the Internet during this transition period. In order to designate the new registries and gTLDs, IANA must establish equitable, objective criteria and processes for selecting among a large number of individuals and entities that want to provide registry services. Unsuccessful applicants will be disappointed.

    We have examined a number of options for recognizing the development work already underway in the private sector. For example, some argue for the provision of a ''pioneer preference'' or other grandfathering mechanism to limit the pool of would-be registrants to those who, in response to previous IANA requests, have already invested in developing registry businesses. While this has significant appeal and we do not rule it out, it is not an easy matter to determine who should be in that pool. IANA would be exposed to considerable liability for such determinations, and required to defend against charges that it acted in an arbitrary or inequitable manner. We welcome suggestions as to whether the pool of applicants should be limited, and if so, on what basis.
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    We propose, that during the transition, the first five entities (whether from a limited or unlimited pool) to meet the technical, managerial, and site requirements described in Appendix 1 will be allowed to establish a domain name registry. The IANA will engage neutral accounting and technical consultancy firms to evaluate a proposed registry under these criteria and certify an applicant as qualified. These registries may either select, in order of their qualification, from a list of available gTLDs or propose another gTLD to IANA. (We welcome suggestions on the gTLDs that should be immediately available and would propose a list based on that input, as well as any market data currently available that indicates consumer interest in particular gTLDs.)

    The registry will be permitted to provide and charge for value-added services, over and above the basic services provided to registrars. At least at this time, the registry must, however, operate on a shared registry basis, treating all registrars on a nondiscriminatory basis, with respect to pricing, access and rules. Each TLD's registry should be equally accessible to any qualified registrar, so that registrants may choose their registrars competitively on the basis of price and service. The registry will also have to agree to modify its technical capabilities based on protocol changes that occur in Internet technology so that interoperability can be preserved. At some point in the future, the new organization may consider the desirability of allowing the introduction of non-shared registries.

Registrars

    Any entity will be permitted to provide registrar services as long as it meets the basic technical, managerial, and site requirements as described in Appendix 1 of this paper. Registrars will be allowed to register clients into any top-level domain for which the client satisfies the eligibility rules, if any.
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The Root Server System

    IANA and the U.S. government, in cooperation with NSI, the IAB, and other relevant organizations will undertake a review of the root server system to recommend means to increase the security and professional management of the system. The recommendations of the study should be implemented as part of the transition process to the new corporation.

The .us Domain

    At present, the IANA administers .us as a locality based hierarchy in which second-level domain space is allocated to states and US territories.4\ This name space is further subdivided into localities. General registration under localities is performed on an exclusive basis by private firms that have requested delegation from IANA. The .us name space has typically been used by branches of state and local governments, although some commercial names have been assigned. Where registration for a locality has not been delegated, the IANA itself serves as the registrar.

    Some in the Internet community have suggested that the pressure for unique identifiers in the .com gTLD could be relieved if commercial use of the .us space was encouraged. Commercial users and trademark holders, however, find the current locality-based system too cumbersome and complicated for commercial use. Expanded use of the .us TLD could alleviate some of the pressure for new generic TLDs and reduce conflicts between American companies and others vying for the same domain name.

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    Clearly, there is much opportunity for enhancing the .us domain space, and the .us domain could be expanded in many ways without displacing the current geopolitical structure. Over the next few months, the U.S. government will work with the private sector and state and local governments to determine how best to make the .us domain more attractive to commercial users. It may also be appropriate to move the gTLDs traditionally reserved for U.S. government use (i.e. .gov and .mil), into a reformulated .us ccTLD.

    The U.S. government will further explore and seek public input on these issues through a separate Request for Comment on the evolution of the .us name space. However, we welcome any preliminary comments at this time.

The Process

    The U.S. government recognizes that its unique role in the Internet domain name system should end as soon as is practical. We also recognize an obligation to end this involvement in a responsible manner that preserves the stability of the Internet. We cannot cede authority to any particular commercial interest or any specific coalition of interest groups. We also have a responsibility to oppose any efforts to fragment the Internet, as this would destroy one of the key factors—interoperability—that has made the Internet so successful.

    Our goal is to seek as strong a consensus as possible so that a new, open, and accountable system can emerge that is legitimate in the eyes of all Internet stakeholders. It is in this spirit that we present this paper for discussion.

APPENDIX 1
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Recommended Registry and Registrar Requirements

    In order to ensure the stability of the Internet's domain name system, protect consumers, and preserve the intellectual property rights of trademark owners, all registries of generic top-level domain names must meet the set of technical, managerial, and site requirements outlined below. Only prospective registries that meet these criteria will be allowed by IANA to register their gTLD in the ''A'' server. If, after it begins operations, a registry no longer meets these requirements, IANA may transfer management of the domain names under that registry's gTLD to another organization.

    Independent testing, reviewing, and inspection called for in the requirements for registries should be done by appropriate certifying organizations or testing laboratories rather than IANA itself, although IANA will define the requirements and the procedures for tests and audits.

    These requirements apply only to generic TLDs. They will apply to both existing gTLDs (e.g., .com, .edu., .net, .org) and new gTLDs. Although they are not required to, we expect many ccTLD registries and registrars may wish to assure their customers that they meet these requirements or similar ones.

    Registries will be separate from registrars and have only registrars as their customers. If a registry wishes to act both as registry and registrar for the same TLD, it must do so through separate subsidiaries. Appropriate accounting and confidentiality safeguards shall be used to ensure that the registry subsidiary's business is not utilized in any manner to benefit the registrar subsidiary to the detriment of any other registrar.
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    Each top-level domain (TLD) database will be maintained by only one registry and, at least initially, each new registry can host only one TLD.

    Registry requirements:

    1. An independently-tested, functioning DATABASE AND COMMUNICATIONS SYSTEM that:

a. Allows multiple competing registrars to have secure access (with encryption and authentication) to the database on an equal (first-come, first-served) basis.

b. Is both robust (24 hours per day, 365 days per year) and scalable (i.e., capable of handling high volumes of entries and inquiries).

c. Has multiple high-throughput (i.e., at least T1) connections to the Internet via at least two separate Internet Service Providers.

d. Includes a daily data backup and archiving system.

e. Incorporates a record management system that maintains copies of all transactions, correspondence, and communications with registrars for at least the length of a registration contract.

f. Features a searchable, on-line database meeting the requirements of Appendix 2.
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g. Provides free access to the software and customer interface that a registrar would need to register new second-level domain names.

h. An adequate number (perhaps two or three) of globally-positioned zone-file servers connected to the Internet for each TLD.

    2. Independently-reviewed MANAGEMENT POLICIES, PROCEDURES, AND PERSONNEL including:

a. Alternate (i.e., non-litigation) dispute resolution providing a timely and inexpensive forum for trademark-related complaints. (These procedures should be consistent with applicable national laws and compatible with any available judicial or administrative remedies.)

b. A plan to ensure that the registry's obligations to its customers will be fulfilled in the event that the registry goes out of business. This plan must indicate how the registry would ensure that domain name holders will continue to have use of their domain name and that operation of the Internet will not be adversely affected.

c. Procedures for assuring and maintaining the expertise and experience of technical staff.

d. Commonly-accepted procedures for information systems security to prevent malicious hackers and others from disrupting operations of the registry.

    3. Independently inspected PHYSICAL SITES that feature:
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a. A backup power system including a multi-day power source.

b. A high level of security due to twenty-four-hour guards and appropriate physical safeguards against intruders.

c. A remotely-located, fully redundant and staffed twin facility with ''hot switchover'' capability in the event of a main facility failure caused by either a natural disaster (e.g., earthquake or tornado) or an accidental (fire, burst pipe) or deliberate (arson, bomb) man-made event. (This might be provided at, or jointly supported with, another registry, which would encourage compatibility of hardware and commonality of interfaces.)

Registrar requirements

    Registries will set standards for registrars with which they wish to do business. The following are the minimal qualifications that IANA should mandate that each registry impose and test or inspect before allowing a registrar to access its database(s). Any additional requirements imposed by registries on registrars must be approved by IANA and should not affect the stability of the Internet or substantially reduce competition in the registrar business. Registries may refuse to accept registrations from registrars that fail to meet these requirements and may remove domain names from the registries if at a later time the registrar which registered them no longer meets the requirements for registrars.

    1. A functioning DATABASE AND COMMUNICATIONS SYSTEM that supports:

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a. Secure access (with encryption and authentication) to the registry.

b. Robust and scalable operations capable of handling moderate volumes.

c. Multiple connections to the Internet via at least two Internet Service Providers.

d. A daily data backup and archival system.

e. A record management system that maintains copies of all transactions, correspondence, and communications with all registries for at least the length of a registration contract.

    2. MANAGEMENT POLICIES, PROCEDURES, AND PERSONNEL including:

a. A plan to ensure that the registrar's obligations to its customers and to the registries will be fulfilled in the event that the registrar goes out of business. This plan must indicate how the registrar would ensure that domain name holders will continue to have use of their domain name and that operation of the Internet will not be adversely affected.

b. Commonly-accepted procedures for information systems security to prevent malicious hackers and others from disrupting operations.

    3. Independently inspected PHYSICAL SITES that features:

a. A backup power system.

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b. A high level of security due to twenty-four-hour guards and appropriate physical safeguards against intruders.

c. Remotely-stored backup files to permit recreation of customer records.

APPENDIX 2

Minimum Dispute Resolution and Other Procedures related to Trademarks

    1. Minimum Application Requirements:

a. Sufficient owner and contact information (e.g., names, mail address for service of process, e-mail address, telephone and fax numbers, etc.) to enable an interested party to contact either the owner/applicant or its designated representative; and a

b. Certification statement by the applicant that:

—it is entitled to register the domain name for which it is applying and knows of no entity with superior rights in the domain name; and

—it intends to use the domain name.

    2. Searchable Database Requirements:

Utilizing a simple, easy-to-use, standardized search interface that features multiple field or string searching and the retrieval of similar names, the following information must be included in all registry databases, and available to anyone with access to the Internet:
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—up-to-date ownership and contact information;

—up-to-date and historical chain of title information for the domain name;

—a mail address for service of process;

—the date of the domain name registration; and

—the date an objection to registration of the domain name was filed.

    3. Updated Ownership, Contact and Use Information

a. At any time there is a change in ownership, the domain name owner must submit the following information:

—up-to-date contact and ownership information and

—a description of how the owner is using the domain name, or, if the domain name is not in use, a statement to that effect.

    4. Alternative Dispute Resolution of Domain Name Conflicts:

1. There must be a readily available and convenient dispute resolution process that requires no involvement by registrars.
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2. Registries/Registrars will abide by the decisions resulting from an agreed upon dispute resolution process or by the decision of a court of competent jurisdiction.

3. If an objection to registration is raised within 30 days after registration of the domain name, a brief period of suspension during the pendency of the dispute will be provided by the registries.

ENDNOTES

    1. The RFC and comments received are available on the Internet at the following address: <http://www.ntia.doc.gov>.

    2. See generally MDT Corp. v. New York Stock Exchange, 858 F. Supp. 1028 (C.D. Calif. 1994).

    3. See Lockheed Martin Corp. v. Network Solutions, Inc., 1997 WL 721899 (C.D. Calif. 11/17/97); Panavision International v. Toeppen, 1996 U.S. Dist. LEXIS 20744, 41 U.S.P.Q.2d 1310 (C.D. Calif. 1996).

    4. Management principles for the .us domain space are set forth in Internet RFC 1480, (http://www.isi.edu/in-notes/rfc1480.txt)

    Mr. COBLE. Gentlemen, it is good to have you all with us. Let us come to order, if you will, and direct attention to the third panel. Mr. Samuels, if you will kick it off?
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STATEMENT OF JEFFREY M. SAMUELS, ESQUIRE, LAW OFFICE OF JEFFREY M. SAMUELS, P.C.

    Mr. SAMUELS. Thank you, Mr. Chairman. I am pleased to be here today to testify in support of your bill, H.R. 3163, the Trade Dress Protection Act. In my opinion, your bill will provide the Courts and the PTO with much needed guidance in determining whether product designs and packaging are protectable.

    The current situation where different standards are applied by different Courts to different types of trade dress, in my opinion, is untenable. The beauty of your bill, Mr. Chairman, is that it provides for a single, workable test for protection based on objective criteria and grounded on fundamental principles of trademark law.

    Before going further, Mr. Chairman, I thought it would be useful to the subcommittee to provide some examples of what we are talking about today. I have with me some representative samples of trademark registrations of product designs. And if I could, I would like to have them handed up to you so you can take a look at them.

    Mr. COBLE. Without objection.

    Mr. SAMUELS. As I note in my prepared remarks, Mr. Chairman, the number of trade dress applications filed with the PTO is increasing and so too is the number of trade dress cases filed in Federal Court. Your bill, Mr. Chairman, has four major provisions. In my view, the most important adds a new section, 2[g], to the Trademark Act relating to the test to be applied by the Courts and the PTO to determine whether trade dress is inherently distinctive and thus protectable immediately upon use.
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    At present, the Federal Circuit Courts of Appeals have adopted at least four different tests. There is the three-part test of the Third Circuit that focuses in part on the intent of the product designer, that the design serve primarily as a source identifier. There is the Second Circuit test that with respect to product designs also focuses on the designer's intent.

    There is the Eighth Circuit test that applies to traditional classification of marks adopted in connection with word mark disputes, and there is the Federal Circuit multifactor Seabrook test that looks at whether the trade dress is a common basic shape or instead unique or unusual in the particular field. And if that is not confusing enough,the Third and Second Circuits apply different tests depending on whether the trade dress is a product design or product packaging.

    As I note in my remarks, Mr. Chairman, the Third Circuit's test by focusing on the designer's intent, as opposed to likely consumer perception, is inconsistent with basic tenets of trademark law. Trademark law protects consumers against confusion in the marketplace, and if the public is likely to identify the source of a product by reference to its design, confusion may arise even if the designer did not intend that its design serve as a mark.

    The Second Circuit's test suffers from the same malady. At the same time, the Eighth Circuit's inherent distinctiveness test, which compares the mark with the goods or services, in my opinion, does not work well in the trade dress context.

    Your bill strikes an appropriate middle ground, in my opinion. It focuses the inherent distinctive inquiry on whether consumers are likely to perceive the trade dress, all types of trade dress, as a mark. It is thus faithful to basic principles of trademark law. It then identifies a number of nonexclusive factors, the so-called Seabrook factors, that a Court or the PTO must consider.
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    I would note that the Seabrook factors have been applied by many Courts, and even the Second Circuit has indicated that those factors can be useful tools to assess whether a product design is likely to be perceived as a mark.

    Now, while some may argue that the test for protection of product design should be more difficult than the test for protection of product packaging, I disagree. First, such distinction is arguably inconsistent with the Supreme Court's decision in the Two Pesos case. That case sought to put trade dress on a level playing field with trademarks and envisioned trade dress as a single concept with trademark law requiring a single test for inherent distinctiveness.

    Second, it is not always easy to distinguish between product design and packaging. For example, the Third Circuit interpreted Two Pesos as a packaging case, while the Eighth Circuit interpreted it as a design case.

    Finally, the rationale for a stricter test for designs—that is, that it is less likely a design will serve as a mark—may prejudge the issue. While it is probably true that designs are less likely than packaging to serve as marks, we should not adopt the framework for analysis that will render it virtually impossible for designs to be found inherently distinctive.

    Mr. COBLE. Mr. Samuels, pardon me. You all are having to address two issues. So I am going to be a little more lenient on the red light.

    Mr. SAMUELS. I appreciate that, Mr. Chairman.
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    Mr. COBLE. So you call go ahead, and I failed to mention that there are two issues here.

    Mr. SAMUELS. I submit, Mr. Chairman, that most of the concerns expressed by the Second and Third Circuits about protecting product designs may be addressed through a sensitive application of the functionality doctrine, and it is to that subject which I now would like to turn my attention.

    Your bill would also add a new section, 2[e][5], to the Trademark Act to provide the PTO with a specific statutory basis upon which to refuse to register trade dress or any other matter on grounds that the matter in issue is, as a whole, functional. As you indicated, the PTO is supportive of your bill overall including this provision, and I support this particular amendment as well.

    Another major provision of your bill would amend the Act to include a specific definition of the term functional. Assuming a new Section 2[e][5] is added to the law and given the action of the House last year in passing the Trademark Law Treaty implementing legislation which contains a number of provisions relating to functional marks that are the subject of incontestable registrations, I think a definition of functional in the Lanham Act is desirable.

    In my opinion, such a definition should emphasize two points; first, that the test for functionality is whether to afford protection would significantly hinder effective competition. That is the test set forth in your bill, and it is widely adopted by the Courts. And my second point would be that a design is not functional simply because it is an important ingredient to the commercial success of the product.
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    I think if we can limit the coverage of your bill to those particular points, which I think most of us here can agree upon, I think that that is something that could be done. At this point, Mr. Chairman, I will close and be happy to answer any questions.

    [The prepared statement of Mr. Samuels follows:]

PREPARED STATEMENT OF JEFFREY M. SAMUELS, ESQUIRE, LAW OFFICE OF JEFFREY M. SAMUELS, P.C.

SUMMARY

    I am pleased to have the opportunity to testify today in support of H.R. 3163, the ''Trade Dress Protection Act.'' I believe the bill, if enacted, will provide much-needed guidance to the Patent and Trademark Office and the courts with respect to the applicable legal standards for the protection of trade dress.

    H.R. 3163 amends Section 2(e) of the Lanham Act to provide the Patent and Trademark Office with specific statutory authority to refuse to register trade dress or any other matter ''that, as a whole, is functional''. This amendment recognizes the well-established principle that trade dress is not registrable or protectable if it is determined to be ''de jure'' functional—that is, functional in the legal sense. The amendment to Section 2(e) of the Lanham Act makes it clear that protection for trade dress is determined by the functionality of the claimed design ''as a whole''.

    H.R. 3163 includes a definition of the term ''functional''. In my view, this is desirable. The concept of ''functionality'' is so integral to the registration and protection of trade dress that it is desirable to define that term in the Lanham Act. Further, to the extent some courts still adhere to widely discredited notions of what constitutes ''functional'' trade dress, the bill provides needed guidance. The proposed definition of ''functional'' is consistent with that adopted by virtually every court. It places the focus of the inquiry on whether protection would ''significantly hinder effective competition.''
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    The bill also makes clear that in an action involving unregistered trade dress, the trade dress claimant bears the burden of proof on the issue of functionality. This represents a beneficial change in law.

    In order to be entitled to protection under the Lanham Act, trade dress must not only be nonfunctional but distinctive as well. H.R. 3163 provides the Patent and Trademark Office, the courts, trademark owners and litigants with guidance in determining whether trade dress is inherently distinctive. It sets forth, in a new Section 2(g) of the Lanham Act, a single overarching, unifying and workable test for all types of trade dress—whether the relevant public is likely to identify the source of the product or service by reference to the matter claimed as trade dress. The bill then provides the decision-maker with a list of non-exclusive factors it must consider in conducting its analysis. The list of factors is based on those set forth in Seabrook Foods, Inc. v. Bar-Well Foods, Ltd., 568 F.2d 1342 (C.C.P.A. 1977). The so-called Seabrook factors have been endorsed by a number of courts and legal commentators. The new Section 2(g) will resolve the current conflict among the circuit courts with respect to the appropriation test to be applied in determining whether trade dress is inherently distinctive.

    In sum, Mr. Chairman, I believe H.R. 3163 represents a significant step forward in U.S. trademark law and deserves enactment.

STATEMENT

    Mr. Chairman:
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    I am pleased to have the opportunity to testify today in support of your bill, H.R. 3163, the ''Trade Dress Protection Act.'' I believe your bill, if enacted, will provide much-needed guidance to the Patent and Trademark Office and the courts with respect to the applicable legal standards for the protection of trade dress.

    By way of brief background, Mr. Chairman, I served as the Assistant Commissioner for Trademarks at the Patent and Trademark Office from November 1987 to January 1993. I am currently engaged in the private practice of law in Fairfax, Virginia, and I am an adjunct faculty member at both George Washington University and George Mason University law schools, where I teach courses on trademark and related unfair competition law.

    As your bill recognizes, Mr. Chairman, the term ''trade dress'' describes the overall appearance or image of a product or service. It includes the appearance of labels, wrappers, and containers used in product packaging, as well as the design features of the product itself.

    Trade dress law, today, represents a significant means by which companies seek to protect the appearance and design of their products. The amount of litigation brought under the Lanham Act seeking protection of trade dress is increasing steadily. The number of applications filed with the Patent and Trademark Office seeking registration of marks consisting of trade dress is also on the rise. However, the term ''trade dress'' does not currently appear in the Lanham Act and the Act provides no specific guidance to the Patent and Trademark Office and the courts for examining trade dress applications or resolving trade dress disputes.

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    H.R. 3163 amends Section 2(e) of the Lanham Act to provide the Patent and Trademark Office with specific statutory authority to refuse to register trade dress or any other matter ''that, as a whole, is functional''. This amendment recognizes the well-established principle that trade dress is not registrable or protectable if it is determined to be ''de jure'' functional—that is, functional in the legal sense. This fundamental principle of trade dress law is reiterated in your definition of the term ''trade dress'' in Section 45 of the Lanham Act.

    The amendment to Section 2(e) of the Lanham Act makes clear that eligibility for protection of trade dress is determined by the functionality of the claimed design ''as a whole''. Thus, the fact that individual elements or components of the overall packaging or design may be functional does not preclude protection for the composite. Protection of the overall design, however, does not bar competitors from adopting the functional parts of the overall design.

    H.R. 3163 includes a definition of the term ''functional''. In my view, this is desirable. It seems to me, Mr. Chairman, that the concept of ''functionality'' is so integral to the registration and protection of trade dress that it is desirable to define that term in the Lanham Act. Further, to the extent some courts still adhere to widely discredited notions of what constitutes ''functional'' trade dress, your bill provides needed guidance.

    Your definition of ''functional'', Mr. Chairman, is consistent with that adopted by virtually every court. It places the focus of the inquiry on whether protection would ''significantly hinder effective competition.'' If it would, the packaging or design in issue would not be protectable.

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    The definition goes on to list a number of nonexclusive factors that a court must consider in determining whether trade dress is functional. These factors, for the most part, track those employed by almost all courts today.

    The definition applies equally to cases of both utilitarian and aesthetic functionality. Aesthetic functionality refers to cases where the design in issue contributes to the aesthetic appeal of a product, for example, the particular pattern covering a china plate. In the context of aesthetic functionality cases, Mr. Chairman, a few courts hold that ''if the particular feature is an important ingredient in the commercial success of the product'', it is functional and, thus, not protectable. This test represents a minority view. While I believe your definition of ''functional'' would ''read out'' this test from the law, for the sake of clarity, I suggest that the committee report accompanying this bill speak specifically to this issue.

    I also propose two, relatively minor, changes to the definition of ''functional''. First, on page 4, lines 11 and 15, I suggest that the term ''registered or'' be inserted before the word ''protected''. This would render it clear that the definition is applicable both in the registration and litigation context and would be consistent with the overall tenor of the bill. Second, on page 4, line 19, I propose that the factor set forth therein be rephrased as follows: ''whether alternative designs are available that afford similar advantages to the matter sought to be registered or protected''. If the alternative designs available do not afford similar advantages, then, it seems to me, protection for the design in issue may ''significantly hinder effective competition.''

    Your bill, Mr. Chairman, also addresses an issue that has provoked a sharp split among the circuit courts of appeals. That issue is who bears the burden of proof on the issue of functionality. H.R. 3163 amends Section 43(a) of the Lanham Act to provide that, in cases where the trade dress in issue is not registered, the person who asserts protection must prove that the matter sought to be protected is nonfunctional. This provision will have the desirable effect of encouraging trade dress claimants to seek registration of their marks with the Patent and Trademark Office.
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    In order to be entitled to protection under the Lanham Act, trade dress must not only be nonfunctional but distinctive as well. Your bill, Mr. Chairman, provides the Patent and Trademark Office, the courts, trademark owners and litigants with much needed guidance in determining whether trade dress is inherently distinctive. It sets forth, in a new Section 2(g) of the Lanham Act, a single overarching, unifying and workable test—whether the relevant public is likely to identify the source of the product or service by reference to the matter claimed as trade dress. This test places the focus of the inquiry where it should be—on the likely impact on the relevant public.

    The U.S. Supreme Court, in Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992), determined that trade dress that is inherently distinctive is protectable without a showing of acquired distinctiveness. This had long been the rule in word mark disputes, and the Court could find no reason to apply a different rule in the trade dress context. As noted by the Court, ''[e]ngrafting onto §43(a) of the [Lanham Act] a requirement of secondary meaning for inherently distinctive trade dress also would undermine the purpose of the Lanham Act. Protection of trade dress, no less than of trademarks, serves the Act's purpose to 'secure to the owner of the mark the goodwill of his business and to protect the ability of consumers to distinguish among competing products'.''

    Unfortunately, however, the Supreme Court, in Two Pesos, provided little guidance as to the standard to be applied to determine whether trade dress is inherently distinctive. Subsequent to Two Pesos, the federal appellate courts have issued conflicting and confusing decisions on the issue. Different standards for inherent distinctiveness have emerged. Further, many circuits apply different tests depending on whether the trade dress involves product packaging or product designs.
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    For example, the Third Circuit, reading Two Pesos as a product packaging-type case, held that product configuration trade dress may be found inherently distinctive only upon proof that it is: (1) unusual and memorable; (2) conceptually separable from the product; and (3) likely to serve primarily as a designator of origin of the product.'' Duraco Products v. Joy Plastic Enterprises, 40 F.3d 1431 (3d Cir. 1994).

    The Eighth Circuit refused to apply different standards for inherent distinctiveness depending upon whether product packaging or product design is involved. ''We *** read Two Pesos as resting on a presumption that 'trade dress' is a single concept that encompasses both product configuration and packaging.'' Stuart Hall Co. v. Ampad Corp., 51 F.3d 780 (8th Cir. 1995). In determining whether trade dress is inherently distinctive, the Eighth Circuit continued to apply the ruling in the word mark case Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4 (2d Cir. 1976), that a mark will be found inherently distinctive if it is arbitrary, fanciful or suggestive in relation to the goods upon which it is affixed. On the other hand, under Abercrombie, if the mark is merely descriptive, it may be protected only upon a showing of acquired distinctiveness.

    The Second Circuit, while rejecting the specific formulation adopted by the Third Circuit for determining whether a product design is inherently distinctive, embraced the principle that product design cases should be subject to a different, higher standard of proof for inherent distinctiveness than packaging cases. While the Second Circuit applied the Abercrombie analysis in the context of packaging cases, to establish inherent distinctiveness of product designs, the court required proof that the primary purpose behind the design was to identify the product's source. Knitwaves Inc. v. Lollytogs Ltd., 71 F.3d 996 (2d Cir. 1995). Given these different tests, the Second Circuit noted that ''this circuit appears to be moving toward a rule that packaging is usually indicative of a product's source while the design or configuration of the product is usually not so ***.'' Landscape Forms, Inc. v. Columbia Cascade Co., 42 U.S.P.Q.2d 1641 (2d Cir. 1641).
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    The conflict among the circuits has given rise to much confusion. As matters now stand, the outcome of a lawsuit may very well depend on where the case is brought, resulting in forum-shopping, and on whether the trade dress in issue is characterized as packaging or product design.

    Trademark law protects consumers against confusion in the marketplace. If the public is likely to identify the source of a product by reference to the product design, confusion may arise even if the trademark owner did not primarily intend that the design serve to identify source. In this regard, then, the Second Circuit's analysis in the Knitwaves case is inconsistent with fundamental principles of trademark law. As noted by Professor Dinwoodie in his excellent law review article entitled ''Reconceptualizing the Inherent Distinctiveness of Product Design Trade Dress'', 75 North Carolina Law Review 471 (Jan. 1997), ''the Second Circuit's primary intent test for inherently distinctive product configurations has effectively reimposed the secondary meaning requirement from which trade dress plaintiffs were apparently liberated by Two Pesos.'' The same may also be said of the Third Circuit's decision in Duraco, to the extent it also focuses on the issue of intent and on primary purpose.

    The practical effect of both Duraco and Knitwaves is to roll back the clock to pre-Two Pesos days and to require demonstration of secondary meaning in order to protect product design. As the Supreme Court noted in Two Pesos:

[A]dding a secondary meaning requirement could have anticompetitive effects, creating particular burdens on the start-up of small companies. It would present special difficulties for a business *** that seeks to start a new product in a limited area and then expand into new markets. Denying protection for inherently distinctive nonfunctional trade dress until after secondary meaning has been established would allow a competitor, which has not adopted a distinctive trade dress of its own, to appropriate the originator's dress in other markets and to deter the originator from expanding into and competing in these areas.
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    At the same time, however, Mr. Chairman, I question whether the Abercrombie analysis is appropriate for determining the inherent distinctiveness of trade dress, whether product packaging or product design. The Abercrombie analysis works in the context of verbal marks because the mark in issue can be compared with the goods or services on which the mark is used, to determine, for example, whether the mark is ''merely descriptive'' of an aspect of the goods or, instead, whether some imagination, thought, or perception is necessary to reach a conclusion as to the nature of the goods, in which case the mark is ''suggestive''. A similar-type analysis, however, is not possible in product packaging or product design cases. For example, in product design cases, the design is the mark.

    Your bill, Mr. Chairman, strikes an appropriate middle ground. It focuses the inherent distinctiveness inquiry on whether consumers are likely to perceive the trade dress as a mark and then provides the decision-maker with a list of non-exclusive factors it must consider in conducting its analysis. The list of factors is based on those set forth in Seabrook Foods, Inc. v. Bar-Well Foods, Ltd., 568 F.2d 1342 (C.C.P.A. 1977). The so-called Seabrook factors have been endorsed by a number of courts and legal commentators.

    Under Seabrook and your bill, courts and the Patent and Trademark Office will focus on whether the trade dress in issue is a common, basic shape or design, in which case it is unlikely to serve to identify a source, or whether the trade dress is unique or unusual in a particular field, in which case prospective purchasers are more likely to perceive it as a source-identifier. This analysis, I submit, represents a workable test, based on industry significance and attuned to consumer perception.
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    As noted earlier, Mr. Chairman, the test for inherent distinctiveness set forth in your bill is applicable to both product packaging and product design cases. While some may argue that product design should be held to a stricter standard, as in Duraco and Knitwaves, I support your single-test approach.

    First, as a practical matter, it is sometimes difficult to distinguish between product design and product packaging. For example, while Duraco read Two Pesos as a product packaging case, Stuart Hall read Two Pesos as a product configuration case. Second, though Seabrook is a product packaging case, its analysis has been applied to design cases, suggesting that a workable test may be adopted for all types of trade dress. Finally, as noted by Professor Dinwoodie, the rationale for a stricter test for product design cases may prejudge the issue of likely association with a source. While it may be more difficult to establish inherent distinctiveness for product designs than for product packaging, we should not adopt a framework for analysis that will render it virtually impossible to prove. Product designs can and do function as marks in some cases.

    In sum, Mr. Chairman, I believe H.R. 3163 represents a significant step forward in U.S. trademark law and deserves enactment.

    Mr. COBLE. Thank you, Mr. Samuels. Mr. Kirk.

STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION

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    Mr. KIRK. Thank you, Mr. Chairman. I am pleased to have the opportunity to present the views of AIPLA on H.R. 3163 and preliminary comments on the Administration's Green Paper on the Internet.

    At the outset, I would like to express appreciation of AIPLA to both you and your staff for the very open and transparent manner in which you developed H.R. 3163. All of the organizations represented on this panel have had numerous opportunities to meet with your staff and discuss this legislation. While there are certain suggestions that we and others will make to refine this legislation, the significant progress we have made to date is a testimonial to both you and your staff, and we thank you.

    Mr. COBLE. Thank you, Mr. Kirk.

    Mr. KIRK. AIPLA supports H.R. 3163. American businesses invest large sums in creating, promoting, and protecting the trade dress of their products and services in order to make them identifiable to and distinguishable by the public. We believe that H.R. 3163 will improve the protection of trade dress by adding certainty to its registration and enforcement, thereby benefiting both consumers and businesses.

    While trade dress protection has been expanded to include a host of product features over the years, some Courts have declined to extend trade dress protection to certain subject matter which has been recognized by other Courts.

    The uniformity provided by H.R. 3163 and the definition of protectable trade dress should both encourage innovation in product design and enhance the ability of consumers to identify and distinguish among competing products. Importantly, your legislation would not extend trade dress protection to features that taken as a whole are functional in connection with the products or services for which they are used.
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    H.R. 3163 also appropriately adopts, in our opinion, the test enunciated by the Supreme Court in Two Pesos that trade dress which is found to be inherently distinctive may be protected under the Lanham Act without special proof of distinctiveness or secondary meaning.

    The bill adds a nonexclusive list of factors that Mr. Samuels just mentioned which will assist both the PTO and the Courts in determining whether the relevant public is likely to identify the source of the product or service by reference to its trade dress; that is, whether the trade dress is inherently distinctive.

    H.R. 3163 also provides a definition of functionality as we have just heard. While everyone agrees that functional trade dress should not be registered, this is far easier to articulate in the abstract than to apply in practice. The addition of an appropriate definition of functionality will promote uniformity and predictability.

    We are concerned, however, that any definition of functionality not breathe life into the doctrine of aesthetic functionality. As we note in our prepared statement, we share the view of Professor Thomas McCarthy that, ''The notion of aesthetic functionality is an unwarranted and illogical expansion of the functionality policy, carrying it far outside the utilitarian rationale that created the policy.''

    We thus propose that the definition be amended to exclude protection on grounds of functionality only for matter having a superior design for its utilitarian purpose, which would significantly hinder competition if it were to be afforded protection. Trademark owners should be encouraged to create aesthetically pleasing source identifying designs, not penalized for doing so.
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    Your legislation would provide additional uniformity and predictability by providing that in an action involving unregistered trade dress, the burden of proving nonfunctionality should be on the party asserting trade dress protection. This follows the majority and we believe correct view as to where the burden of proof obligation should rest.

    Turning now to the Administration's Green Paper published on January 30, we have begun our review of this document and at this time can say that it strikes us as both a comprehensive and thoughtful proposal. AIPLA believes that the paper properly suggests that the United States Government should exercise stewardship over the transition of the Internet to the private sector.

    We believe that this stewardship should include an active role in the harmonization of intellectual property laws relating to the tension between trademarks and domain names and in the establishment of an effective international dispute resolution scheme to address conflicts between trademarks and domain names.

    We approve the principle in the green paper that management of the Internet should reflect the diversity of its users, and we urge that trademark owners be adequately represented in such management. We concur with the proposal that efficient, searchable domain name databases should be established.

    In this regard, we reiterate our strong support for the development and use of a searchable, telephone directory-type system for domain names and the corresponding development of a centralized, worldwide database of trademarks and domain names that could be correlated to each other. Mr. Chairman, that concludes my statement. I would be happy to answer any questions. Thank you.
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    [The prepared statement of Mr. Kirk follows:]

PREPARED STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION

STATEMENT SUMMARY

    The American Intellectual Property Law Association (AIPLA) reaffirms the support it expressed for H.R. 2652 in a statement submitted in conjunction with the hearing held on that legislation on October 23, 1997. H.R. 2652 is a major step forward in providing needed protection for the database industry, but is balanced and addresses the concerns expressed by the scientific, library, and educational communities.

    AIPLA also supports H.R. 3163. The PTO, following relevant court decisions, has permitted trade dress to be registered even though it is not expressly provided for in the Lanham Act. In addition to a number of unresolved issues resulting from the registration of trade dress in the PTO, court decisions in trade dress cases present a patchwork of inconsistent and even conflicting precedents regarding issues such as distinctiveness and functionality. H.R. 3163 will provide greater predictability and uniformity in the protection and enforcement of trade dress. It accomplishes this by defining trade dress, establishing criteria for its registration, establishing guidelines for determining inherent distinctiveness and functionality of trade dress, and allocating the burden of proof in cases involving unregistered trade dress.

    AIPLA believes that providing a clear definition of trade dress is beneficial to both trade dress users and the public. It encourages innovation in product design and presentation and enhances the ability of consumers to identify and distinguish among competing products. H.R. 3163 achieves a balance that furthers these ends, but appropriately denies protection to functional trade dress.
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    H.R. 3163 also appropriately adopts the test enunciated by the Supreme Court in Two Pesos, Inc. v. Taco Cabana, Inc. 505 U.S. 763 (1992) that trade dress which is found to be inherently distinctive may be protected under the Lanham Act without special proof of its distinctiveness or secondary meaning. Furthermore, it sets forth a nonexclusive list of factors to assist the PTO and the courts in determining whether the relevant public is likely to identify the source of the product or service by reference to its trade dress, i.e., whether it is inherently distinctive.

    H.R. 3163 would amend session 45 of the Lanham Act to define functionality. While we applaud this effort, we believe it should exclude protection on grounds of functionality only for matter having such a superior design for its utilitarian purpose that to afford it protection would significantly hinder competition. AIPLA believes that trademark owners should be encouraged to create aesthetically-pleasing designs, not penalized for doing so.

    H.R. 3163 would also resolve the question of who has the burden of proof of nonfunctionality of Died trade dress by placing it on the party asserting trade dress protection. This change will provide greater certainty and AIPLA endorses it.

    AIPLA applauds the Administration's Green Paper as a comprehensive and thoughtful proposal. AIPLA believes that the United States government should exercise a stewardship role during the transition of the Internet to the private sector to ensure that there will be meaningful competition between registries and registrars and an effective international dispute resolution scheme to address conflicts between trademarks and domain names. We note with approval the inclusion of all stakeholders in the proposed new corporation board of directors and urge that trademark owners be broadly represented. AIPLA also reiterates its support for a searchable directory for domain names.
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STATEMENT

    Mr. Chairman:

    I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) on H.R. 2652, the ''Collections of Information Antipiracy Act,'' H.R. 3163, the ''Trade Dress Protection Act,'' and ''Internet Domain Name Trademark Protection.''

    The AIPLA is a national bar association of nearly 10,000 members engaged in private and corporate practice, in government service, and in the academic community. The AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent, trademark, copyright, and unfair competition law, as well as other fields of law affecting intellectual property.

SUMMARY

    The AIPLA expressed its support for H.R. 2652 in a statement submitted in conjunction with the hearing held on that legislation on October 23, 1997. We believe that H.R. 2652 is a major step forward in providing needed protection for the database industry. At the same time, H.R. 2652 also addresses the concerns expressed by the scientific, library, and educational communities. While various stakeholders will undoubtedly find it lacking some provisions that they would like to see, H.R. 2652 is a balanced bill. We once again reviewed H.R. 2652 and our statement on it in preparation for this hearing and have found nothing which would cause us to change our expression of support.
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    We also support H.R. 3163. AIPLA members represent both owners and users of intellectual property, including many large and small businesses whose success or failure in the marketplace depends heavily on their ability to identify their products and services to their customers and to distinguish them from the products and services of their competitors. The ability of AIPLA members to achieve this result depends, in turn, on the protection and enforcement not only of their clients' trade and service marks, but also their trade dress. American businesses invest large sums in creating, advertising, promoting and protecting the trade dress of their products and services in order to make them identifiable to and distinguishable by the public and, where necessary, they also expend large sums in enforcing their exclusive trade dress rights against infringers. We believe that H.R. 3163 will improve the protection of trade dress by adding certainty to its registration and enforcement, therefore benefiting both consumers and businesses.

    The AIPLA presented its views on the various trademark-related issues arising from the registration and use of domain names at the initial oversight hearing of this Subcommittee on November 5, 1997. As we all know, the Administration made public its ''Green Paper'' discussion draft entitled ''A Proposal to Improve Technical Management of Internet Names and Addresses'' less than two weeks ago. While AIPLA has just started reviewing and analyzing the proposals in the Green Paper, we find it a thoughtful and thought-provoking contribution. We believe it will significantly contribute to the transition of the Internet to the private sector, promote competition and international participation in the domain name system, and offer the potential to alleviate many of the problems which the Internet presents to trademark owners.

H.R. 3163, THE ''TRADE DRESS PROTECTION ACT''

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Background of Trade Dress Protection at Common Law and Under the Lanham Act: The Lack of a Statutory Basis for Registration of Trade Dress Per Se

    Trade dress has been defined as ''the total image of a product, including features such as size, shape, color or color combinations, texture, graphics, or even particular sales techniques.''(see footnote 97) It includes—separately or in combination—the distinctive, source-indicating aspects of a product's packaging, labeling, coloration, design, and configuration, to the extent that, taken as a whole, those features are not functional in a utilitarian or (according to some courts) even an aesthetic sense.

    Like trade and service marks, trade dress serves to indicate the source or origin of the products or services with which it is used to purchasers, prospective purchasers, users, and members of the public at large. Like trade and service marks, adequate protection and enforcement of trade dress is essential not only to the competitive success of its owners and users, but also to the public which relies upon it as an indication of source, origin, and quality in making purchasing decisions every day.

    Unlike trade and service marks, on the other hand, trade dress lacks—and historically has always lacked—the express statutory basis for registration, protection, and enforcement which the Lanham Act and its federal trademark statute predecessors provide. This does not mean that trade dress has not been protected by the courts; remedies for trade dress infringement are available under principles of common law, state statutes, and Section 43(a) of the Lanham Act which provides a federal right of action for misrepresentations of origin or of the qualities or characteristics of a party's goods or services.
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    Nevertheless, the omission of trade dress from other aspects of the Lanham Act's comprehensive statutory scheme has resulted in a number of uncertainties as to the extent to which trade dress per se can be registered like a trade or service mark. It has also resulted in many inconsistencies and even conflicts among court decisions on issues essential to the protection and enforcement of trade dress rights. Some of those uncertainties and inconsistencies have been resolved by decisions such as Qualitex Co. v. Jacobson Products Co., 514 U.S. 159 (1995) (color alone can qualify for registration under the Lanham Act). Nevertheless, many others remain.

The Need for Greater Uniformity and Predictability in Protection and Enforcement of Trade Dress in the PTO and the Courts

    With respect to registration of trade dress, the U.S. Patent and Trademark Office (PTO) has adopted the practice that, although not expressly provided for in the Lanham Act, trade dress which serves as a trade or service mark and meets the other statutory prerequisites for registration may be registered on either the Principal or Supplemental Register. This practice—implementing decisions of the Court of Appeals for the Federal Circuit and its predecessor, the Court of Customs and Patent Appeals—has been applied to permit the registration of a variety of forms of trade dress, especially packaging and container shapes and product configurations.

    The PTO's trade dress practice has not, however, led to the resolution of all issues arising out of applications for trade dress registration—such as, questions as to whether a particular design or coloration in fact serves as a mark or is only decorative—as to which many thorny issues of definition and application remain. In addition, the PTO's practice of registering trade dress has given rise to new issues not resolved by the existing provisions of the Lanham Act—for example, whether an incontestable trade dress registration can be challenged on grounds such as functionality which are not enumerated for challenges to incontestable trademark registrations.(see footnote 98) These questions have given rise to much past and pending litigation in the PTO and in the courts.
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    As to conflicts among decisions in the courts, the situation is, if anything, less uniform and clear. In the absence of a Lanham Act definition of trade dress, or at least some enumeration of criteria for determining subsidiary matters such as inherent distinctiveness and functionality, court decisions in trade dress cases have presented a patchwork of overlapping, inconsistent, and even overtly conflicting precedents. Among other things, the federal district courts and circuit courts of appeal have diverged in their interpretations of what criteria should be applied to determine distinctiveness, how functionality should be determined, which party has the burden of proof on elements of a trade dress infringement claim or defense—and even what constitutes protectable trade dress itself.

    There is no question that trade dress protection has increasingly become one of the most frequently and hotly litigated areas of intellectual property law. In this era of mass marketing, aggressive advertising, and rapidly evolving consumer communications media, amendment of the Lanham Act cannot be expected to halt or reverse that trend. Nevertheless, amendment of the Act to provide express statutory grounds for registration of trade dress, and to set forth criteria for the courts to consider in resolving trade dress disputes, should promote the salutary purposes of clarifying the scope and content of exclusive trade dress rights, encouraging registration of those rights by trade dress owners, enhancing predictability and certainty in trade dress matters for business users, and protecting the public interest in the use and protection of distinctive commercial symbols which will not lead to a likelihood of confusion.

H.R. 3163 Will Provide for Greater Predictability and Uniformity in the Protection and Enforcement of Trade Dress

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    In introducing H.R. 3163, Mr. Chairman, you stated that it was intended to provide the courts, as well as the PTO, with guidance as to the relevant factors to consider in determining whether or not product designs or packaging are inherently distinctive. The goal was to make the registrability and protection of trade dress as efficient as possible for both the applicant and the examiner. H.R. 3163 also attempts to define functionality in a manner consistent with prevailing case law and to expressly state that any matter that, taken as a whole, is functional is not registrable. H.R. 3163 sets forth a non-exclusive list of factors for the PTO and the courts to consider in determining whether any given matter is functional.

    AIPLA believes that H.R. 3163 admirably accomplishes these purposes and will provide greater certainty in existing PTO procedures for the registration of trade dress and greater uniformity in the enforcement of trade dress. Importantly, H.R. 3163 accomplishes the stated goals by building upon existing procedures for the registration of trade dress by the PTO as well as the basic principles of existing law and precedent applicable to trade dress cases in the courts.

    We believe that H.R. 3163, with certain amendments discussed below, will promote uniformity and predictability in the protection of trade dress in at least five respects: the definition of trade dress, the criteria for registration of trade dress, the criteria for determining inherent distinctiveness of trade dress, the criteria for determining functionality, and the allocation of the burden of proof of functionality in trade dress cases.

    Definition of Trade Dress. During the nineteenth and early years of the twentieth centuries, trade dress was usually thought of mainly as comprising the appearance of the packaging and labeling of a product. In more recent years, and especially since enactment of the Lanham Act, trade dress protection has been expanded to include a host of other product features, including among others: package and product configurations; product designs; architectural designs; restaurant designs, layouts, and formats; artist's styles; styles of doing business; and, settings, characters, and other features of entertainment games and programs. Some courts, however, have declined to extend trade dress protection to types of subject matter which have been recognized by others, and greater uniformity and predictability in the definition of protectable trade dress would therefore be desirable.
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    AIPLA believes that providing trade dress protection to these and similar product-identifying features is beneficial to both trade dress users and the public. It both encourages innovation in product design and presentation and enhances the ability of purchasers and consumers to identify and distinguish among the wide variety of products on the market. On the other hand, H.R. 3163 would not extend trade dress protection to any features that do not serve a source-identifying purpose, or which are functional in connection with the products or services for which they are used.

    The definition of trade dress set forth in H.R. 3163 recognizes and balances these considerations by embracing the source-identifying features of a product or service, while at the same time expressly precluding the registration of trade dress that, taken as a whole, is functional. AIPLA supports including such a definition in the Lanham Act.

    Criteria for Registration of Trade Dress. For trade dress to be registrable and protectable, it must not only serve to identify the goods or services in connection with which it is used and distinguish them from those of others, it must also not, taken as a whole, be functional. In order to preserve the freedom of others to offer competing goods and services, and in recognition of the public policies embodied in the patent, copyright, and trade secret laws, any matter which, taken as a whole, is functional may not be exclusively appropriated as trade dress. Proposed new subsection 2(e)(5) and proposed amended subsection 23 (c ) of the Lanham Act make it clear that any trade dress that is functional shall not be registered either on the Principal or Supplemental Register at the PTO. Further, taken together with proposed new subsection 2(g), they make it clear that trade dress which is functional shall not be registered even if it is shown that it has become distinctive.
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    AIPLA believes that these criteria for registration and protection of trade dress are appropriate and endorses their incorporation into the Lanham Act.

    Criteria for Determining Inherent Distinctiveness.(see footnote 99) In order to be registrable as a trade or service mark on the Principal Register, the matter sought to be registered must be distinctive of the goods or services with which it is used—that is, it must serve to indicate that they emanate from a specific, even if unknown, source or origin. If all other criteria for registration are satisfied, a trade or service mark that is inherently distinctive may be registered under the Lanham Act without a showing of acquired distinctiveness. If a mark is originally found to be merely descriptive but later becomes distinctive through use, it may be registered on the Principal Register under subsection 2(f) of the Lanham Act. If the mark has not become distinctive, but is capable of distinguishing, it may be registered on the Supplemental Register under Section 23 of the Lanham Act.

    The Supreme Court applied a similar test to trade dress in Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992). The Court held that trade dress which is found to be inherently distinctive may be protected under the Lanham Act without special proof of its distinctiveness or secondary meaning. Under Two Pesos and other applicable precedents, unregistered as well as registered trade dress may be enforced against infringers on this basis.

    H.R. 3163 appropriately adopts this approach with regard to trade dress. Proposed new subsection 2(g) of the Lanham Act provides for the registration of trade dress which is inherently distinctive—which is defined to exist where the relevant public is likely to identify the source of the product or service by reference to its trade dress—without the need to show that it has become distinctive under subsection 2(f) of the Lanham Act. It sets forth a non-exclusive list of factors to assist the PTO and the courts in determining whether the relevant public is likely to identify the source of the product or service by reference to its trade dress, i.e., whether it is inherently distinctive.
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    The issue of inherent distinctiveness and subsidiary issues, including the burden of proof of distinctiveness, in trade dress cases have long been among the most hotly debated and litigated issues in trade dress law. Even the Supreme Court's decision in Two Pesos, holding that inherently distinctive trade dress may be protected without proof of secondary meaning, did not resolve these issues, but instead led to further conflicts with respect to how inherent distinctiveness should be determined. AIPLA believes that proposed new subsection 2(g) of the Lanham Act will promote uniformity and predictability on this issue in the PTO and in the courts.

    Criteria for Determining Functionality. As noted above, proposed new subsection 2(e)(5) and proposed amended subsection 23(c ) of the Lanham Act codify existing law and practice that trade dress that is functional shall not be registered. This basic principle, however, is far easier to articulate in the abstract than to apply in practice. Court decisions—including the Supreme Court's definition of functionality in dicta in Inwood Labs, Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n. 10 (1983) (''a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article'')—offer guidance but little certainty or predictability in application. Moreover, courts in the different regional circuits (and even within a given circuit) diverge on issues such as whether product features that are merely decorative, but which yield a competitive advantage in the marketplace, should be held functional and therefore not protectable (''aesthetic functionality'').

    H.R. 3163 would amend section 45 of the Lanham Act to define functionality as meaning ''that the matter is of such superior design for its purpose that to afford it protection under this Act would significantly hinder effective competition.'' In addition, section 45 of the Lanham Act would be amended to set forth a list of factors to be considered in determining whether matter sought to be protected is functional, including:
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(1) whether the matter yields a competitive advantage;

(2) whether alternative designs are available; and

(3 whether the matter achieves economies in the manufacture or use of the goods or services, or affects their cost or quality.

Importantly, amended section 45 of the Lanham Act would state expressly that these enumerated factors to be considered in determining functionality shall not be exclusive of others.

    AIPLA believes that the addition of an appropriate definition of functionality to section 45 of the Lanham Act could promote uniformity and predictability with respect to this basic trade dress issue both in the PTO and in the courts. We are concerned, however, that the definition proposed in H.R. 3163 at least implicitly recognizes the doctrine of aesthetic functionality. We share the view of Professor McCarthy that ''The notion of 'aesthetic functionality' is an unwarranted and illogical expansion of the functionality policy, carrying it far outside the utilitarian rationale that created the policy.'' To the extent that there is a valid concern regarding ornamental features, this question is appropriately addressed in proposed new subsection 2(g) of the Lanham Act which requires a consideration of whether the trade dress is likely to be perceived by the relevant public as identifying the source of a product or service. The third enumerated factor in proposed subsection 2(g) of the Lanham Act directly addresses this issue. Accordingly, AIPLA would suggest inserting the word ''utilitarian'' in the definition of the term functional before the word ''purpose'' and in place of the word ''competitive'' in the first factor. We believe this amendment will properly focus the functionality inquiry and stop, to paraphrase Judge Nies, penalizing trademark owners for the originality, creativeness, attractiveness or uniqueness of their products and services.
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    Burden of Proof of Functionality. A finding of functionality precludes a party from enforcing exclusive rights in alleged trade dress or obtaining relief for its infringement, but courts differ with respect to which party to a trade dress infringement action bears the burden of proving functionality. Some courts have held that proof of nonfunctionality is an element of the plaintiff's case; other courts have held that it is an affirmative defense and that the burden of proof rests on the defendant.

    H.R. 3163 would provide additional uniformity and predictability on this issue by amending section 43(a) of the Lanham Act to add a new subsection (3), stating that, in an action for infringement of trade dress not registered on the Principal Register, the party asserting trade dress protection has the burden of proving that the matter sought to be protected is not functional. This proposed addition would follow the majority view as to burden of proof obligations in actions for the infringement of unregistered trade dress. AIPLA believes this change will also provide greater certainty and we endorse it.

    Technical Amendments. Proposed new subsection 2(e)(5) of the Lanham Act would preclude registration on the Principal Register of ''any matter that, as a whole, is functional.'' We note, however, that the proposed amendment to subsection 23(c ) of the Lanham Act would expressly permit registration on the Supplemental Register of ''any matter that is not functional.'' Likewise, the proposed new definition of trade dress in section 45 of the Lanham Act provides that ''trade dress shall not be registered or protected under this Act if it is functional.'' These two provisions of H.R. 3163 might be read as more restrictive than the corresponding provision of proposed new subsection 2(e)(5) of the Lanham Act quoted above, and might be interpreted to preclude registration or protection (even with appropriate disclaimers) of trade dress which includes functional features but which, overall, is source-identifying. This potential problem could be obviated if the phrase ''as a whole'' were inserted before the word ''is'' in both instances.
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    Proposed new subsection 2(g) of the Lanham Act provides for registration of trade dress without the need to show that it has become distinctive if the ''relevant public'' is likely to identify the source of the product or service by reference to its trade dress. While the phrase ''relevant public'' is proposed here and is used elsewhere in the Lanham Act (e.g., paragraph (3) of section 14), the third enumerated factor for determining inherent distinctiveness set forth in proposed new subsection 2(g) of the Lanham Act refers to the ''public.'' We believe that this reference to the ''public'' in the third factor should also be to the ''relevant public.''

    Similar to the point made with regard to the proposed definition of trade dress, both the definition of functionality and the list of enumerated factors appear to speak more directly to trade dress used for products than for services. We would therefore suggest adding on page 4 of H.R. 3163 the phrase '',characteristics, or qualities'' after the word ''design'' in line 12 and after the word ''designs'' in line 19 and the phrase, ''provision'' after the word ''manufacture'' in line 22.

    By not including the term ''trade dress'' as a type of ''mark'' in section 45 of the Lanham Act, it is conceivable, if not likely, that a court will conclude that one or another section of the Lanham Act is inapplicable to trade dress. On the other hand, simply adding the term ''trade dress'' as a type of ''mark'' could lead to the implication that there was an intent to exclude other unmentioned subject matter which could serve as a mark. To avoid this problem yet insure that trade dress would receive the full protection of the Lanham Act, we would suggest that a statement be included in Section 45 that references in the Lanham Act to marks are applicable to trade dress.
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THE ADMINISTRATION'S GREEN PAPER: A PROPOSAL TO IMPROVE TECHNICAL MANAGEMENT OF INTERNET NAMES AND ADDRESSES

    Late last month, the Administration released its much awaited Green Paper prepared under the leadership of Ira Magaziner. The Green Paper sets forth a number of proposals to improve the administration and maintenance of the domain name system and to establish effective procedures for addressing domain name registration and disputes. The AIPLA applauds this comprehensive and thoughtful proposal and will submit detailed written comments upon completing its study of the proposal. We have only a few preliminary comments at this time.

    At the hearing conducted by this Subcommittee this past November, we suggested that any effort to design the Internet of the future should include:

 greater involvement by a more diverse and truly representative constituency of affected parties in all of the various Internet areas

 a recognition that the private sector is best equipped to administer and maintain the domain name system

 a need for stewardship by the United States government in creating the framework for Internet governance during the transition to the private sector, and

 a recognition that any new framework for the domain name system must address the legitimate concerns of trademark owners.
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    The stewardship by the United States government during the transition should include the development of an international framework for the creation and registration of new generic top level domains (gTLDs) and the formulation of a fair and efficient binding conflicts resolution policy both for existing and new gTLDs.

    We are pleased that the Green Paper is largely consonant with these broad principles, although the Green Paper falls short of squarely committing the United States government to take such a stewardship role in this area. While the AIPLA appreciates that political and other considerations may make the United States government reluctant to do so, there is simply no substitute for proactive and sustained United States leadership in this area. This is increasingly apparent because domain name disputes transcend international boundaries, thereby creating prickly jurisdictional, enforcement, and other issues alluded to in the Green Paper.

    Consequently, the United States government should take an active role in pursuing harmonization of intellectual property laws relating to the tension between trademarks and domain names and in designing and implementing an effective international dispute resolution scheme. One suitable forum to address these issues is the World Intellectual Property Organization which has preliminarily explored some of these issues. Another possible forum could be the World Trade Organization which has shown its effectiveness in the intellectual property area. While this will undoubtedly be a long term undertaking, it is essential that it begin now and, at the same, not delay the transition of the domain name system to the private sector. In the meantime, we agree with the recommendation in the Green Paper that a special group should be formed promptly to assess the impact on intellectual property rights, and the overall efficacy of adding new gTLDs, domain name application criteria, and dispute resolution procedures to the domain name system. As indicated in the Green Paper, such a study could provide valuable input on harmonization. The AIPLA will participate in any way we can.
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    Let me now turn to a few more specific preliminary observations as to some aspects of the Green Paper that more directly affect the interests of trademark and other intellectual property owners.

    AIPLA notes with approval the proposal in the Green Paper that a non-profit corporation with a board of directors equitably representing all Internet stakeholders could be formed to manage the technical functions of the domain name system. AIPLA believes that the board of directors must include representatives of intellectual property interests, especially trademark owners. Conceivably, such representatives could come from a special group formed through the combined efforts of the AIPLA, the American Bar Association's Section on Intellectual Property Law and Standing Committee on Computers and Technology, and the International Trademark Association.

    We also agree with the proposition in the Paper that competition in gTLD space is better fostered by having multiple registries and registrars, with the registry and registrar functions separated. However, we believe that a careful study should be undertaken to determine whether the particular registry-registrar model, and the recommendation for ''up to five new gTLDs,'' best promote competition and Internet stability, and best accommodate intellectual property and other interests. In our view, this study should be undertaken before new gTLDs are created and dispersed among multiple registries and registrars rather than afterwards as proposed in the Green Paper.

    We also agree with the proposal in the Green Paper that all domain name applications contain sufficient information so as to minimize the difficulties presently experienced by trademark owners in pursuing domain name registrants whose activities may infringe or dilute their marks.
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    Finally, we concur with the proposal that efficient searchable domain name data bases should be established. In this regard, we reiterate our strong support for the development and use of a searchable, telephone directory-type system for domain names and the corresponding development of a centralized world-wide database of trademarks and domain names that could be correlated to one another.

    As we indicated, we are currently studying the Green Paper and its many thought-provoking proposals. We would be happy to share our conclusions with this Subcommittee as it continues its oversight of this critical area.

CONCLUSION

    We again commend you, Mr. Chairman, for holding this hearing on these important issues which impact the creators and users of intellectual property. We look forward to working with you and the other members of the Subcommittee to craft appropriate legislative solutions.

    Mr. COBLE. Thank you, Mr. Kirk. Mr. Stimson, we have a vote on, and there will be two votes. Why don't we go ahead and take your statement, and then I will depart and vote and return. Thank you.

STATEMENT OF DAVID C. STIMSON, PRESIDENT, INTERNATIONAL TRADEMARK ASSOCIATION

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    Mr. STIMSON. Okay. Thank you, Mr. Chairman. Good afternoon and happy Lincoln's Birthday.

    Mr. COBLE. And the same to you, sir.

    Mr. STIMSON. Thank you. The International Trademark Association, an organization of 3,500 trademark owners and practitioners, is pleased to be here today to present its views on H.R. 3163, the Trade Dress Protection Act, and on the future of the Internet domain name assignment system. Both of these topics are of vital concern to the trademark community.

    My name is David Stimson. I am President of INTA. I am employed by INTA Member Eastman Kodak Company in Rochester, New York, as Trademark Counsel. Since the opening of the 105th Congress, INTA has found the membership of this subcommittee and its staff to be very responsive to the needs and concerns of trademark owners.

    We have worked together on a variety of important issues that affect businesses, protection of the public, and the global economic stability. INTA believes that together we have had an enormously constructive effect on the evolution of trademark law. Unfortunately, there do come times when even close friends and allies disagree, and I must regrettably inform the subcommittee that we are unable to endorse H.R. 3163.

    Our decision not to support H.R. 3163 was reached after a great deal of deliberation. In the end, we decided not to support the present draft of trade dress legislation based on two guiding principles. First, the Lanham Act and developing case law must remain flexible in view of the changing commercial landscape. INTA believes there is value in the existing statutory structure which is broad and progressively defines a mark so that it can include new forms of nontraditional marks such as the shape of a building, sounds, and smells.
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    Amending the Lanham Act to explicitly protect trade dress, which is only one category of nontraditional marks, might lead Courts to construe the Act more restrictively and to conclude that protection is inappropriate for other nontraditional marks which may develop in the future. Surely, this is not the intent of the bill, and we urge the subcommittee to consider such an implication.

    Flexibility should also be extended to the definition of functional. The concept of functionality is dynamic and has developed over time as technologies have changed. Specificity of a definition for functional in a statute could by implication or inadvertence narrow the meaning of the term.

    In addition, the definition of functional in the current draft of the bill fails to answer the primary question which is faced by American Courts. To what degree can an alleged trade dress combine both functional and nonfunctional features?

    The second guiding principle behind our decision is that product configuration should be provided a narrower scope of protection than product packaging since there are fewer alternatives available for a product configuration that do not affect the utility or acceptability of the product.

    By encompassing both product packaging and product configuration in its definitions and standards, H.R. 3163 may cause Courts to interpret congressional intent as requiring the two to receive equal protection, a position not supported by commercial reality.

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    I now turn to the second issue before us today, the future of the Internet domain name system. The fundamental question before this subcommittee, Mr. Chairman, is how to protect the public's interests on the Internet without being misled or confused and how to protect companies from having their brand equity eroded or commandeered in an electronic environment by Internet pirates known as cybersquatters.

    The issue of protection of the public and of trademarks in cyberspace is especially important to us today because of the January 30 release of the Clinton Administration's green paper. INTA is very concerned that the Administration's proposal underestimates the importance of trademark issues.

    Our concerns fall into four major categories. First, the plan treats trademark owners and public interests as secondary.

    Mr. COBLE. Mr. Stimson, pardon me. If you would suspend, I must go to the floor and vote. You all stand easy, and I will be back in 10 or 15 minutes. Mark your place and we will pick up there when I return.

    Mr. STIMSON. Thank you, Mr. Chairman.

    [Recess.]

    Mr. COBLE. Thank you all for your patience. We will resume our hearing, and, Mr. Stimson, you may pick up where you left off.

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    Mr. STIMSON. As I was saying, Mr. Chairman, and I promise not to take advantage of the fact that you have to reset the green light.

    Mr. COBLE. I thank you, sir.

    Mr. STIMSON. I was discussing the concerns that INTA has with the Administration's green paper on the Internet; in particular, the ways in which the Administration's proposal underestimates the importance of trademark issues. I was saying that our concerns fall into four major categories.

    First, the plan treats trademark owners and public interests as secondary. Second, there is a lack of specificity with respect to the minimum standards for domain name application and renewal. Third, the plan does not include a uniform dispute resolution policy. And, fourth, there is a likelihood that trademark interests will be excluded from the governing body.

    INTA has developed its own specific minimum standards for trademark and protection of the public in cyberspace. A copy of these standards can be found in Appendix III of my written testimony. We will urge the Administration to reexamine its proposal based on these specific recommendations, as well as our detailed comments on the green paper.

    Overall, INTA believes that we are at a critical juncture in the evolution of the Internet, a point where we must be vigilant, or the cyberneeds of companies and the public may be lost in the debate over Internet technical hardware and governance issues. INTA will continue to serve as the voice of trademark owners and the public alike in order to ensure that this loss does not occur.
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    Mr. Chairman, on behalf of INTA, I once again thank you and the other members of the subcommittee for the opportunity to express our views. INTA looks forward to continuing to work with the subcommittee and its staff to protect the interests of trademark owners and the public. Thank you.

    [The prepared statement of Mr. Stimson follows:]

PREPARED STATEMENT OF DAVID C. STIMSON, PRESIDENT, INTERNATIONAL TRADEMARK ASSOCIATION


International Trademark Association,
New York, NY, February 12, 1998.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts
and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR CHAIRMAN COBLE: The International Trademark Association (INTA) respectfully requests that it be permitted to amend its written testimony of today's date in connection with H.R. 3163, the Trade Dress Protection Act. We ask that on page 10, the following language be stricken: ''the test for 'inherent distinctiveness' of trade dress and''. We have indicated this amendment in a hard copy of the testimony which is attached to this letter.

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    INTA thanks you in advance for permitting us to amend our testimony.

Sincerely,

David C. Stimson, President.
SUMMARY

H.R. 3163, The Trade Dress Protection Act:

    With this Subcommittee's leadership, INTA believes that together we are addressing a variety of important trademark issues in a way that will have an enormously constructive effect on the evolution of trademark law. But, as close friends and allies occasionally disagree, we regret that we are unable at this time to endorse trade dress legislation.

    Flexibility of the Lanham Act: There is a real danger that trade dress legislation at this time will remove the intended flexibility of the Lanham Act. Amending the Act to explicitly protect trade dress—only one category of non-traditional marks—might by negative implication, lead courts to construe the Act more restrictively, concluding that protection for other non-traditional marks is not warranted.

    We are similarly concerned that a specific definition of the term ''functional'' in a statue could narrow the meaning of the term. Moreover, the definition of ''functional'' in the current bill does not take into account the difficult question of to what degree an alleged trade dress can combine both functional and non-functional elements.

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    Curtailing/Expanding Existing Protection: Another major concern is that the trade dress legislation does not differentiate between product packaging and product configuration in defining the standard of protection. Courts have traditionally provided a more narrow scope of protection for product configuration—since there are fewer alternatives available for product configuration that do not affect the utility or acceptability of the product. By encompassing both product packaging and product configuration in the definitions and standards in H.R. 3163, the courts may interpret Congressional intent as requiring the two to receive equal protection—a position not supported by commercial reality.

Internet Domain Name Assignment System:

    The fundamental question before the Subcommittee is how to protect consumers's interests in locating the brand or vendor of their choice on the Internet without being misled or confused, and how to protect companies from having their brand equity eroded or commandeered in an electronic environment. INTA has reviewed the Administration's proposal and we are very concerned about its misperception of the importance of trademark issues involved in the domain name system. Our concerns fall into four categories:

1. In general, the treatment of trademark interests as secondary;

2. Lack of specificity with respect to minimum standards for domain name application and renewal;

3. The omission of a uniform dispute resolution policy; and

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4. The likelihood that trademark interests will be excluded from the proposed Board of Directors.

    Clearly we are a critical juncture—a point where we must be vigilant or the ''cyber-needs'' of companies, brand name owners and the public may be lost in the debate over technical Internet hardware and governance issues. INTA's reason for being involved in the development of the future domain name system is simple—to ensure that the future DNS takes trademark considerations into account. We bring unique perspective to the table, one that encompasses advertising, business, consumer, and legal interests. Our ultimate goal is to ensure the stability of the Internet and to safeguard the business and consumer interests which generate our economy.

INTRODUCTION

    Mr. Chairman, the International Trademark Association (''INTA'') appreciates the opportunity to testify today and present its views on H.R. 3163, the Trade Dress Protection Act and on the future of the Internet domain name assignment system. Both of these topics are of vital concern to the trademark community, because the global marketplace is continuing to grow at a phenomenal rate and consumers are faced with difficult decisions concerning an increasing number of goods in the real world, as well as in cyberspace. We thank the subcommittee for engaging INTA and other panelist organizations in lengthy and collaborative discussions concerning both issues. I would also like to add that your staff has been extraordinary in its attention to our views.

    My name is David Stimson, and I currently serve as Chairperson of the Board of Directors and President of the International Trademark Association. I am employed by INTA member Eastman Kodak Company in Rochester, New York as Trademark Counsel. As with all INTA officers, board members and committee members, I serve on a voluntary basis.
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    INTA is a 120-year-old not-for-profit organization with more than 3,500 members that are drawn from across the United States and from 119 additional countries. Membership in INTA is open to trademark owners and those who serve trademark owners. INTA's membership is extremely diverse, crossing all industry lines and spanning a broad range of manufacturing, retail, and service operations. It is equally important to note that not all of INTA's members are large corporations. Regardless of their size or international scope, INTA's members share a common interest in trademarks and a recognition of the importance of brand identity to their owners, to the general public, to the economy of the United States and to the global marketplace.

H.R. 3163, THE TRADE DRESS PROTECTION ACT

    Since the opening of the 105th Congress just over a year ago, INTA has found the membership of this subcommittee and its staff enormously responsive to the needs and concerns of trademark owners. We have worked together on a variety of important issues that affect trademark owners, consumer protection, and global economic stability. These issues include: the Trademark Law Treaty, Madrid Protocol, U.S. Patent and Trademark Office (USPTO) as a government corporation, USPTO appropriations, and Internet domain names. Mr. Chairman, with your leadership, INTA believes that together we are addressing these issues in a way that will have an enormously constructive effect on the evolution of trademark law. But, as close friends and allies occasionally disagree, we are unable at this time to endorse trade dress legislation.

    While INTA acknowledges that there is some degree of disparity in the federal circuits with respect to trade dress protection and such related issues as functionality, as trademark owners and practitioners—the individuals who deal with this subject on a daily basis—we must consider other relevant factors in determining whether trade dress legislation is justified. Our decision not to support H.R.3163 was not easily reached and required a great deal of deliberation amongst the leadership and membership of INTA. In the end, we decided not to support the present draft of trade dress legislation based on two guiding principles:
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(1) The Lanham Act and developing case law must remain open-minded and progressive in view of changing technology and the unanticipated consequences which may result from rigidity in the law.

(2) Trade dress legislation at this time may unintentionally curtail existing protections or expand protection into those areas for which courts have traditionally provided narrow scopes of protection

    Over the last five months INTA has been in close communication and cooperation with the subcommittee staff. During this time, we have consistently conveyed the strong belief of the membership of INTA—private practitioners and in-house corporate counsel alike—that trade dress legislation at this point in the evolution of U.S. trademark law is premature. INTA views the Lanham Act as a broad, stable, yet flexible document—a statute which continues to permit interpretation even though the commercial landscape is continuously changing.

Flexibility of the Lanham Act

    There is a real danger that trade dress legislation at this time will remove the intended flexibility of the Lanham Act. Indeed, there is valuable foresight in the present statutory structure which progressively defines trademarks and allows judges to determine what words, names, symbols or devices or combinations thereof 1 identify and distinguish one party's products or services from those of another in light of technologies, marketing and other developments. This has been demonstrated through recent decisions which found that the existing definition of ''mark'' is broad enough to incorporate legitimate trade dress claims, namely for trade dress that actually functions as a trademark or service mark.2\ Amending the Lanham Act to explicitly protect trade dress, which is only one category of non-traditional marks, might, by negative implication, lead courts to construe the Act more restrictively and to conclude that protection for other non-traditional marks is inappropriate or worse, not warranted. After all, the argument goes, ''if Congress had intended to cover a specific non-traditional mark, it would have spoken.''
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    We must consider the fact that any definition of ''trade dress,'' such as the one proposed in this bill, may one day become out of date and will possibly prevent non-functional and distinctive designations from receiving trade dress protection. This would mean that Congress would have to amend the Lanham Act every time there is a new type of mark or other development that may impact the carefully structured and existing time-tested language of the Act.3\ Surely this is not the intent of the bill and INTA urges the subcommittee to consider the position that the current provisions of the Lanham Act are sufficiently broad to encompass trade dress, as they have been doing for years.

    Returning now to the legislation itself, defining ''functional'' in the legislation causes a particular problem for our members. Functionality is a concept that has developed through case law over a period of time in commercial history which reflects the tremendous advances in the ingenuity of American companies. Attorney Robert Butts described the doctrine of functionality as follows:

''Functional features of trade dress are those that are essential in order for businesses to effectively compete in a particular market. A functional feature is one that many businesses have in common as compared to features that distinguish businesses. The principal inquiry in determining functionality is whether protection of a feature would hinder competition.'' 4

While the term ''functional'' with all of its constitutional implications has never appeared in the Lanham Act, courts around the country have correctly noted that trade dress which is non-distinctive or functional is undeserving of protection. Specificity of a definition for functionality in a statute could, by implication or inadvertence, narrow the meaning of the term.
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    To what degree can an alleged trade dress combine both functional and non-functional elements? This is an interesting question, one which has led to considerable turbulence in American courts. The definition of ''functional'' in the current bill fails to answer this question. It does not take into account that most trade dress includes a combination of functional and non-functional elements. One method for addressing this situation is to rule that the entire design must be non-functional in order for the entire trade dress to receive protection.5\ Conversely, other courts have held: ''A combination of features may be non-functional and thus protectable, even though the combination includes functional features.'' 6 It is unclear how the proposed definition in H.R. 3163 will address this issue and, therefore, we remain uncertain as to how courts will benefit.

Curtailing/Expanding Existing Protection: Product Packaging and Product Configuration

    Keeping the Lanham Act and developing case law sufficiently broad is but one concern that has arisen amongst INTA's membership during its consideration of trade dress legislation. A second major concern is that trade dress legislation may unintentionally curtail existing protections or expand protection into those areas for which courts have traditionally provided narrow scopes of protection. This concern is most apparent with respect to the relative degrees of protection afforded to product packaging and product configuration. Product packaging includes all features incidental to the product, such as the container in which it is sold, labels placed on the product or on the container, the manner in which the product is displayed, and any other feature involved in marketing the product.7\ In contrast, product configurations are embodied by the product itself, and include its designs, features, and any combination of product features.8\
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    INTA believes that product packaging and product configurations have different effects on consumers. Because so many alternatives are available for product packaging, unique variations are often utilized to distinguish the products of a specific supplier from those of its competitors. Consumers readily recognize the significance of words and packaging as designators of a product's source and are accustomed to purchasing items based on the brand name or packaging of those items. Often relatively fewer alternatives are available for product configurations which would not affect the utility or acceptability of the products. Therefore, product configurations are utilized by the manufacturers less frequently to distinguish the source of their goods. In light of this fact, INTA believes that trade dress claims for product configuration should be subject to a stricter standard than those relating to product packaging.9\ Otherwise, trade dress laws might be used to preclude the availability of competitive substitute products.

    A discussion of protection for packaging and product configuration in the trademark arena inevitably leads to the two other forms of intellectual property protection: copyrights and patents. It is important to note that utility patents, design patents and copyrights differ from trade dress protection in two important ways. First, upon granting a patent or copyright, a legal monopoly as to an invention or the expression of an idea is bestowed by the U.S. government to the patent or copyright owner. Second, this legal monopoly is specifically limited in time. Once the patent or copyright term ends, the invention or expression of the idea is dedicated to the public interest.

    Trade dress protection, on the other hand, is neither limited in time, nor is it meant to give the claimant a monopoly on products. The possibility exists that consumers would develop an association between a design feature, protected by a design or utility patent or even a copyright, and the manufacturer or seller, during the time of the legal monopoly, such that the design feature becomes an indicator of source. A later grant of trade dress protection for the same feature could be seen as an extension of copyright or patent rights.
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    As currently drafted, H.R. 3163 provides for a definition of ''trade dress'' and a test for ''inherent distinctiveness,'' 10 which are designed to encompass both product packaging and product configuration. In our opinion, courts may very well interpret these provisions as congressional intent to place product configuration on equal footing with product packaging—a position which is not supported by commercial reality. INTA's position on this issue should not be interpreted as a statement which declines to give protection to product configuration. We are unaware of any authority which has declined to consider such protection. However, commercial as well as judicial trends have made it clear that stricter standards must be maintained for product configuration.

    INTA regrets that at this juncture it is unable to support trade dress legislation as currently drafted. The issues involved in the protection of trade dress are extremely complex and are profoundly important to our 3,500 plus members. We think that the resiliency of the Lanham Act is critical in this area of law. Thus, we give any proposed legislation extra scrutiny. While we have worked closely with the subcommittee to find an acceptable bill, we do not believe that this draft is that product.

INTERNET DOMAIN NAME ASSIGNMENT SYSTEM

    The world is shrinking! Not in geographical size, but certainly with respect to the ability of consumers and corporations alike to exchange information and conduct commerce via the Internet—the latest mode of global communication. Just as the Internet represents one of the greatest technological tools of the twentieth century, it also represents what many consider to be the fastest and most efficient means for the producers of goods and services, such as trademark owners, to inform the public about their merchandise and subsequently make sales. For example, if consumers wish to learn about Coca-Cola products they can log-on to www.coca-cola.com. A second example is the movie industry which has used the Internet as a primary means for advertising their films and informing the public about plot and content (i.e. www.miramax.com). A third example is the use of the Internet to make purchases of products such as automobiles (i.e. www.rvbroker.com). In the end of course, these electronic exchanges, regardless of the product or topic, have a significant impact on the economy not only of the United States, but the entire world.
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    The fundamental question before this subcommittee today, Mr. Chairman, is how to protect consumers' interests in locating the brand or vendor of their choice on the Internet without being misled or confused, and how to protect companies from having their brand equity eroded or commandeered in an electronic environment. For example, as the Internet has developed, so have on-line pirates known as ''cybersquatters''—persons who seek to profit from the goodwill and consumer confidence associated with branded products by holding domain names for ransom.11 In addition, consumer confusion has resulted due to a fragmented domain name registration system (DNS) 12 that in most instances does not even recognize trademark rights (i.e. it allows registration of confusingly similar domain names) and the value of trademarks to consumers in the realm of cyberspace. The ability to obtain domain names that are only slightly different from existing names or marks further exacerbates the situation.

    How do we solve this complex problem? How do we balance the interests of the commercial world, which has long relied on the value of trademarks (including company names) as symbols of goodwill and quality, the consumers who identify products and services by those names and marks, the principles of fairness and free speech, and the needs of the technical community which views the Internet as a research and development tool? It is not an easy task.

The IAHC/POC Plan

    The International Ad Hoc Committee (IAHC) and its successor, the Policy Oversight Committee (POC), have devised a plan which attempts to create a balance between all the competing interests. It is the result of consensus building between the Internet and business communities. As I have noted to this subcommittee in the past 13, the IAHC/ POC plan is by no means a perfect solution. It has flaws. The most critical flaw from the perspective of trademark owners is the call for seven additional generic top-level domain names (gTLDs). For the record, INTA favors a deliberate approach if any new gTLDs are to be added, as they have the potential to greatly increase consumer confusion and pose a tremendous policing problem for trademark owners.
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The Administration Plan

    The Administration released its ''green paper'' on the subject of the future of the DNS on January 30. INTA will be commenting formally on the ''green paper,'' but I wish to share our preliminary reactions with you here today. The Administration proposes the establishment of a U.S.-based non-profit corporation to administer the DNS. This corporation would maintain physical control of the major Internet hardware (the ''A rootserver'') and through its Board of Directors establish policies that govern domain name registration and trademark disputes.

    INTA has reviewed the Administration's proposal and we are very concerned about its misperception of the importance of the trademark issues involved in the DNS—now and in the future. Our concerns fall into four major categories:

1) generally, the treatment of trademark and consumer interests as secondary;

2) the lack of specificity with respect to minimum standards for domain name application and renewal;

3) the omission of a uniform dispute resolution policy; and

4) the likelihood that trademark interests will be excluded from the proposed Board of Directors.

    Following is a detailed discussion of these concerns:
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    1) Treatment of Trademark and Consumer Interests: The Administration's proposal treats trademark and consumer interests as secondary, stating ''trademark/ domain name disputes arise very rarely on the Internet today.'' 14 This is simply an inaccurate statement and appears to be based on only one of the many categories of such disputes: the experience of Network Solutions, Inc. (NSI) in litigation. Contrary to the ''green paper's'' assertion, as of November 18, 1997, there had been over 30 cases around the world in which NSI was not involved.15 There continue to be more and more cases every week. Moreover, and perhaps more importantly, the number of disputes that have not yet gone to litigation, are unresolved, or have settled at significant cost to one, or both parties, is huge. Any trademark owner, who must continually surf the web looking for infringements, knows this is true.

    This problem will only get worse with the addition of new gTLDs, as proposed in both the Administration proposal and the IAHC/POC plan. In a San Francisco Chronicle article of January 31, 1998 titled ''Domain Name Plan May Result in Net Chaos,'' Wayne Rush , senior technology editor at InterWeek magazine here in Washington, D.C. cautioned that (although consumers would have more choices under either the Administration proposal or the IAHC/POC plan), ''it adds to confusion online. For instance, where do I find information about Ford Motors? Is it www.ford.store or www.ford.firm ? It adds to the complexity of the Net and makes virtual trademarks a dicey proposition.'' 16 No one benefits from consumer confusion, except, perhaps, those who seek to engender it.

    With the addition of new gTLDs, it is therefore imperative that whatever plan is ultimately adopted contain appropriate safeguards against such unwarranted confusion and costs. This is particularly true if, as the Administration proposes, there is to be no waiting period before a domain name is activated.
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    2) Minimum Standards For Application/Renewal: It is necessary to establish minimum standards for obtaining and maintaining a domain name which is uniformly applicable throughout the gTLD space. While the Administration's plan contains some of these necessary elements, others are absent or not adequately developed.

    The first key element is the establishment of specific minimum standards for domain name registration and renewal. These standards must include at least the following:

 sufficient contact and intended use information;

 appointment of an agent for service of process and contact information;

 agreement to jurisdiction (at least in the jurisdiction of the registrar) in the event of litigation; and

 publication of all application/renewal information on an easily accessible public website;

    We believe such specificity is necessary in order to ensure the accountability of domain name registrants. Trademark owners need complete and accessible information if they are to contact potential infringers at an early stage and prevent consumer confusion before it occurs. Most importantly, trademark owners, for the benefit of the public, need a high degree of certainty which we believe can be achieved only through well-established minimum standards.17

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    3) Uniform Dispute Resolution Policy: A reasonable administrative dispute resolution policy is another essential element. While we agree with the Administration that discretion for domain name policy should not reside with the domain name registrars, we do not agree that it should reside with the registries. For example, any dispute policy needs to be consistent across the gTLD space. The Administration would leave it to each of the five proposed private registries to establish its own dispute resolution policy to be effective at least during a transition period. This, Mr. Chairman, from our point of view, is unacceptable. A lack of uniformity and specificity will only lead to confusion on the part of trademark and domain name holders, chaos in the Internet community, and in the end increasing, rather than decreasing, transaction costs.

    After much study (primarily in the context of the IAHC/POC consideration of the administrative challenge panels (ACPs)), INTA believes that any dispute policy must be uniform across the gTLD space and must avoid trying to resolve complex, fact-intensive trademark infringement disputes which are more appropriately suited to judicial analysis and decision. Accordingly, INTA believes that any dispute resolution policy should be limited, at least during an appropriate study period, to instances of:

 ''cybersquatting;''

 false application/renewal statements; and

 other clear instances of abuse.

I would like to add that nothing in INTA's proposal is meant to preclude a party from utilizing the national court systems as appropriate.18
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    4) Trademark Representation on the Governing Board: Finally, if the Internet is to serve the needs of international commerce, including business and consumer interests in maintaining brand equity and investment and consumers' interests in relying on such brand equity to identify the product, service or company of the consumers' choice, the trademark community must have a significant voice in Internet domain name policy. A governing body weighted heavily toward the Internet technical community will not fully understand or appreciate the relevance of trademark concerns to business and consumers. Because trademarks are the lifeblood of international commerce and play an important role on the Internet, the trademark community must have a significant voice on any governing body, in balance with the technical community. As currently drafted, the Administration's plan is unclear as to whether there will be trademark interests represented on the proposed Board of Directors, stating only that seats on the Board ''might'' include trademark owners.19

    Many of these necessary features are addressed in the IAHC/POC plan. Again, while it is not perfect, it does include essential minimum standards and a detailed application procedure. There is a formal, albeit not quite perfected, uniform dispute resolution procedure in the form of the Administrative Challenge Panels (ACPs). Finally, it provides the trademark/business community representation on these issues of critical concern. I urge the subcommittee and my colleagues on the panel here today to look at the IAHC/POC plan not as a panacea, but as a milestone—a point on which to focus the ongoing dialogue concerning the future of the DNS.

    I cannot stress to you enough Mr. Chairman how crucial a time this is for the DNS and the business community. POC is moving ahead with its plan and now that the Administration has released its proposal, the future of the DNS is even more uncertain. Which plan will it be? Perhaps it may be a plan that emerges from the ongoing debate. Clearly, we are at a critical juncture—a point where we must be vigilant or the ''cyber-needs'' of companies, brand owners, and the public which relies on the reputation and qualities of those companies and branded products may be lost in the debate over technical Internet hardware and governance issues.
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    INTA's reason for being involved in the development of the future DNS is simple—to ensure that the future DNS takes trademark considerations into account. INTA, with its over 3,500 members from around the world, has and will continue to serve not only as the voice of trademark owners, but the voice of the consumers who buy our products, use our services, and depend on the Internet for up-to-date reliable information. We bring a unique perspective to the table, one that encompasses advertising, business, consumer, and legal interests. Our ultimate goal, is, I would venture to guess, Mr. Chairman, similar to yours—the stability of the Internet and the safeguarding of business and consumer interests which generate our economy. On behalf of trademark owners and consumers from around the globe, I thank you for your time and remain available to discuss Internet related issues.

CONCLUSION

    Mr. Chairman, on behalf of the International Trademark Association, I would once again like to express our gratitude to you and the other members of the subcommittee for the opportunity to present our views on trade dress legislation and the future of the Internet domain name assignment system. Both are highly complex issues which are the result of a rapidly changing commercial environment. INTA looks forward to continuing to work with the subcommittee and its staff to protect the interests not only of trademark owners, but more importantly the American public which relies on trademarks to indicate quality, consistency, and safety.

APPENDIX I

VALUE OF TRADEMARKS
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    Trademarks are a subtle, yet fundamental element of our daily lives in the identification of products in the marketplace. They are a basic mode of communication, a means for a company to convey a message of quality, consistency, safety, and predictability to the consumer in an easy-to-understand form. Equally important, trademarks generate an economic ripple effect that starts even before a consumer buys a branded product. First, trademarks benefit the suppliers of raw materials and equipment needed to make the product. Then trademarks stimulate advertising oriented to the brand—$174 billion for the U.S. in 1996 alone. Finally, when the consumer purchases the trademarked product, the manufacturer, distributor and retailer benefit—as do their employees and shareholders. The consumer benefits by easily being able to recognize and select products or services.

    For the reasons just discussed, trademark owners are eager to protect their products' names and distinguishing features. There is no denying that a trademark is a tremendously valuable asset to a company and our economy. It is usually one of the most significant property assets of a company. Further, if we are successful in our efforts to protect trademarks here in the U.S., then there is greater assurance that their status in the global marketplace will be better protected against international counterfeiters, unfair foreign competition and others seeking to unjustly profit from the efforts and investment of the trademark owner.

APPENDIX II

COURT DECISIONS AND DISPUTES ON REGISTRATION

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A. U.S. Disputes Over Domain Names

    Not surprisingly, a number of disputes have arisen between trademark owners and domain name holders. These disputes have occurred in the U.S., as well as in other countries. One of the most publicized early disputes was between McDonald's Corporation and the writer, Josh Quittner.20

    Basically, the cases that have arisen can be divided broadly into two types. The first consists of the cases where a third party purposefully has chosen a domain name which either clearly belongs to another party or is associated with another party so that its use by a third party may have a detrimental impact on the mark. In the second type of case, it is not clear that the domain owner registered a particular name to trade off a trademark owner's goodwill.

1. Intent to Trade Off a Trademark

    Some domain registrants have used their sites to harass or malign the owner of the corresponding trademark, or to trade off its goodwill. Examples of this type of case include: Kaplan Educational Center, Ltd. v. Princeton Review Management Corp.21 (Princeton Review registered ''kaplan.com'' as its domain name and used the site to post disparaging remarks about its competitor's course); MTV Networks v. Curry 22 (MTV sought to reclaim ''mtv.com'' which had been registered by a video jockey of MTV who subsequently left its employ); and Avon Prods., Inc. v. Wong 23 (Avon alleged that defendant's registration and use of its trademark as the domain name ''avon.com'' diluted and infringed its trademark).
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    Kaplan, MTV, Avon and other early cases were settled before substantive rulings by the courts on the infringement and dilution claims. However, by the middle of 1996, courts began deciding these claims at least in the context of preliminary relief. For the most part, courts have granted such relief in cases where the defendant's use of the domain name could tarnish plaintiff, or in clear instances of extortion. The most common finding has been dilution of a famous mark under the federal dilution provision of the Lanham Act, 15 U.S.C. §1125(c).

    Perhaps the most compelling cases are those in which a domain name consisting of a famous mark is used for a sexually explicit site. In Hasbro, Inc. v. Internet Entertainment Group, Ltd.,24 the court issued a restraining order prohibiting the Internet Entertainment Group from using the domain name ''candyland.com'' in violation of the federal and state dilution statutes. Hasbro challenged the use of this domain name because, for 47 years, Hasbro has manufactured a children's game named CANDY LAND. An important factor was that the ''candyland.com'' site was used for explicit adult materials. The court found the HASBRO trademark dilution claim likely to succeed on the merits and enjoined use of the ''candyland.com'' domain name. The defendant also apparently had reserved the domain ''parkerbrothers.com''.

    In another federal dilution case, Toys ''R'' Us Inc. v. Akkaoui,25 the court preliminarily enjoined use of ''adultsrus.com'', ''Adults R Us'', and any other colorable variation of plaintiff's mark for an Internet site and shopping service featuring sexual devices and clothing. The court found TOYS ''R'' US and KIDS ''R'' US to be famous and distinctive marks and eligible for protection from dilution under the federal Lanham Act. Citing to the Hasbro case, above, the court found that ''Adults R Us'' tarnishes the ''R'' Us family of marks by associating them with a line of sexual products, which is inconsistent with the image which Toys ''R'' Us has striven to maintain.
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    Other cases in this category include those in which the defendant clearly registered a particular domain name in an attempt at extortion. In Intermatic, Inc. v. Toeppen,26 the defendant registered ''intermatic.com'', which was a registered trade name and trademark of plaintiff. The defendant, in addition to this domain registration, also had registered approximately 240 domain names, many being trademarks of well-known businesses, including ''deltaairlines.com'', ''eddiebauer.com'' and ''neiman-marcus.com''. The court referred to the defendant as a ''cyber-squatter''.27 Toeppen had ceased use of the domain name before the effective date of the Federal Trademark Dilution Act. However, the court held that ''Toeppen's intention to arbitrage the 'intermatic.com' domain name constitutes a commercial use'' and granted summary judgment on plaintiff's dilution claims.28

    Cardservice Int'l, Inc. v. McGee 29 is noteworthy for the court's award of attorney's fees based on McGee's acts of bad faith.30 Plaintiff used its federally registered mark CARDSERVICE INTERNATIONAL for credit and debit card processing. Defendant McGee had unsuccessfully sought to become a representative for plaintiff; without plaintiff's permission, McGee registered the domain name ''cardservice.com'' with NSI.

    The court previously had enjoined McGee to end all direct and indirect use of any variation of ''Cardservice'' on the Internet and to delete all content of ''cardservice.com'' from the Internet site. The court found that McGee violated that injunction by referring to Cardservice International at his Internet site under a different domain name and intending to use a new domain site of ''csimall.com'' (derived as an abbreviation of plaintiff's name and mark) to engage in ''guerilla warfare'' on the Internet against plaintiff.
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    In Planned Parenthood Federation of America, Inc., v. Richard Bucci,31 a case of intentional deception, the defendant, Bucci, a Catholic Radio host and active participant in the anti-abortion movement, operated an Internet site with the domain name ''plannedparenthood.com''. The home page contained the greeting ''Welcome to the PLANNED PARENTHOOD HOME PAGE'', which greeting was followed by anti-abortion propaganda.

    Plaintiff, a reproductive health care organization, also operated an Internet site, with the domain name ''ppfa.com''. The court enjoined Bucci's use of ''plannedparenthood.com'', reasoning that use of the domain would create a likelihood of confusion with the Planned Parenthood health care organization. Search engines would lead Internet users looking for Planned Parenthood to the defendant's site by mistake and many users would never find the real Planned Parenthood site.

    Finally, in Playboy Enterprises, Inc. v. Calvin Designer Label,32 the district court enjoined defendants Calvin Designer Label,33 Calvin Fuller, and Calvin Merit from use of the domain names ''playboyxxx.com'' and ''playmatelive.com'', as well as the use of ''Playmate Live Magazine'' and ''Get it all here@Playboy'', incorporating plaintiff's federally registered PLAYMATE and PLAYBOY marks. In addition, in the first decision on the issue, the court enjoined the use of PLAYBOY ''meta tags'', i..e, machine readable code in defendants' Web pages, so that users using the keyword PLAYBOY to search the Web would access defendants' websites.

2. No Obvious Intent to Trade Off Trademark
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    In some cases, it is not clear whether the defendant intended to trade off the plaintiff's goodwill in adopting a domain name identical to an established mark.

    Comp Examiner Agency, Inc. v. Juris, Inc.,34 in which the court found that the domain name ''juris.com'' is likely to infringe the federally registered trademark JURIS, is an example. Juris offers law office management software and has provided goods and services under the JURIS mark since 1980. In 1988, Juris obtained a federal trademark registration of JURIS, under which computer programs and related goods and services are sold. In June 1995, Juris' application to register ''juris.com'' as a domain name was rejected on the basis of Comp Examiner Agency's (TCE) prior registration of the identical domain name in 1993.

    Upon Juris' demand that TCE cease and desist from using the juris.com domain and website through which TCE was selling law-related services, TCE filed a declaratory judgment action and sought to cancel Juris' trademark registration on various grounds. Juris counterclaimed and later moved for a preliminary injunction, which was granted on the basis of likelihood of confusion. The court issued a broad injunction against use of juris.com, juriscom.com, or any confusingly similar domain name or mark in connection with TCE's activities.

    In ActMedia, Inc. v. Active Media Int'l, Inc.,35 the plaintiff owned a registration of the mark ACTMEDIA and had used the trade name for a number of years. The court found that the defendant's reservation of the domain name ''actmedia.com'' precluded plaintiff from reserving an Internet domain name incorporating its registered mark, constituting misappropriation, false designation of origin, and dilution of the distinctive quality of plaintiff's mark under the Illinois dilution statute.
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    In Gateway 2000, Inc. v. Gateway.com, Inc.,36 the court denied Gateway 2000 Inc.'s motion for a preliminary injunction, permitting defendant to continue use of the domain name ''gateway.com''. The defendant, a computer consulting business, registered the domain name six years prior and used ''gateway.com'' as an electronic address commencing in May 1988. Plaintiff began its company in 1985 as Gateway 2000 and obtained federal trademark registration of GATEWAY 2000, INC. in 1993.

    Plaintiff filed suit claiming, inter alia, trademark infringement and dilution. Although the court found that plaintiff appeared to own a famous mark, the evidence was insufficient to establish that plaintiff's mark was famous at the time that the defendant's use began. The infringement claim also was denied as plaintiff failed to demonstrate that it had used the name ''Gateway'' as opposed to ''Gateway 2000'' prior to defendant's use of ''gateway.''

    In Teletech Customer Care Management (California), Inc. v. Tele-Tech Co.,37 the owner of the registered mark TELETECH obtained a preliminary injunction against defendant's use of the domain name ''teletech.com''. The court noted that the defendant could have used the domain name ''tele-tech.com'' and that the use of the hyphen (making the domain name consistent with defendant's Tele-Tech trade name) would distinguish the sites.

3. NSI As a Defendant

    To stave off a domain name from being placed on hold, the domain name owner sometimes will add NSI as a defendant.38 For example, in Roadrunner Computer Systems, Inc. v. Network Solutions, Inc.,39 Roadrunner Computer Systems (''RCS'') sued to have NSI enjoined from placing its domain name on hold because of a trademark challenge over the domain name from Warner Brothers.
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    Warner Brothers obtained a federal trademark registration for ROAD RUNNER on August 9, 1995 and sought to challenge RCS's use of the domain name ''roadrunner.com''. RCS had offered computer services on the Internet using the ''roadrunner.com'' domain name since it was issued by NSI in May 1994.

    RCS claimed it had not been informed of NSI's dispute policy until Warner Brothers challenged its domain name. In response to the challenge and to prevent NSI from putting its domain name on hold, RCS obtained a defensive trademark registration of ROADRUNNER from Tunisia. However, NSI did not accept the Tunisian registration because RCS did not submit it within the 30-day response period. NSI counterclaimed, stating that its dispute policy was not subject to court review.

    The Roadrunner case was dismissed on June 21, 1996. The court held that the original dispute no longer existed between NSI and RCS because Warner Brothers agreed to obtain another domain name, ''Road—Runner.com''.

    Since the Roadrunner lawsuit, there have been several other cases in which NSI has been sued by domain name holders requesting that their domain name not be terminated by NSI and challenging NSI's dispute policy. In each, the domain holder has denied that its activities constitute trademark infringement.

    In Data Concepts, Inc. v. Digital Consulting, Inc.,40 Data Concepts sought a temporary restraining order and injunction to prohibit NSI from removing ''dci.com'' from the registry, despite Data Concepts' use since 1993, because Digital Consulting owned the federally registered trademark ''DCI.'' NSI agreed to allow Data Concepts to keep its domain name, if indemnified. On May 24, 1996, the parties agreed that NSI would not stop Data Concepts' use of the ''dci.com'' domain name until the court entered an order to that effect. Data Concepts then dropped NSI as a party to the suit.
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    This case is particularly important in terms of considering the efficacy of and difficulties inherent in domain name dispute policy. Here the domain holder apparently had superior common law (unregistered) trademark rights, yet was subject to loss of its established domain name based on a challenge from the holder of a trademark registration certificate.

    On May 30, 1996, Philip L. Giacalone, owner of the ''ty.com'' domain name, filed a lawsuit against NSI and Ty, Inc., a manufacturer and distributor of stuffed animals.41 Giacalone used the domain name, named after his son, for advertising his computer consulting business. Ty, Inc. owns the federal trademark registration of TY, which appears in a red heart design. Ty, Inc. first offered to purchase Giacalone's domain name. After Giacalone rejected the offer, Ty, Inc. sent a cease and desist letter to Giacalone and a letter to NSI invoking NSI's dispute policy. Giacalone moved for a temporary restraining order and preliminary injunction against both Ty, Inc. and NSI based on his belief that NSI would be suspending his domain name and Ty, Inc. would be filing a lawsuit.

    In addition to the usual causes of action, Giacalone asserted ''trademark misuse'', alleging that Ty, Inc. was unlawfully attempting to extend the scope of its trademark registration to areas where it has no legal right to protection. A temporary restraining order was granted on June 3, 1996 and a preliminary injunction was granted on June 13, 1996. The case was settled when Giacalone agreed to transfer the domain name to Ty, Inc. for an undisclosed amount.

    In Clue Computing, Inc. v. Network Solutions, Inc.,42 a state court case, Hasbro objected to Clue Computing's domain name ''clue.com'' after it had been in use for two years. NSI planned to take away Clue Computing's domain name which, according to its owner, would put him out of business because 80% of his business was on the Internet. On June 25, 1996, for the first time, NSI was enjoined from making any change to the use and registration of a domain name until permitted to do so upon order from the court.
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    NSI filed an interpleader complaint in Colorado federal court naming Clue and Hasbro, which was dismissed on two grounds. Network Solutions, Inc. v. Clue Computing, Inc., 946 F. Supp. 858 (D. Colo. 1996). First, because the state court had issued an injunction preventing NSI from suspending the ''clue.com'' domain name, NSI did not have the right to deposit the domain name with the court for judgment. Second, and perhaps more significantly, the court found that NSI could not assert it was an ''innocent stakeholder'' in the typical interpleader situation, but rather was an interested party to a breach of contract proceeding.

    In Lockheed Martin Corp. v. Network Solutions, Inc.,43 the owner of the service mark SKUNK WORKS, sued NSI alleging contributory service mark infringement, unfair competition, and dilution because NSI had registered domain names such as ''skunkworks.com'', ''skunkworks.net'', and ''skunkwrks.com''. NSI filed a motion to partially dismiss the claims for failure to join indispensable parties, thereby subjecting it to potentially inconsistent verdicts. The court denied the motion since NSI could resolve any inconsistent verdicts through impleader.

B. Disputes Outside the U.S. Over Domain Names

    Outside the U.S., there have been reported decisions in domain name cases in the United Kingdom, Germany, the Netherlands, France, Canada and Australia.

1. United Kingdom

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    The Prince case appears to be the first domain name dispute to involve parties and courts in two different countries. The case revolves around the ''prince.com'' domain which Prince PLC, a British computer services company, obtained via NSI in February 1995. Prince PLC also obtained the domain ''prince.co.uk''. When Prince Sports Group, Inc., a U.S. manufacturer of tennis rackets and other sporting goods, tried to register the ''prince.com'' domain, it learned from NSI that the name was already taken. Prince Sports Group registered several domain names instead, including ''princetennis.com'' and ''princesportsgroup.com'', but the U.S. company also launched an effort to obtain ''prince.com'' from Prince PLC.

    In order to trigger NSI's dispute policy, Prince Sports Group—which has several trademark registrations for PRINCE in both the U.S. and the UK—sent a demand letter to Prince PLC in the UK. The letter threatened litigation if the British company did not assign the ''prince.com'' domain to Prince Sports Group and agree not to use PRINCE as any part of any new domain name. Prince PLC does not own a trademark registration for its PRINCE service mark in the UK or elsewhere.

    Prince Sports Group then initiated a domain name dispute with NSI, enclosing a copy of its demand letter to Prince PLC along with copies of its valid preexisting U.S. trademark registrations. Under the provisions of NSI's dispute policy, Prince PLC was given 30 days to either relinquish the ''prince.com'' domain, produce a valid preexisting trademark registration, file a legal action ''in any court of competent jurisdiction in the United States,'' or do nothing and have its domain put on hold.

    With only one day remaining before ''prince.com'' would be put on hold, Prince PLC opted not to comply with NSI's dispute policy and instead filed a civil action against Prince Sports Group in the High Court in London pursuant to Section 21 of the UK Trade Marks Act of 1994. Prince PLC sought declarations from the UK court that its registration of the ''prince.com'' domain did not infringe Prince Sports Group's trademark rights and that Prince Sports Group's allegation of infringement and threats of legal action were unjustified, and sought to enjoin Prince Sports Group from continuing to threaten legal action based on Prince PLC's use of the ''prince.com'' domain.44 Despite the fact that Prince PLC had not satisfied the requirements of NSI's dispute policy, NSI nonetheless did not put the ''prince.com'' domain on hold but instead deposited it with the UK court for disposition.
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    While the British case was pending, Prince Sports Group sued both NSI and Prince PLC in U.S. federal court.45

    On July 31, 1997, the UK court ruled that Prince Sports Group's threats were unjustified and issued an injunction preventing the U.S. company from repeating its threats. However, the UK court did not go so far as to declare that Prince PLC's use of the ''prince.com'' domain name did not infringe Prince Sports Group's registered UK trademarks. The UK court stated that it declined to get involved in the legal battle over domain name ownership because it might be construed as undue interference in the U.S. lawsuit filed by Prince Sports Group. The ruling leaves Prince PLC in control of the domain for the present, but the ultimate outcome will be determined by the U.S. court.

    Also, in a case which bears a resemblance to the above-mentioned cyber-squatter cases, the internationally known Harrods department store, like many other famous businesses, found that someone else had registered the domain ''harrods.com''. The domain name registrant also had registered 50 other names corresponding to well-known companies. Although the Chancery Division of the High Court of Justice declined to reach final judgment on the merits, the court enjoined the domain holder, UK Network Services Limited, an Internet Service Provider, and other defendants from infringing the Harrods name and mark and ordered release of the ''harrods.com'' domain name.46

2. Germany

    Outside the U.S., German courts appear to have taken the lead in deciding domain name disputes. To date, German courts have decided at least 15 such cases, and more than 20 additional cases are pending. In the first and most well known case, a court in Mannheim held that the assignment of the domain name ''heidelberg.de'' to a private party (''.de'' is the ISO country code TLD for Germany) infringed the City of Heidelberg's superior rights.47 The city of Kerpen appears not to have faired as well in a dispute over ''kerpen.de'', where the K ln court ruled that the domain does not represent usage of the name of the city.48
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    Two other cases highlight the fact that, under German law, any activity on the Internet that is visible in Germany brings the actor under the jurisdiction of the German courts. A court in Berlin recently enjoined use by MCN, a Kansas City Web design, Internet service, and domain name brokerage firm, of ''concertconcept.com'', ''concertconcept.de'', ''concert-concept.com'', and ''concert-concept.de'', as violating the rights of a German company in its trade name and mark.49 The court specifically noted that it is irrelevant to German jurisdiction whether the defendant's host computer is in the U.S or whether the domain was registered in the U.S.—the only relevant criteria is that the website can be read in the district of the court.

    A Dusseldorf court reached the same conclusion, albeit in dicta, in a dispute involving the domain ''epson.de''. In ordering removal of the defendant's domain registration, the court offered that it makes no difference whether the TLD is .com or .de, so long as the website with which the domain is used is visible in Germany.50

3. Netherlands

    The courts in the Netherlands have decided at least four cases. Perhaps the most interesting involved a group of banks and insurance companies, who together sued IMG Holland N.V., a stock brokerage, for obtaining each plaintiff company's name as an SLD in the .com TLD space and using each of the domains as addresses for a single website containing information relevant to the plaintiff's activities.51 On May 15, 1997, the District Court at Amsterdam granted an injunction against IMG's continued use of the domains, and found IMG's conduct in obtaining the domains to be tortious, concluding that despite the fact that the site itself disclosed that the information it contained originated from IMG, consumers were likely to assume the information came from the plaintiffs, and the plaintiffs were precluded from establishing their own websites under their own names. In so ruling, the court rejected IMG's argument that the plaintiffs were not harmed because they could obtain the identical SLDs in the .nl ISO country code TLD, concluding that was insufficient consolation for the plaintiffs because .com is the most common TLD for international commerce.
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    The other three cases in the Netherlands all involved domains in the .nl TLD (.nl is the ISO country code TLD for the Netherlands). In an unpublished decision issued August 29, 1996, applying likelihood of confusion principles, the Amsterdam Court determined that the use of the domain name ''xxlink.nl'' did not violate the rights of the party that held the Benelux trademark XLINK. The decision was based in part on the finding that there was insufficient similarity in the services offered by the respective companies to give rise to confusion. In the second case, the court decided that, based on the descriptive nature of the terms ''ouders'' (Dutch for ''parents''), registration and use of the domain name ''ouders.nl'' did not infringe the rights of the owner of the Benelux trademark OUDERS VAN NU. In the third case, a Cantonal Judge enjoined the use of the domain name ''flevonet.nl''. The challenge was brought by an Internet service provider who operated under the name FLEVONET against the party who subsequently registered the domain name.

4. France

    In a French case, Atlantel, an audiovisual company, invoked its company name and trademark ATLANTEL to oppose Icare's registration of the domain name ''atlantel.com''. In a summary judgment dated July 22, 1996, the Tribunal de Grande Instance de Bordeaux enjoined Icare from further use of the Atlantel mark and ordered that the ''atlantel.com'' domain name be withdrawn.52

5. Canada

    There are no reported cases in Canada which consider the issues of confusion between a domain name and a trademark, registered or unregistered.
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    One decision has considered the likelihood of confusion arising between a domain name corporate and a corporate name. In PEINET Inc. v. O'Brien, (1995) 61 C.P.R. (3d) 334 (P.E.I. T.D.), the plaintiff was an Internet service provider, providing its subscribers access to the Internet's e-mail and Usenet services. PEINET began its operations in 1993. As a prerequisite to offering Internet services, PEINET applied for a domain name. CA Net, the Canadian national access provider, assigned the domain name ''peinet.pe.ca.'' according to its standard ''name. province.ca'' format. The defendant, O'Brien, was a former employee of PEINET. After his dismissal in October 1994, O'Brien started up his own business as an Internet provider, Issland Services network. He registered the domain name ''pei.net'' with a major U.S. access distributor.

    The defendant persuaded the court that the domain name address of PEI.NET, as an electronic address on the Internet, would not be confused with the substantially identical name of the plaintiff, PEINET Inc. Even though both parties provided network services, the court dismissed the application for an interlocutory injunction on the basis that there would be no likelihood of confusion. The case turned in large part on the use of upper rather than lower case lettering, although Internet domain names are not case sensitive.

    Perhaps more important, the plaintiff failed to show it had established its reputation over a reasonable period of time and to such an extent that it had acquired a reputation. Also, the defendant had agreed to de-list the domain name of ''pei.net'' from its server.

    In August 1997, the West Edmonton Mall obtained an interim injunction to prohibit the use of ''westedmontonmall.com'' by an unrelated party. The defendants were allegedly posting pornographic images at their website. (This case is currently unreported.) Summer 1997 also marked the first time that the Federal Court of Canada accepted by way of deposit an NSI domain name registration allegedly in conflict with a trademark registration for goods which are not identical to those offered by the holder of the domain name. Finally, an Order of the Federal Court was granted transferring the domain name, on consent of the parties.
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6. Australia

    The Australian courts may soon get an opportunity to hear a dispute regarding the domain name ''sydney2000.net''. This domain has been registered by an Australian Internet service provider, Asia Pacific Internet Company (APIC). The Sydney Organising Committee for the 2000 Olympic Games (SOCOG) has sent a cease and desist letter, and may soon take APIC to court. Commercial use of the phrase ''SYDNEY 2000'' is expressly prohibited by Australia's Sydney 2000 Games Indicia and Images Protection Act 1996.

C. Jurisdiction Over Domain Names

    As is true of trademark law, there is no international law of jurisdiction. In the context of the convergence of trademarks and domain names in cyberspace, questions arise as to where jurisdiction is proper should litigation ensue.

    In Panavision Int'l, L.P. v. Toeppen,53 Mr. Toeppen, an Illinois resident, had registered ''Panavision.com'' and informed Panavision, a California corporation, that he would discontinue use of the domain name for $13,000. In reviewing the three-prong test for specific jurisdiction, the California court found personal jurisdiction existed by emphasizing Toeppen's conduct of allegedly committing a tort against California. Interestingly, the court felt obligated to state that it was not holding that Toeppen was ''doing business'' in California via the Internet, but rather that jurisdiction was based on Toeppen's conducting a scam against California.

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    In Zippo Mfg. Co. v. Zippo Dot Com, Inc.,54 plaintiff, owner of the mark ZIPPO for lighters, filed a complaint alleging violations of the Lanham Act and state dilution claims against a website operator and Internet news service and owner of the domain names ''zippo.com,'' ''zippo.net'' and ''zipponews.com.''

    Defendant sought to dismiss for lack of personal jurisdiction and improper venue. The court noted that defendant had contracted with 3,000 individuals who subscribed to the news service and entered into agreements with several Internet access providers in Pennsylvania (two of which were in the court's district). The court found jurisdiction existed as defendant processed Pennsylvania resident applications and assigned them passwords to use the service. The fact that only a small percentage of clients were located in Pennsylvania was irrelevant. For the above reasons, the court also found venue proper.

    In Hearst Corp. v. Ari Goldberger,55 personal jurisdiction over a defendant who maintained a site in another state was at issue. The owner and publisher of ESQUIRE magazine brought a trademark infringement action against a New Jersey defendant operating an Internet site at the ''esqwire.com'' domain advertising law-related services. The court held that out-of-state creation of an Internet website accessible in New York, alone, would not support personal jurisdiction.

APPENDIX III

REGISTRY POLICY: MINIMUM TRADEMARK PROTECTIONS

A. gTLDs
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    1. Given unpredictable effects and policing problems, INTA recommends that a deliberative approach be taken with respect to additional gTLDs.

B. APPLICATION AND RENEWAL

    1. The application must include:

 detailed identifying information, including applicant's name; state of incorporation or partnership (if applicable); address; telephone/facsimile numbers; and e-mail address.

 designation of an agent for service of process. The application should include the agent's name, address, telephone and facsimile numbers and e-mail address.

 statement of bona fide intent to use the domain name within a time certain.

 statement of bona fide reason for using the domain name, e.g. the domain name is the applicant's name or trademark or a variation thereof.

 statement of intended use of the domain name, e.g. as e-mail, website, or other use, and the goods/services in connection with which the applicant intends to use the domain name.

 statement that the applicant, to the best of its knowledge, believes that the domain name is available and that the intended use will not infringe the trademark or other rights of any other party.
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 an agreement to submit to personal jurisdiction concerning disputes related to the domain name, in the countries where the applicant/registrant resides, where the root server is located, where the Registry is located, and where the Registrar is located. A challenger also should be able to bring legal action in any other country where personal jurisdiction may be exercised against the challenged party.

    2. Renewal

 Renewal of a domain name should be required annually.

 Renewal applications must confirm and update information contained in the original application.

    3. Other requirements

 Prepayment of the requisite application/renewal fee should be made before the application or renewal is examined for completeness and, where the fee has not been paid, the application/renewal should be rejected.

 The Registrar must immediately examine each application/renewal for completeness and should reject an application/renewal if incomplete.

C. PUBLICATION

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    1. Applications, including all the information included therein, should be posted within a week of receipt by the Registrar on a publicly-available, searchable website.

    2. All Registrars should use the same application and should post the application on one website shared by all Registrars. This website should be easily searchable across all Registries. This website also should be updated as often as possible, preferably at least every 30 days, by each Registrar.

    3. INTA continues to believe that a waiting period following publication provides important benefits to both trademark owners and the domain name applicant by allowing the trademark owner sufficient time to investigate and, if necessary, take appropriate action before the applicant has invested in, and begun use of, the domain name. Absent such a waiting period, it is absolutely imperative that there be a procedure for automatic suspension within 30 days following publication of the application pursuant to the terms of the Registry Dispute Policy (see below).

    4. The registration database should be monitored for ''deadwood'', i.e., domain names which are not actually in use, and an appropriate removal policy implemented.

DISPUTE POLICY

    1.  There should be a uniform dispute resolution policy across all registries and registrars.

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    2.  Neither the Registrars nor the Registries should be responsible for developing dispute resolution policies.

    3.  Alternative dispute resolution mechanisms, such as mediation and arbitration, should be available. Where possible, these procedures should be conducted on-line and should be expedited.

    4.  There should be an administrative dispute policy (''Registry Dispute Policy'') that, at least during the experimental period, is limited to cybersquatting, false application/renewal statements and other clear instances of abuse.

    5.  A domain name should be suspended if the challenger makes the challenge under the Registry Dispute Policy within 30 days after publication, pending resolution under the Registry Dispute Policy.

    6.  The trademark community must be included in developing an appropriate Registry Dispute Policy.

    7.  Registries and Registrars should be located in countries which are signatories to the Paris Convention (an international agreement providing that member nations shall give foreign nationals the same treatment as the member nations provide their own citizens).

HOUSE RULE XI DISCLOSURE

    Pursuant to House Rule XI, clause 2(g) (4), the Subcommittee is hereby informed that the International Trademark Association has received no federal grant, contract, or subcontract in the current and preceding two fiscal years.
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CURRICULUM VITAE

    I have been a lawyer on the Trademark, Advertising and Copyright Legal Staff of the Legal Division of Eastman Kodak Company in Rochester, New York since May, 1986. I am responsible for the worldwide trademarks and copyrights of the Consumer Imaging, Kodak Professional and Entertainment Imaging Divisions of the company.

    Prior to joining Kodak, I was a partner in the law firm of Rogers, Hoge & Hills in New York City.

    I was born in Cincinnati, Ohio. I received my BA from Hamilton College in Clinton, New York and my JD from the University of Cincinnati College of Law.

    1\ 15 U.S.C. §1127

    2\ See, e.g., Two Pesos v. Taco Cabana Inc., 505 U.S. 763, 112 S. Ct. 2753 (1992) (buildings); In re General Electric Broadcasting Co., 199 U.S.P.Q. 560 (T.T.A.B. 1978) (sound); In re Clarke, 17 U.S.P.Q.2d 1238 (T.T.A.B. 1990) (smell).

    3\ The look of an Internet website is just one example.

    4\ Robert Butts, ''Franchise Trade Dress: What do Courts Mean by the Term Distinctiveness, Functionality and Likelihood of Confusion?'' Franchise Law Journal, Spring 1997:129.
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    5\ See, e.g., New England Butt v. International Trade Commission, 756 F.2d 874, 877 (Fed. Cir. 1985).

    6\ See, e.g., Hartford House Ltd. v. Hallmark Cards, Inc., 846 F.2d 1258, 1272 (10th Cir. 1988).

    7\ Examples of product packaging include the gold coloring with black strip of the yellow Kodak film box and the red and white colors on a can of Coca–Cola.

    8\ An example of product configuration is the shape of the Ferrari automobile.

    9\ See Duraco Products, Inc. v. Joy Plastics Enterprises, Ltd., 40 F 3d 1341, 1441 (3d Cir. 1994); see also Knitwaves, Inc. v. Lollytogs, Ltd., 71 F 3d 996 (2d Cir. 1995).

    10 The term ''inherent distinctiveness'' refers to the capacity to act as source identification.

    11 The most famous ''cybersquatter'' is Dennis Toeppen, who up until he was enjoined by a federal district court, had obtained 240 domain names, including: www.aircanda.com, www.anaheimstadium.com, and www.eddiebaur.com.

    12 It is currently possible to register domain names in over 200 national and quasi-national registries.
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    13 Please see INTA's November 5, 1997 testimony before the House Subcommittee on Courts and Intellectual Property.

    14 See http://www.ntia.doc.gov

    15 Please see Appendix II which lists and gives background on just a mere fraction of the trademark/domain name cases from around the world.

    16 ''Domains Plan May Result in Net Chaos,'' San Francisco Chronicle, January 31, 1998, pp. D1–D2.

    17 See Appendix III for more details on INTA's proposed minimum trademark standards.

    18 See Appendix III concerning INTA's suggestions for a uniform dispute resolution procedure.

    19 See http://www.ntia.doc.gov.

    20 Joshua Quittner, ''Billions Registered: Right Now, There are No Rules to Keep You From Owning a Bitchin' Corporate Name As Your Own Internet Address,'' Wired, October 1994, 54.

    21 No. 94 Civ. 1604 (MGC)(S.D.N.Y. filed March 9, 1994) (kaplan.com relinquished in arbitration).
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    22 867 F. Supp. 202 (S.D.N.Y. 1994) (MTV obtained mtv.com in settlement).

    23 No. 96–CV–451 (E.D.N.Y. April 3, 1996) (Avon obtained avon.com in settlement).

    24 40 U.S.P.Q.2d 1479 (W.D. Wash. Feb. 9, 1996).

    25 No. C 96–3381 CW, 1996 U.S. Dist. LEXIS 17090 (N.D. Cal. Oct. 29, 1996).

Also noteworthy is the court's issuance of a preliminary injunction notwithstanding defendants' arguments that there was nothing left to enjoin because they had stopped using the challenged names. The court found that defendants had not completely removed all references to ''Adults 'R Us'' from the Internet. Accordingly, the court's preliminary injunction is believed particularly useful for drafting a proposed Order.

    26 947 F. Supp. 1227 (N.D. Ill. 1996).

    27 Id. at 1233.

    28 Id. at 1239.

    29 950 F. Supp. 737 (E.D. Va. 1997).
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    30 Under U.S. law, attorney's fees may be awarded in ''exceptional cases'' of trademark infringement. See 15 U.S.C. §1117(a). McGee's bad faith warranted an award of $59,591.25 in attorney's fees, in addition to $3,655 previously awarded for plaintiff's expenses in pursuing a show cause order.

    31 97 Civ. 0629, 42 U.S.P.Q.2d (BNA) 1430, 1997 U.S. Dist. LEXIS 3338 (S.D.N.Y. March 24, 1997).

    32 No. C–97–3204 (N.D. Cal. Sept. 8, 1997).

    33 Defendant has no relationship to designer Calvin Klein or his clothing lines.

    34 No. 96–0213–WMB(CTx) (C.D. Cal. April 26, 1996 and corrected May 22, 1996).

    35 No. 96C 3448, 1996 WL 466527 (N.D. Ill. July 17, 1996).

    36 1997 U.S. Dist. Lexis 2144 (E.D.N.C. Feb. 6, 1997).

    37 No. 96–8377, 1997 U.S. Dist. LEXIS 9590 (C.D. Cal. May 9, 1997).

    38 Two early cases in which NSI was included as a defendant were KnowledgeNet v. Boone, (N.D. III., complaint filed Dec. 2, 1994) and Fry's Electronics, Inc. v. Octave Systems, Inc., No. C95–CV–2525 CAL (N.D. Cal. complaint filed July 12, 1995). They also were the first cases to include a RICO claim against the defendants. The first settled; the second ended in a default judgment in response to ''obstructionist behavior'' by Frenchy Frys' proprietor.
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    39 No. 96–413–A (E.D. Va. dismissed June 21, 1996).

    40 No. 96–CV–429 (M.D. Tenn., May 8, 1996).

    41 Giacalone v. Network Solutions, Inc., No. 96–CIV–20434 (N.D. Cal.).

    42 No. 96 CV 694, Div. 5 (Colo. Boulder County Dist. Ct., June 25, 1996).

    43 Case No. CV 96–7438, 43 U.S.P.Q.2d (BNA) 1056, 1997 U.S. Dist. LEXIS 10314 (C.D. Cal. filed March 19, 1997).

    44 Prince PLC v. Prince Sports Group, Inc., CH1997—P2355 (Mr. Justice Neuberger presiding, filed July 30, 1997).

Unlike in the U.S., where ''cease and desist'' letters threatening legal action for trademark infringement are commonplace, the UK Trade Marks Act makes it unlawful for the owner of a UK trademark registration to make unjustifiable threats of legal proceedings for such infringement. Section 21 of the Act provides for declaratory and injunctive relief as well as damages for those harmed by such threats.

    45 Prince Sports Group v. Prince PLC, No. 97cv03581 (D.N.J. filed July 3, 1997).
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    46 Harrods Limited v. UK Network Services Limited, 1996 H 5453 (Mr. Justice Lightman presiding, ordered December 9, 1996).

    47 Landgericht Mannheim, March 8, 1996, 7–O–60/96.

    48 Landgericht KoAE4ln, December 17, 1996, 3 O 477/96.

    49 Landgericht Berlin, November 20, 1996, 5 U 659/97, 97 0 193/96 (upheld on appeal March 25, 1997).

    50 Landgericht Dusseldorf, April 4, 1997, 34 O 191/96.

    51 Labouchere v. IMG Holland, President District Court Amsterdam, May 15, 1997, Rechtspraak van de Week 1997, nr. 193.

    52 Gazette du Plais, December 11–12, 1996, p. 9.

    53 938 F. Supp. 616 (C.D. Cal. 1996).

    54 952 F. Supp. 1119 (W.D. Pa 1997).

    55 96 Civ. 3620, 1997 U.S. LEXIS 2065 (S.D.N.Y. February 26, 1997).
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    Mr. COBLE. Thank you, Mr. Stimson. Mr. Davis.

STATEMENT OF THEODORE H. DAVIS, JR., PARTNER, KILPATRICK, STOCKTON, LLP

    Mr. DAVIS. Mr. Chairman, Ranking Member Frank, members of the subcommittee, I appreciate your invitation to testify on H.R. 3163, as well as the trademark issues raised by the Internet. My name is Ted Davis. I am currently Chair of the Federal Trademark Legislation Committee of the Section of Intellectual Property Law of the American Bar Association. My testimony today is on behalf of the Section of Intellectual Property Law, rather than on behalf of the ABA as a whole.

    We applaud the subcommittee's continuing and ongoing commitment to improving trademark and unfair competition practice in the United States. We realize in particular that the pursuit of the technical amendments to the Lanham Act contained in both H.R. 1661 and H.R. 3163 is something that is unlikely to result in any public attention or accolades. It is, however, a process that does, in fact, improve the ability of U.S. citizens and businesses to secure the protection for their trademarks that those marks deserve. Strong United States marks means strong United States businesses, and we appreciate the subcommittee's willingness to take the lead in bringing about protection for those marks.

    We also support the subcommittee's willingness to address the technical but important issue of which party in a trade dress infringement suit bears the burden of proof on functionality. As the subcommittee is aware, this is an issue on which there is a profound split in the Circuits, the result of which is an opportunity for forum shopping by litigants.
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    For the reasons set forth in our written testimony, we believe that the approach taken by H.R. 3163, which would place the burden on the plaintiff/owner of an unregistered trade dress to demonstrate the nonfunctionality of the claimed design, is appropriate.

    We also strongly support H.R. 3163's express recognition that functionality should be a ground for the ex parte rejection of applications by the United States Patent and Trademark Office. Such an amendment would prevent overly literal applications of the Lanham Act from creating potentially perpetual protection for functional designs.

    There are, however, certain aspects of H.R. 3163 that we unfortunately do not support. They are, one, the legislation's proposed enactment of a statutory definition of functionality, and, two, the legislation's proposed enactment of statutory factors governing whether a claimed trade dress is inherently distinctive.

    As to the first of these, we generally believe the functionality inquiry is not one that can be reduced to a mechanical test, however open-ended the test proposed by H.R. 3163 may be. For reasons set forth in our written testimony, we also have more minor concerns with the specific factors identified by the proposed test. Finally, we note that the codification of a test that has apparently never before been applied by a United States court may result in considerable confusion, at least in the immediate short term.

    We share many of the same concerns about H.R. 3163's proposed test for inherent distinctiveness. As with the test for functionality, courts traditionally have not applied a rigid test for determining the extent to which a claimed trade dress may be inherently distinctive, but instead have adopted varying tests depending on the specific facts and circumstances before them. In particular, most courts to address the issue have concluded that product configurations properly should be subject to some form of a more stringent test for inherent distinctiveness. Because it is a marketplace reality that, with some notable exceptions, consumers do not automatically regard product configurations as brand signals, we generally oppose a single unified standard of the sort proposed by H.R. 3163.
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    Finally, the section has minor concerns with H.R. 3163's proposed definition of trade dress. Technically, trade dresses are nothing more than a subset of trademarks and service marks, and we believe it is incorrect to speak of trade dress law as independent of or somehow different from that governing more traditional marks. By expressly referencing trade dress, the proposed amendment may inadvertently create the impression that trade dresses are not marks, but instead are somehow subject to a sui generis body of law, removed from the well-established principles that have arisen under the Lanham Act's existing text. Overall, we believe the better approach is to reenforce and to reemphasize the inherent relationship between trademarks and trade dresses with a single definition of trademark that is broad enough to sweep in both, rather than to take steps that suggest that they are, in fact, different from one another.

    With respect to the Internet issues currently being considered by the subcommittee, our section has developed policy concerning one proposal that has been made concerning the Internet domain name registration process, and we have identified a number of other specific issues that we are continuing to examine.

    First, although it has been suggested by some that domain name registries should adopt initial review processes similar to that of the PTO in issuing domain name registrations, it is our position that registries should not be forced to adopt such policies in view of the likely delays and cost increases associated with the domain name registration process.

    Second, although our section has not yet taken an official position on the establishment of new generic top level domain names, we have identified several concerns regarding this notion. In particular, besides being given additional monetary burdens, mark owners may be forced either to register their marks across all the new GTLDs or to watch cybersquatters abuse those marks.
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    Mr. Chairman, once again, I appreciate the opportunity to appear before the subcommittee and would be happy to answer any questions that the subcommittee may have on the section's positions.

    [The prepared statement of Mr. Davis follows:]

PREPARED STATEMENT OF THEODORE H. DAVIS, JR., PARTNER, KILPATRICK, STOCKTON, LLP


American Bar Association,
Section of Intellectual Property Law,
Chicago, IL.
    CHAIRMAN COBLE, MEMBERS OF THE SUBCOMMITTEE: Thank you for your invitation to testify on behalf of the Section of Intellectual Property Law of the American Bar Association on H.R. 3163, related to trade dress, as well as on trademark issues raised by the Internet. I am Theodore H. Davis, Jr., a partner in the Atlanta office of Kilpatrick Stockton LLP and current Chair of the Federal Trademark Legislation Committee of the Section of Intellectual Property Law of the ABA. The views I will be expressing are those of the Section of Intellectual Property Law. The views I will be expressing are those of the Section of Intellectual Property Law. They have not been approved by the House of Delegates or Board of Governors of the ABA, and, accordingly, should not be construed as representing the position of the Association as a whole.

    With respect to H.R. 3163, we support the Subcommittee's willingness to address the technical, but important, issue of which party in a trade dress infringement suit bears the burden of proof on the issue of functionality. We believe that the approach in H.R. 3163, placing the burden on the plaintiff owner of an unregistered trade dress to demonstrate the nonfunctionality of the claimed design, is appropriate.
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    We also support in principle H.R. 3163's proposed express recognition of functionality as a ground for the ex parte rejection of applications to register marks, a result which we believe already holds in applications of 15 U.S.C. §1052.

    There are, however, certain aspects of H.R. 3163 that we cannot support. The are: (1) the proposed enactment of a statutory definition of ''functionality''; and (2) the proposed enactment of statutory factors for consideration when determining whether a claimed trade dress is inherently distinctive. We do not believe that either of these concepts is suited to the application of a mechanical test. We also have concerns with the precise factors identified by H.R. 3163 as bearing on these questions.

    Finally, we have concerns with the proposed definition of ''trade dress''. Technically, trade dresses are nothing more than a subset of trademarks and service marks, and trade dress law is not independent of, or different from, that governing more traditional marks. By expressly referencing ''trade dress,'' the proposed amendment may inadvertently create the impression that trade dresses are not ''marks,'' but instead are somehow subject to a sui generis body of law. The better approach, we believe, is to reinforce the inherent relationship between trademarks and trade dresses with a single definition of ''mark'' broad enough to sweep in both, rather than to take steps that suggest that they are in any way different from each other.

    Whatever its other flaws, the Lanham Act has had little trouble accommodating the emergence of trade dress doctrine over the past half-century. The proposed rewriting of several very important sections of that Act raises the possibility of a host of unintended consequences that cannot be fully evaluated without careful study. We therefore encourage such study by the Subcommittee before reporting trade dress legislation.
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    With respect to the Internet issues currently being addressed by the Subcommittee, some have suggested that domain name registries should adopt initial review processes similar to that of the United States Patent and Trademark Office in issuing trademark registrations. It is our position that domain name registries should not be forced to adopt such policies in view of projected unworkable delays and cost increases. Our statement also identifies issues regarding the establishment of additional new generic top-level domains (gTLDs), which may force mark owners either to register marks across all the new gTLDs or to watch cybersquatters abuse their trademarks. We also identify concerns regarding the current domain name dispute policy, which may result in common law trademark rights being unfairly disregarded.

    Mr. COBLE. Thank you, Mr. Davis, and, gentlemen, thank you all. Mr. Kirk, I am appreciative to you for your generous comments about our staff, and I don't revisit this to again remind you all how good we are, but I do it to emphasize the importance of our accessibility. That door is open, folks, and we invite you to walk through it, and I appreciate, Mike, your having mentioned that.

    Some folks insist that our trade dress bill is laden with definitions. Folks, it is my belief that our bill is laden with points of guidance. Now, the Courts shall consider those factors, but they are not limited to them. There is more flexibility I think here than some recognize. Mr. Stimson has already mentioned his comments on the green paper proposal. I would like to hear from the rest of you. We will start with you, Mr. Samuels. What are your brief comments or impressions about the Administration's draft?

    Mr. SAMUELS. Well, my primary concern, Mr. Chairman, as I think it was mentioned by Mr. Davis, is that trademark owners as a result of the policy that is ultimately adopted will be forced to register their marks as domain names across a broader number of registries than is currently the case. I don't think it really resolves the underlying tension which currently exists between trademark law and the way domain names are issued.
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    I think from the standpoint of trademark owners, we need a much quicker, relatively inexpensive means to resolve the disputes that arise constantly between the so-called legitimate trademark owner and those who have appropriated the mark as the domain name.

    Mr. COBLE. Mr. Kirk.

    Mr. KIRK. Mr. Chairman, I think, from our perspective, the Green Paper provides a very desirable outline in terms of hitting all of the points that need to be addressed. But, obviously, the problem here is that the devil is always in the details. I heard Mr. Magaziner last week set forth his thoughts about the Green Paper, the Government's approach to it. They are going to take comments over a 30-day period on the draft that they have put forward. We are certainly working hard to provide our input into that process.

    But I would share the view of I think all of us on this panel that they have not given the trademark dimension enough attention in this early draft. And we would hope as time goes forward that they will focus more on coming up with a good dispute resolution mechanism, that they will turn their attention to the harmonization of laws internationally because this is an international issue, and that they will ensure that there is adequate trademark representation in the management of this new corporation that they propose establishing. They speak about representing the diversity of all the stakeholders, and certainly trademark owners are an extremely important stakeholder in this process.

    Mr. COBLE. Thank you, Mr. Kirk. Mr. Davis.

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    Mr. DAVIS. Mr. Chairman, to be honest with you, the ABA Section of Intellectual Property Law has not had the opportunity to take any formal positions with respect to the green paper. I can offer some personal commentary if you wish, but I am unable to speak on behalf of my organization.

    Mr. COBLE. We can hear from you subsequently about that after you have a chance to examine it, but I will hear from you personally as well.

    Mr. DAVIS. I would say right off the bat I would have to agree with Mr. Samuels on the point of the new additional domain names. Adding those names, adding those suffixes is a two-edged sword. On the one hand, I think it can assist in allowing legitimate users of the same mark in different areas to co-exist, much in the same way that the U.S. PTO's classification system reflects that marketplace reality. But on the other hand, as Jeff correctly noted, every time you add one, you have the possibility of a cybersquatter sweeping in and registering that name.

    My general impression as well from the green paper is that I also feel that there is the possibility that the Administration has given somewhat short shrift to the reality that these domain name disputes are going to increasingly crop up in the future. I am a little bit concerned that the report downplays the significance of disputes that have occurred in the past as well.

    Mr. COBLE. Mr. Stimson, do you want to add anything you addressed in your text, or did you want to contribute anything further?

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    Mr. STIMSON. Yes. I would like to say I think our general concern, and as I said we have a number of specific concerns, is an underestimation of the trademark issues. There are comments in the green paper that the trademark issues have not—Internet issues have not been a major area of dispute in the Courts. I was amused by that.

    I put the green paper down and started to go through my in-basket to catch up on my reading, and in almost every issue of the USPQ there are one, two, three, four cases involving Internet domain name disputes. So it is a very big problem for trademark owners.

    We think the fact that there is not going to be a uniform dispute resolution policy but they are leaving it up to each registry to set up their own system is filled with problems. And so I think there are a number of issues like that. We would also be happy to share with the subcommittee our formal comments on the green paper that we will submit to the Administration.

    Mr. COBLE. Thank you, sir. I have a couple more, but let me recognize the gentleman from Massachusetts now. Go ahead if you have them, Bill.

    Mr. DELAHUNT. Yes. With reference to the point that you made, Mr. Stimson, about the observation in the green paper that there really wasn't a problem in your marketplace, and the reports in your in-box of cases in litigation, I would just respectfully say that when you testify, and Mr. Kirk has been in front of this committee on numerous occasions and does this quite well, tell us what is happening in the marketplace. And tell us the problems that you have to deal with in the real world and the frustrations that you experience and how you would anticipate that any proposal before this committee would affect that marketplace. Don't presume that we have that knowledge. We don't deal with the marketplace. That is just a comment and an observation.
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    Mr. STIMSON. Well, I would certainly agree with that. I think that is one of the benefits that we as witnesses can bring as representatives of trademark owners and people that are in the marketplace. And certainly my experience at Kodak is similar to what we are reading in the cases, that we are constantly on the lookout for people that are misusing Kodak as domain names.

    Mr. DELAHUNT. In the future, if you could submit in terms of your written testimony a description of the marketplace and the problems as you see them, it would make it much easier for us to begin to understand the issues at hand. I think that is really important.

    Maybe, Mr. Chairman, you know, we could let Mr. Frank do a seminar on witness testimony, because it really makes a difference. I mean, you shouldn't presume that we know your marketplace, because we don't.

    Mr. COBLE. Thank you, Mr. Delahunt. I appreciate that and well stated. Fellows, I know the dinner bell has sounded, and in the rural South we call the noon meal dinner. I realize up North they call the evening meal dinner. But let me have a couple more questions. Revisiting the green paper for a minute, what role do you all see for this subcommittee at this time on the domain name issue? And I will throw that out to all. Mr. Kirk, do you want to kick it off?

    Mr. KIRK. I would attempt to, Mr. Chairman. I think that the oversight that you are engaging in with this hearing and the earlier hearing are exactly right. From the standpoint of AIPLA, we do not see the government staying involved in this operation indefinitely.
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    However, during this transition period in particular, we believe that there is a clear role for government stewardship, for lack of a better term, to ensure that there is a good, smooth transition, that you do have competition among registrars and registries, that you do have an adequate dispute settlement mechanism in place, but that the government ultimately gets out of this. And I would certainly share the comments made earlier about not creating too many domain names right away.

    I think one of the things about the Green Paper that we found somewhat refreshing is that they at least acknowledges that rushing into the creation of additional domain names carries with it problems and, therefore, speaks about starting slowly. But if I were advising the subcommittee, which I would not pretend to do, I would suggest that oversight and careful watching is appropriate.

    Mr. COBLE. Anybody else want to be heard on this?

    Mr. SAMUELS. Well, I think that Mike is absolutely right. I think this has to be private sector driven with appropriate oversight by the subcommittee and by Congress in general. I don't think that anyone here thinks that legislation is the answer to these problems.

    So I think especially during the next year or so when this transition will take place, it is important that the subcommittee monitor the situation and perhaps meet regularly with representatives of the trademark community and others to get their input as to what is going on.
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    Mr. COBLE. Anybody else?

    Mr. STIMSON. Just to echo those comments. This is the second hearing that I have had the privilege of appearing at on the Internet, also the one in November, and I think it shows that the subcommittee is staying ahead of the curve and being proactive and not reacting. This hearing today was scheduled in advance of the Administration's green paper.

    Mr. DELAHUNT. Mr. Stimson, this is because I want you to know of the leadership of Chairman Coble.

    Mr. COBLE. Oh, he is waxing mellow today. He always waxes——

    Mr. STIMSON. I had no doubt of that.

    Mr. COBLE. Thank you, Mr. Stimson, I appreciate it.

    Mr. STIMSON. So if you could continue to stay ahead of things and not wait till things are broken to get involved, I think this continuing oversight is very helpful.

    Mr. COBLE. Well, I have been blessed with a good staff and good members. This has been a good subcommittee, and I think we have accomplished a lot thus far. Let me fire this final shot. I think it is a rhetorical question. I think the answer is going to be yes, but even if it is not, I would like to hear from you, and I am going to start with you, Mr. Kirk. Is it that important and significant that all the tests in the trade dress legislation be framed in such a way as to give guidance to the various Courts?
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    Mr. KIRK. First of all, Mr. Chairman, yes. I think that the legislation should provide guidance both to the Courts and to the Patent and Trademark Office, that it reflect all of the wisdom of the case law, and that, importantly, it be left open-ended to allow the case law to continue to develop in the future.

    I think that the legislation goes very far in that direction, and I think that it can be crafted in a way that will not constrain development in the future, but at the same time provide guidelines that will provide certainty, predictability, and uniformity—that is the sort of guidance that U.S. industry wants. They want that certainty to know what they are doing.

    Mr. COBLE. Anybody else want to be heard?

    Mr. SAMUELS. Well, I think it is not only guidance to the Courts and to the PTO, but to designers and trademark owners and litigants in general so that they know as well the standards against which their products will be judged from the standpoint of whether they are going to be protectable in the marketplace.

    And I think that the tests that are set forth in this bill provide a framework for analysis which is much needed, and yet provides the necessary flexibility to the Courts and to the PTO so that depending on the particular subject matter before it, whether it be a design or a packaging, that it can analyze the issue before it properly.

    Mr. COBLE. Gentlemen? Mr. Stimson.
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    Mr. STIMSON. Yes. I would concur that I think trademark owners welcome the active participation of this subcommittee and the guidance that this subcommittee provides, and that is certainly the role of the subcommittee. There are several parts of this bill which we do support.

    If the Trademark Office feels it needs to guidance that trade dress is protectable or that functionality is a grounds for denying registration, we think that guidance is very valuable. We think the guidance on the burden of proof issue on functionality is also something that is very valuable and we support.

    There are other areas that I have detailed in the area of definitions, especially where we feel that the language of the bill as crafted now actually is going to be causing more problems than the current situation warrants, and we would like to work with the subcommittee and its staff to try to address those issues so we can improve the bill and come up with even better guidance than exists now.

    Mr. COBLE. Mr. Davis.

    Mr. DAVIS. Mr. Chairman, my observations are largely similar to the other three witnesses. As the Chair is aware, we do have concerns about enacting tests altogether. We do feel, however, that if a test is to be chosen on the inherent distinctiveness front that the Seabrook test is an appropriate one to use because it is, in fact, broadly worded and open-ended.

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    I think there are some inquiries in trademark law to which bright line rules lend themselves. Section 2 of the Lanham Act, for example, places restrictions on the registration of the name of a president, and that, obviously, is an inquiry in which there need not be any guidelines because the statute itself is a bright line rule. It is very easy to apply.

    Inherent distinctiveness and functionality, however, are inquiries that perhaps do not lend themselves to that sort of easy inquiry. And we do believe that if guidelines are adopted, they should be broadly worded and open-ended.

    Mr. COBLE. Thank you, Mr. Davis. Mr. Delahunt, anything additionally for the good of the order? Seeing none, we thank the witnesses and all in attendance today for your testimony and your presence here. This concludes the hearing on H.R. 2652, on H.R. 3163, and the issue of Internet domain name trademark protection. The record will remain open for 1 week. Thank you again for your cooperation, and the subcommittee stands adjourned.

    [Diagrams follow:]

57742ci.eps

57742cj.eps

57742ck.eps

57742cl.eps

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57742cm.eps

57742cn.eps

    [Whereupon, at 1:10 p.m., the subcommittee was adjourned.]

A P P E N D I X

Material Submitted for the Hearing Record


University of Michigan,
Law School, Hutchins Hall,
Ann Arbor, MI, October 29, 1997.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

Reference: Hearing on H.R. 2652—Supplementary Statement

    DEAR CHAIRMAN CABLE: Thank you for allowing me to testify on H.R. 2652 on October 23, 1997, and for holding open the Record to permit supplementary statements. I would appreciate your adding the following remarks to my written and oral testimony.

  1. I congratulate you for moving the inquiry in the right direction—that is, towards unfair competition law and away from an exclusive property right in data. Because this is a new direction for American intellectual property law, however, it requires careful attention to details lest the Bill give rise to unintended consequences that will prove hard to rectify later on.
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  2. The Subcommittee is properly concerned about the risk of underprotecting commercial databases. My concern is that the means chosen to address this problem should not convert underprotection to overprotection, which would undermine the technical and commercial foundations of the world's most successful high-tech economy.

  3. State laws of misappropriation, as recently interpreted in such cases as NBA v. Motorola, seem to strike a better balance than this Bill, particularly with regard to the concept of ''harm''. All competitors ''harm'' the investors they compete with. But as I understand it, you are concerned about certain forms of predatory and parasitical behavior. The distinction between fair and unfair means of competition, as recognized in state law, needs further definition, lest the bill inadvertently hamper competition by honest means. Alternatively, you could merely clarify that state law was not preempted with respect to noncopyrightable databases and wait to evaluate further judicial decisions at the state level.

  4. Members of the Subcommittee rightly expressed concern about the aggressive use of contractual conditions that could limit access to data. But will this problem not be aggravated if the database maker's market power is reinforced by overly broad intellectual property protection?

  5. One of the reasons that business firms, educators and scientists are concerned about the scope of protection is that they fear a potential chilling effect from lawsuits—and from potential criminal penalties—that may arise every time a second database resembles a pre-existing database. Much more thought needs to be given to identifying uses of data that are not to be deemed misappropriation and those that are.

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  6. The research and library communities are particularly concerned about the need for access to old data—to the public domain—and about the need for such activities as statistical extractions based on existing data. The scope and role of the public domain under H.R. 2652 remains unclear and requires careful thought.

  7. In this connection, the Bill needs to make it clearer that data as such are not the object of protection. Rather, as stated above, only certain kinds of conduct with respect to the collection of data should be prohibited.

  8. There is considerable confusion about the effects of technological fixes. These fixes, such as the passwords needed to gain access to Lexis and Nexis, work pretty well, and so will the new ''tagging'' technology. These latter measures are like branding cattle—they identify stolen property wherever it turns up—but they do not constitute barriers to entry.

  9. I thank you for recognizing in the Bill that the research and library communities have special needs to use data for public-good purposes. One problem is that most of this data is not currently subject to proprietary claims. Another big problem that remains to be addressed is how these communities can gain access to the data they need affair and equitable prices that will neither destablize science and education nor unduly penalize publishers. This problem, like the others mentioned above, can be solved with good will, constructive suggestions, and consultation among the affected stakeholders. For other problems, see my written statement at pages 12–16.

  10. As a practical matter, the European Commission would have to be satisfied with any well-crafted misappropriation law, in my view, because their reciprocity clause is illegal under international law and a political blunder that invites developing countries to multiply sui generis laws of their own without national treatment. For details, see pp 16–17 of my written testimony.
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    My concerns about the Bill in its present form are spelled out in detail on pages 6–13 of my written statement. You should know that the research community is grateful for your interest in their perspective. I can assure you that I and other members of that community are prepared to work constructively with you in the coming months to solve these and other problems without weakening our national innovation system.

Yours faithfully,


Jerome H. Reichman,
Visiting Professor of Law.
   

The Register of Copyrights
of the
United States of America

October 31, 1997.

    DEAR MR. BONO: Thank you for your letter of October 27, and the materials that accompanied it. The Copyright Office's responses to your questions are set forth below.

Question 1

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  The text of the ''Collections of Information Antipiracy Act,'' H.R. 2652, is silent regarding the relationship of this new right and privacy and state law. My fear is that we may inadvertent be trumping or preempting laws on information and privacy. Do you feel the text of the bill should be amended to specify that it does not change any other federal law or preempt any stab laws regarding privacy?

    We fully agree that privacy is an important value that should not be impaired by any bill creating a new right against misappropriation of collections of information. The importance of this issue is reflected in section 1205 which governs the relationship between the bill and other laws. Subsection (a) states that, subject to the preemption provision in subsection (b), nothing in the bill affects any other laws including privacy laws. Subsection (b) preempts any state law that provides rights in collections of information that are equivalent to those under the bill. Subsection (b) also clarifies that state laws with respect to trademark, design rights, antitrust or competition, trade secrets, privacy, access to public documents and contracts are not deemed to provide equivalent rights, and are thus not preempted. We believe that these two subsections safeguard against any unintentional preemption of, or conflict with, state and federal laws concerning privacy. We do not, therefore, recommend any amendment to deal with this issue.

Question 2

  As you know, the Court of Appeals for the Federal Circuit is a subject matter court that hears patent and trademark appeals within its other specialty jurisdiction. This presents many benefit including, preventing forum shopping, advancing the law in a uniform way, and providing certainty for litigant. In your view, would prescribing that appeals concerning database and design protection be directed to the Federal Circuit or some other designated federal court of appeals offer the same benefits?
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    The Copyright Office does not have a position at this time on whether it would be advisable to direct all appeals concerning database and design protection to a single appeals court such as the Federal Circuit. As you point out, there are a number of potential benefits to such a system. We believe that, in considering this issue, the potential benefits must be weighed against the potential drawbacks. These include the added expense to litigants around the country of having to pursue every appeal in Washington, D.C., the lack of opportunity for divergent views on points of law to develop fully in the various Circuit Courts prior to Supreme Court review, and the potential burden that an added caseload would place on the Federal Circuit.

    As we understand it, one of the important factors in Congress' granting the Federal Circuit exclusive jurisdiction over patent appeals was not only the intricacy of the patent law, but the technical nature of the subject matters protected by patents. Other areas of intellectual property law, such as copyrights, as well as other areas of federal law generally, are left to the regional Circuit Courts in spite of their complexity. In considering whether to direct appeals on database and design protection to the Federal Circuit, it would be advisable to consider whether either of those forms of protection deal with subject matter that, like the subject matter of patents, is sufficiently complex to require a specialty court.

    As you suggest in your letter, this may be an area where further study and reflection is appropriate. It is, fundamentally, a question of judicial administration, which falls outside of our core expertise in substantive intellectual property law. As such, the Copyright Of lice would not be the ideal entity to conduct such a study.

    Thank you again for your letter, and for your kind words about the Copyright Office. If any of our responses require further clarification, or if we can be of further assistance to you and to the Subcommittee, please do not hesitate to ask.
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Very truly yours,


Marybeth Peters,
Register of Copyrights.
   

Addendum to the Written Statement of J.H. Reichman Concerning H.R. 2652 Submitted at the Hearing on October 23,1997

EXECUTIVE SUMMARY

    This statement is offered in my capacity as a scholar in the field of intellectual property law. Nothing in it has been vetted or approved by the National Research Council.

    The overly broad ''misappropriation'' regime set out in H.R. 2652, while a step in the right direction, would protect the investment of substantial resources in any ''collection of information'' agog anyone whom Us of a substantial part of that information ''harmed'' the investor's actual or potential market at any time. Because everything is potentially a ''collection of information'' and perpetual liability extends beyond the recuperation of investment to the indefinite protection of profits from investment as such, the Bill is inconsistent with the values of a free-market economy.

    The goal of copyright law to enable others to use ''ideas or information revealed by the author's work'' is perpetually trumped by the doctrine of ''harm''. No sane investor, given the chance to invoke H.R. 2652, would ever again resort to the Constitutionally limited protection of the patent and copyright regimes.
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    H.R. 2652, like its predecessor, H.R. 3531, would perpetually remove collections of data from the public domain and paradoxically comer upon investors one of the longest and strongest forms of intellectual property protection ever devised. Once any public-domain data are used for one purpose, say, to prepare a useful compilation of poisons and antidotes, there will be no incentive to use the same data for other purposes lest those uses violate the ''harm to other markets'' principle.

    The exceptions and limitations set out in the bill are largely illusory and self-defeating. This is especially true for the exception favoring scientific and educational uses, which are subject to a test of ''harm [to] the [publisher's] actual or potential markets.'' Because the database publishers have expressly declared science and education to be their target markets, this exception is inadequate on its face.

    The effect of charging science and education high-priced access to data is the same in most cases as if the database maker had simply denied scientists and educators access to that same data. To avoid this risk, science and education require three distinct safeguards: first, an absolute right to gain access to data on fair and equitable terms; second, the ability to use the data thus accessed for any research or educational purposes; and third, freedom from contractual or technical interference with these privileges.

    The extent to which the commercial database sector is heavily characterized by sole-source providers has captured the attention of all those who have studied this problem, including the European Commission, the U.S. Copyright Office, and the National Research Council. The only study not concerned about the lack of competition in the database industry is that commissioned by the publishers themselves. While this study extols the virtues of five commercial databases deemed ''amazing'' for their importance to society, we are unable to find evidence of any competition in any of the market segments in which these commercial database producers operate. Under these conditions, strong intellectual property protection will convert high barriers to entry into insuperable legal barriers to entry, and the predictable rise in the costs of data will adversely affect all business, government and academic entities that use data or that depend on research results, whatever their expectation of short-term gain at the moment.
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    It is hard to understand how a coalition of database publishers that already control from 65 to 85% of the worldwide market for databases lacks incentives. These publishers claim that a wrongdoer who gains access to a database can download the data and sell them to third parties whose competitive uses are not covered by contractual obligations. In reality, the combination of contract, plus electronic fencing, plus unfair competition law, plus electronic tagging, plus the prevalence of sole-source providers is already such a potent cocktail that the addition of strong intellectual property protection to the mix can only harm the public interest and impose devastating costs on research and education.

    The E.U. Directive's material reciprocity clause violates at least three international conventions, including the TRIPS Agreement, and it will not withstand a challenge under the WTO's dispute-settlement process. Meanwhile, unless the U.S. firmly resists the E.U.'s reciprocity clause, the developing countries will enact dozens of hybrid intellectual property laws to stimulate local innovation of interest to them, and they will invoke material reciprocity against us on the E.U.'s own precedent. This will jeopardize the unified field that the TRIPS agreement has achieved and undermine the general principle of national treatment for which the U.S. fought so hard.

    No one should own the building blocks of knowledge, and strong legal restrictions on access to data will meet stiff Constitutional obstacles. It is hard to see how H.R. 2652 gives database proprietors any less protection than the exclusive property right proposed last year in H.R. 3531, despite the nominal use of liability language. Yet, a minimalist misappropriation law that gave rise to a nationally applicable injunction against market-destructive appropriations of data remains a worthwhile objective, and such an approach would win widespread support in the rest of the world.
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    In the meanwhile, the fundamental policy-making goal should be to preserve and enhance the competitive edge that U.S. high-tech goods currently enjoy in the global market place. There is no doubt that our success flows from policies that make the U.S. the world's foremost collector and supplier of data and the most committed of all nations to basic research. Congress should not allow special interest legislation to destabilize the scientific and educational enterprise on which our national system of innovation so firmly rests.

   


Digital Future Coalition,
Washington, DC, October 30, 1997.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Washington, DC.

    DEAR CHAIRMAN COBLE: For the last eighteen months, the Digital Future Coalition has been following the discussion of new federal statutory protection for databases with interest and concern. The DFC, which was founded in 1995 to promote a balanced approach to intellectual property legislation affecting the networked digital environment, includes members who are proprietors of commercially valuable databases, as well as those whose cultural and business activities depend on the ability to make use of information derived from compilations of facts. Thus, where databases are concerned, the objective of the DFC is to assure that these valuable works receive sufficient protection to promote their continued creation, but not so much protection as may dampen competition among database providers, or discourage use by database consumers.
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    The undersigned DFC members appreciate that, with your introduction of H.R. 2652, the focus of debate has shifted away from the merits and demerits of a sui generis approach to database protection to the issues raised by a ''misappropriation''-based approach. We concur that the relevant policy question is whether there exists a demonstrated need for new federal laws to supplement existing legal and technological safeguards for compilations, and (if so) precisely what form such protection should take. We are also gratified to know that you, the other members of your subcommittee, and your staffs intend to conduct an exhaustive inquiry into these issues before recommending any action on database protection. We followed the proceedings of the October 23 subcommittee hearing with interest, and we look forward to an opportunity to detail our coalition's views on H.R. 2652 and this issue at the hearing tentatively planned for February 1998. We wish to take this opportunity, however, to share with you the broad outlines of our concerns for incorporation into the record of the October 23 hearing.

The Empirical Case for New Database Protection Has Not Yet Been Made

    To begin, we remain unconvinced that a threshold showing of necessity has been made for any new legislation which could have the effect of withdrawing the contents of factual compilation from the public domain. Without doubt, the phenomenon of ''free-riding'' by commercial competitors in the database industry is a matter of serious concern. However, we hope that in months to come it will be possible to address systematically the unanswered question of how well or poorly existing legal and technological protections address that concern.

Congress Should Take Testimony From All Substantially Affected Communities

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    The broadest possible input into Congress' inquiries is critical to a balanced outcome. For example, now that the Coalition Against Database Piracy has presented testimony before the subcommittee, it might be valuable to hear next year from a wide spectrum of companies involved in producing compilations of information about their self-help practices and their successes (and failures) in litigation based on copyright, contract, trademark, and state unfair competition or misappropriation theories. In this connection, we note that both Appendix E of the August 1997 Copyright Of lice report on ''Legal Protection of Databases'' (at pp. 4–5), and the public comments on the draft WIPO database treaty filed with the U.S. Patent and Trademark Office last Fall, indicate that there are significant numbers of database producers who may not support new legislation.

    More broadly, it will also be important to hear from for-profit and not-for-profit entities which today make socially and economically valuable non-competitive uses of material from existing factual compilations, and which might be impeded from doing so by any new legislation. In addition, we think it is critical that before any new steps are taken to protect factual compilations, some accounting be made of the potential anti-competitive effects of such a measure.

The High Social and Commercial Stakes in this Arena Counsel Caution

    Because the new rights that H.R. 2652 would create, and the stringent civil and criminal penalties it envisions, go considerably beyond those provided by traditional common-law misappropriation doctrine, the bill itself could chill both fair competition among providers of factual compilations and legitimate use on the part of information consumers. Both traditional misappropriation doctrine and the H.R. 2652 right to control extraction and use apply to information which a party has gathered or developed at a cost. But while traditional misappropriation applies only to ''time-sensitive'' data, H.R. 2652 covers the entire contents of a compilation, including historical or archival information. Protection under H.R. 2652 would thus be effectively open-ended in duration. Moreover, that protection apparently would apply retroactively to the contents of compilations made before the effective date of the enactment. Likewise, while traditional misappropriation doctrine penalizes only predatory ''free-riding'' that destroys the incentive to create or maintain a compilation, H.R. 2652 bars a substantial unauthorized ''use in commerce'' or ''extraction'' of a compilation's contents whenever it would ''harm'' the original compiler's actual or potential market. Rather than applying only between direct commercial competitors, H.R. 2652 could potentially reach cases where information in a compilation is extracted for use by a consumer or an educational, scientific or cultural institution.
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H.R. 2652 Contains Broad New Rights Subject to Few Meaningful Exceptions

    Our concern over the breadth of the rights provided in H.R. 2652 is especially important given the absence from the bill of a ''fair use'' provision or other meaningful exceptions for educational, scientific or research uses. The utility of the provision (in Subsection 1202[a]) permitting extraction or use of ''insubstantial parts'' of a compilation is uncertain, given that the bill contains no definition of ''substantiality.'' And as we read the bill's provision on ''permitted acts'' relating to such not-for profit uses (Subsection 1202[d]), it is no more than a restatement of the basic principle of liability, since it is applicable only when a use does not ''harm the actual or potential market for the product.'' This limitation (which has no equivalent in the adjacent subsection providing a significant exemption for news reporting) renders the education, science and research exception virtually useless. We note, for example, that H.R. 2652 would create proprietary rights in compilations of scientific information which are now in the public domain; thus, unauthorized extraction or use of this information, of the kind which scientists are accustomed to make today, would appear to harm the market for the compilation as a matter of definition.

    Closely related to our concern over the absence of a ''fair use'' provision in H.R. 2562 is our observation that the subject-matter to which the new right would operate is an extremely broad one, which takes in not only databases and various other factual compilations, but also a potentially wide range of other copyrightable works which today enjoy protection subject to Title 17's provisions on limitations and exceptions to exclusive rights. With respect to these works, the proposed legislation would bar acts which currently are permitted under copyright law. In this connection, we also note that the exclusion of computer programs from the bill's coverage may well be of quite limited significance, since it appears to leave ''look-up tables'' and other compilations of values integral to software interoperability subject to protection. Even the exclusion of government data, which certainly represents an improvement over other proposals for database protection, is rendered less satisfactory than it might be by its failure to address situations in which particular compilers are the de facto sole source suppliers of particular bodies of government data.
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Conclusion

    In sum, we have a number of questions about the current legislation—as to both its general justification and its specific provisions. In closing, however, we would like to reiterate our support for reframing the discussion. We look forward to working with you to advance that discussion in months to come.

Sincerely,
Peter Jaszi,
Digital Future Coalition.


American Association of Law Libraries

American Association of Legal Publishers

American Committee for Interoperable Systems

American Council of Learned Societies

American Historical Association

American Library Association

Art Libraries Society of North America
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Association of Research Libraries

College Art Association

Committee of Concerned Intellectual Property Educators

Computer & Communications Industry Association

Computer Professionals for Social Responsibility

Conference on College Composition and Communication

Consortium of Social Science Associations

Consumer Project on Technology

Electronic Frontier Foundation

Home Recording Rights Coalition

Medical Library Association

Music Library Association

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National Council of Teachers of English

National Humanities Alliance

National Initiative for a Networked Cultural Heritage

National School Boards Association

National Writers Union

Society of American Archivists

Society for Cinema Studies

Special Libraries Association

United States Catholic Conference

Visual Resources Association

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October 31, 1997.
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Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR CHAIRMAN COBLE, Thank you for the opportunity to respond in writing to the questions that were asked at the end of the October 23 hearing before you and the other Subcommittee members were called away to vote. As I recall, there were two issues on which I was offered an opportunity to provide a further response. The first dealt with the costs associated with techn0logical self-help measures employed to protect databases, and the second involved the accuracy of the proposition that POISINDEX faces no competition and thus that the market for scientific databases is too niche oriented to require additional protection.

Costs Associated with Employing Technological Measures to Protect Databases

    During the hearing, Mr. Wulf made the statement that, to paraphrase, there are no significant costs associated with utilizing technological measures to protect databases. I disagree. I believe that technological self-help measures are imperfect solutions with significant costs.

    The threshold issue, of course, is whether technological self-help measures are effective in protecting databases against misappropriation. The short answer is no. Technological self-help measures may make access to database information more difficult for unintended users, but once technological protections are breached, as all can be, the database has no protection.
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    A database protected by the strongest encryption technology, which may or may not be widely available, is only useful if the user has a way to decrypt the information contained therein. Once decrypted, the database is no longer protected from copying or extraction by an unauthorized party. In other words, encryption technologies provide no protection to databases at point of use.

    We also discussed ''watermarking'' and other fingerprinting technologies. Such technologies are very useful in making databases traceable, but traceability in itself offers no protection unless there are legal remedies available to use against the possessor of an unauthorized copy. Fingerprinting technologies are only useful in enforcing existing legal protections.

    There are several other kinds of technological protections, such as software bombs and secure containers that have been developed in recent years. These technological protections are often easy to breach, their functionality is as yet unproven, their utility may be restricted to software in some cases, and they may be illegal in other cases.

    Lastly, I would note that no technology will provide long-lasting protection to databases as long as computer hackers are intent on evading the system.

    There are both monetary and non-monetary costs associated with technological protections. For example, encryption slows down the speed of programs. The export restrictions on strong encryption technologies require database producers to offer separate domestic and international database programs, which raises their costs of production. Most importantly, however,there is currently no infrastructure, such as public key certification authorities, to support the widespread and reliable deployment of encryption technologies. The creation of such an infrastructure presents a huge obstacle, and thus cost, that must be overcome before database producers will make wide use of encryption technology.
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    There are also direct costs to the producer, which will be passed on to the user. Database producers that produce and deploy their own technological protections incur a cost in production and in staff training. Where database producers utilize technological protections created by an outside source, they often pay royalties that are as much as 2% of the total database price. Though I was not able to determine at this writing the per-database cost of technological protections, an industry source has estimated that the addition of technological protections to databases could cost the database industry over a billion dollars each year.

    Technological protections do take a toll. Technological protection measures make access to information more difficult for both the intended and unintended user. And once the technology is breached, the database has no protection.

POISINDEX Faces Competition

    In his testimony, Professor Reichman stated that the POISINDEX System has a monopoly and thus does not require protection. POISINDEX does face competition.

    As you perhaps know, POISINDEX is an electronic resource for identifying and providing ingredient information on commercial, pharmaceutical and biological poisons. It includes links to management/treatment protocols (Toxicological Management documents), which provide information regarding toxicity and guidelines for treating exposures. These Toxicological Managements are compiled from published literature on each chemical substance.

    POISINDEX, however, is not the only database that has been created to treat the effects of exposures to poisons. The Poisoning and Toxicology Handbook on CD–ROM from Lexi-Comp provides cross-referenced sections including medicinals,non-medicinals, biologicals, and antidotes. In addition, INTOX from the World Health Organization consists of a global database on chemical substances, pharmaceutical and natural toxins commonly involved in poisoning incidents. This information is used in conjunction with poison information monographs that are available in English, Spanish, and French.
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    In addition to these two major competitors, there are may electronic resources available on CD–ROM and on the Internet that supply product ingredient information on Material Safety Data sheets (MSDS). One such example is the MSDS database produced by MDL Information Systems, Inc.

    Once again, thank you for the opportunity to address the Committee. Please do not hesitate to contact me if I can be of further service.

Yours sincerely,

Daura D'Andrea Tyson.
   


OMB Watch,
Washington, DC, October 30, 1997.
Hon. HOWARD COBLE, Chaimman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
United States House of Representatives, Washington, DC.

    DEAR CHAIRMAN COBLE, I am writing to submit comments to the record for the hearing on HR 2652, which is being held open until October 31, 1997.

    In 1991, in a Feist Publications, Inc. vs. Rural Telephone Service Co., the Supreme Court ruled that copyright protection did not extend to all or parts of databases that did not involve some original ''creative'' selection and/or organization of data. Indeed, the Court went further and ruled that such databases were not encompassed within the scope of the constitutional provision authorizing copyright protection. This decision eliminated the traditional ''sweat of the brow'' rationale for database protection that had been accorded under copyright law. An example of the ''sweat of the brow'' claim to copyright is West Publishing's claim to copyright in legal decisions which it has edited for spelling errors and such.
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    West Publishing and other large information companies have attempted repeatedly to assert copyright in government information, most infamously in the attempt to add language to the Paperwork Reduction Act that would have given copyright even to a firm that keyed-in data for a government agency. The blatancy of the language in that provision exposes the true intent of the industry, all pious proclamations about the sanctity of the public availability of government information to the contrary notwithstanding.

    Conceers have been raised that the language of HR 2652 would accomplish this long-sought goal of many in the information industry, by overturning Feist, as is stated in some of the testimony presented at this hearing. Were this the result of this bill, a company that added ''sweat'' to government information in any way could claim copyright in that information. Monopoly arrangements, such as those enjoyed by West Publishing, would thus be granted statutory protection from the use of public information by any would-be competitor—or from the provision of the information for free to the public by a nonprofit organization, such as RTK NET.

    We are deeply concerned that great caution be exercised by the Subcommittee in order to not unwittingly overturn the Constitutional protection of the public nature of government information.

    Thank you.

Sincerely,

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Patrice McDermott,
Information Policy Analyst.


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The Dun & Bradstreet Corporation,
Washington, DC, October 30, 1997.
Hon. HOWARD COBLE, Chairman,
Courts and Intellectual Property Subcommittee,
Committee on the Judiciary,
United States House of Representatives,
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Washington, DC.

    Re: H.R. 2652

    DEAR CHAIRMAN COBLE: This letter is submitted on behalf of The Dun & Bradstreet Corporation for inclusion in the record of the 23 October 1997 hearings on H.R. 2652. Its purpose is to clarify and comment on just one or two basic points of the many issues identified at the hearings in the hope that further discussion of these issues will benefit from clarity on these basic points.

    First, Dun & Bradstreet does not yet have a position on your bill. For-that reason, we were surprised and troubled by Professor Jerry Reichman's statement in his oral testimony on 23 October that Dun & Bradstreet is opposed to the bill. Professor Reichman does not represent or speak for Dun & Bradstreet. To correct this erroneous statement, we spoke with Professor Reichman and your subcommittee counsel, Vince Garlock, immediately after the hearing. Professor Reichman graciously acknowledged his inadvertent error.

    As we reaffirmed to both Professor Reichman and Mr. Garlock, Dun & Bradstreet is opposed to the ''sui generic'' database legislation introduced last year by Congressman Moorhead, and to the similar database protection treaty proposed at last year's WIPO conference. It has long been Dun & Bradstreet's position that, if any legislation is needed in this area, it should take the form of a carefully crafted, narrowly targeted law based on the misappropriation tort theory reflected in International News Service v. Associated Press, 248 U.S. 215 (1918). We shared that view with Mr. Garlock in a conversation last spring.
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    Dun & Bradstreet does not yet have a position on H.R. 2652 and, we note respectfully, is not yet persuaded that there is a need for such legislation. However, we look forward to commenting further on the current proposal and to participating in the full range of efforts being undertaken under your leadership to promote discussion on these issues, including your subcommittee's next hearing scheduled for early in 1998.

    Dun & Bradstreet is also very concerned about an apparently widely held misconception, reflected in testimony of the Register of Copyrights and others, that the Supreme Court's 1991 decision in Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991), effected a dramatic or significant change in the law that altered the expectations of businesses. In fact, the sweat-of-the-brow doctrine (which extended protection against copying to facts based on the labor and money invested in collecting facts) was—with two notable exceptions—largely moribund for at least a decade before Feist. The federal courts that invented the doctrine and are generally viewed as leading the way in intellectual property matters—the Second Circuit and the Ninth Circuit—had expressly abandoned it by the early 1980s. See Landeberg v. Scrabble Crossword Game Players, 736 F.2d 485, 489 (9th Cir. 1984); Financial Information, Inc. v. Moody's Investor Services, Inc., 751 F.2d 501, 506 (2d Cir. 1984). The majority of other federal courts that had occasion to consider the issue also rejected the doctrine years before Feist. See, e.g., Miller v. Universal City Studios, 650 F.2d 1365, 1369–70 (5th Cir. 1981). Indeed, as the Supreme Court noted in Feist, the very opinion to which the misappropriation doctrine is usually traced—International News Service v. Associated Press—confirmed that U.S. copyright law did not permit the sweat-of-the-brow approach. Feist, 499 U.S. at 353.
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    Feist also worked no great change at the Copyright Office, the examining procedures of which by then had for some time already required more than sweat-of-the-brow in order for the registration of a compilation to be acceptable. See U.S. Copyright Office, Guidelines for Registration of Fact-Based Compilations at 1 (Rev. 11 Oct. 1989); William Patry, Copyright in Compilations of Facts (or Why the ''White Pages'' Are Not Copyrightable), 12 Com. & Law 37 (Dec. 1990).

    By the time of Feist, the sweat-of-the-brow doctrine lived on in only two federal circuit courts of appeals—the Seventh and the Eighth. In the Seventh Circuit, it had largely shrunken to a narrow rule for telephone directories, having been rejected with respect to compilations of other kinds of facts. Compare Illinois Bell Telephone Co. v. Haines & Co., Inc., 905 F.2d 1081 (7th Cir. 1990)(applying sweat-of-the-brow doctrine in telephone directory case) with Nash v. CBS Inc., 899 F.2d 1537, 1542–43 (7th Cir. 1990) (In the context of a history book, ''[c]opyright law does not protect hard work (divorced from expression). . . .''). In the Eighth Circuit, the doctrine lived on for telephone directories and—most visibly—for compilations of court decisions published by West Publishing, a prominent firm resident in the heart of the Eighth Circuit. See West Publishing Co. v. Mead Data Central, Inc., 799 F.2d 1219, 1240 (8th Cir. 1986), cert. denied, 479 U.S. 1070 (1987). The Supreme Court's decision in Feist rejected the Tenth Circuit's effort to revive the doctrine in that Circuit and eliminated it from the very narrow areas in which it still applied.

    Against this background, it is not surprising that there are publishers who support legislation that would revive the discredited sweat-of-the-brow doctrine. But we believe that it would be a mistake to base legislative action on an erroneous characterization that the abolition of the narrow sweat-of-the-brow doctrine had effected a broader, dramatic and surprising change in the legal landscape. For most database publishers, Feist simply reaffirmed the then dominant trends in the law within which the industry grew and continues to flourish.
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    Again, Dun & Bradstreet appreciates your focus on the future of the database industry and thanks you for your attention to this challenging and controversial set of issues. We look forward to working with you, your fellow committee members and your staff on these matters if legislation is found to be necessary to further the public interest.

Respectfully,


Jean Cantrell.
   

STATEMENT OF PAUL WARREN, EXECUTIVE PUBLISHER, WARREN PUBLISHING, INC.

    I wish to thank the chairman and the members of the committee for allowing me to testify.

    Like many producers of the wide variety of databases provided by the private sector, ours is a small company. I am executive publisher of Warren Publishing, a 60-employee news and information firm founded in 1945. Our family-owned firm was begun here in Washington, D.C. and is still based here. Some on the Committee may be familiar with our newsletter, Communications Daily, which covers telecommunications. I am here today on behalf of my company and the Coalition Against Database Piracy, a group of large and small database producers. I am pleased to submit for the record CADP's remarks on the Collections of Information Antipiracy Act.

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    I come today as someone who has fallen between the cracks—the legal gaps as you put it in your comments when introducing this bill, Mr. Chairman. We publish the Television and Cable Factbook, the standard directory for the broadcast and cable TV industries. We have gathered and printed detailed information on TV stations and cable systems since the beginnings of the industry. We went from producing the Factbook with a single part-time researcher in 1945 to employing 22 people to gather and edit that data today.

    The crack we have fallen into allows a single, unscrupulous screen-scraper to take the product we've invested in for 52 years and make it his own. He can scan or rekey it into computer format, label it as his own and then sell it at a fraction of our price.

    Some may come before you today and ask 'where's the harm?' Let me tell you my story.

    In 1989, a Georgia couple, operating out of their home, and calling themselves Microdos Data Corp., did what I have just described. Armed with a library card, a copier and a computer, they input the entire cable systems directory from our Factbook into computer software and marketed it as their very own cable TV database. They even copied the decoy cable systems that we, following publishing industry practice, had put into our book to track database piracy. Clearly, Microdos had discovered a sure fire way to cut down on overhead—let someone else do the work, then simply represent it as your own.

    Upon discovering what they were doing, I personally called them and asked them politely to stop. They and their lawyer refused, and we filed a copyright infringement suit in the Atlanta Federal District Court. We won the case and its appeal, but lost in an en bane decision at the 11th Circuit. As of today, 8 years and $300,000 in legal bills later, we are awaiting the Supreme Court to tell us if it will review this decision. But, even if the Court does take the case and we win, our copyright protection as a result of Feist and subsequent decisions will remain as thin as a microchip. We could only protect certain elements of this labor-intensive Factbook. Believe me, this is a terrible way to try and do business.
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    Our directory is not simply telephone white pages, which was the focus of the Feist decision. It is largely derived from a painstaking and relentless process of questionnaires, phone calls and other fact-gathering techniques aimed at cable TV systems and television stations. We go and get the information, select what data to use, how to arrange it, then edit it, prepare it and have it printed, resulting in the book you see here today. We are happy to compete, and do compete, with other companies who do this work themselves.

    As I said, we are a relatively small, family-owned company, becoming more of an anomaly in the publishing business. We have 22 editors and researchers working on the Factbook. In our history, we've chosen never to lay people off because of hard times. We pay 100% of our employees' health benefits. We share our profits with our employees in the form of a yearly bonus and a contribution to a profit-sharing plan. Some would call this old-fashioned. But that's the way my father, my brother and I do business. Sadly, it will change if we cannot protect our directory against screen scraping thieves. Our costs will stay the same but our sales will erode as others unfairly profit from our work. That would mean layoffs and benefit reductions. It may even mean that we would simply stop producing the book. Excuse me, but I'll be darned if I'll let someone steal our work and sell it. I'd rather not do the book than let someone else unjustly get the benefits. And then no one benefits, especially our customers.

    Mr. Chairman, your legislation is an important step in helping to protect small publishing companies like my own. I am truly grateful for your efforts to correct this terrible inequity in our laws. As technology advances, these problems can only get worse. While the company which took our product chose to rekey the information, a simple $200 scanner could do it in one-tenth the time and cost today. And technology is moving on.
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    This brings me to the moral issue here. Is it right to take someone's work and represent it as your own? Chairman Coble, I have four children. In my business practices, I have a strange habit when making a decision on whether something is morally right or fair. I ask myself what would I tell my children to do in similar cases. Is it right for one of my children to take a friend's homework, copy it and hand it in as his own?

    We all know the answer to that question.

    And in our hearts we all know the answer when it applies to taking someone else's product and selling it as one's own.

    Thank you for hearing our story.

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STATEMENT OF REP. BONO, LEGISLATIVE HEARING ON DATABASE AND DESIGN PROTECTION

    Thank you Mr. Chairman, I want to make a few brief comments before we hear from the witnesses. Today we will begin the process on two very important legislative proposals. Each strives to prevent piracy and protect the hard work of innovative people. In turn, these bills help promote our economy, bolster our trading position, and create good jobs.

    The Subcommittee is rightly doing its legislative job. Both of these concepts—protecting databases and ship hull designs—have already been experimented with under our legal system. However, the Supreme Court has invalidated the prior attempts at these forms of economic rights and intellectual property protection. Now we respond to these rulings. Mr. Chairman, you can count on my full support as these bills move through the legislative process. Yet, there are two points that I hope I may enlist your help in exploring.

    The first is the question of the role of judiciary in intellectual property disputes. As we have already seen this term (e.g., La Cienaga and H.R. 1967 and H.R. 1621), sometimes the courts may generate a glitch in interpreting intellectual property laws that can have devastating effects on rightsholders. In my view the issues posed by intellectual property litigation are extremely complex and increasingly novel. They need to be met by the bestversed professionals. Currently, a practice in U.S. law directs appeals of patent and trademark issues to the Federal Circuit Court of Appeals. This is partially because these issues arise from the administrative actions of the U.S. Patent and Trademark Office, but there are also economic, efficiency and other reasons. However, it is within the jurisdiction of this subcommittee to consider court administration issues.
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    One way to deal with the growing caseload of the federal courts is establishing subject matter and specialty courts. Other examples include the Federal Claims, Tax, Bankruptcy, International Trade and Military Appeals courts. In addition to the expertise the judges obtain in seeing many of these similar types of cases, there are other positive benefits including advancing the law in a uniform way and with certainty for litigants. Uniformity is one of the principal goals of these bills. Since we are creating new federal intellectual property devices, we have the luxury of specifying their corresponding court jurisdiction from day one. Again, I hope I can work with you on this issue, since there are numerous ways of approaching my concern.

    The second issue that I hope we can examine involves databases and privacy. It is vital that our database companies attain a level playing field with their European counterparts, and I support H.R. 2652. Yet, the Internet—the anarchist—makes the sharing of information all too possible. One only needs to consider the problems that arise in the context of the Paparazi to note that privacy and commerce can clash. The reason that so many are willing to violate existing laws and individual privacy is that there is a bounty that our system has created. I have tried to address this conduct in my legislation, H.R. 2448, the Protection from Personal Intrusion Act. My concern today is that we are creating incentives for violating privacy, in commercial collections such as with databases of medical records and social security numbers. I wish to include in the record a recent Washington Post (Oct 7, 1997) article that outlines these concerns. My fear is that we may inadvertently be trumping or preempting state laws on information and privacy. I am relieved to learn that firms are starting to address these concerns on their own through their internal rules of conduct. In reality, the bill is silent on these issues and may not in fact lead to this result. My concern here, that we are not legislating where we do not intend, may be best addressed simply by report language.
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    Again, Mr. Chairman you can count on my full support of these bills, and I hope that we can work on these concerns, Thank you for your indulgence.

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American Statistical Association
Alexandria, VA, October 29, 1997.
Hon. HOWARD COBLE, Chairman (R–NC),
House Subcommittee on Courts and Intellectual Property,
Washington, DC.

    DEAR CONGRESSMAN COBLE: The American Statistical Association (ASA) is grateful to the House Subcommittee on Courts and Intellectual Property for the opportunity to comment on H.R. 2652—the Collections of Information Antipiracy Act. We are also pleased that the Subcommittee will hold at least one additional Hearing early in 1998 and will proceed with utmost caution on this complex and crucial issue.
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    The ASA is the largest statistical association in the world with approximately 18,000 members. Our members are leading professionals in statistical analysis throughout the sciences, in policy analysis, economics, sports statistics, public health, marketing, and political polling. In short, there is no aspect of American life, business, or policy which does not benefit from the high quality of statistical professionalism promoted by ASA. ASA is affiliated with the American Association for the Advancement of Science (AAAS) and has close ties with many other organizations with interests in statistical research and practice.

    There can be no sound statistical analysis without high quality databases, so we wholeheartedly support the goals of preserving such databases and maintaining the Constitutional balance of protecting originators' rights while promoting public access and ''Science and the Useful Arts.'' In addition to information provided by others to the Subcommittee prior to and at the Hearing on October 23, 1997, there are a few additional concerns and suggested solutions in the enclosed comments. These stress potential unintended consequences for statisticians and for their reliance on governmental and private sector data sharing.

Sincerely,


Jon R. Kettenring, Ph.D.,
President, American Statistical Association
COURTESY COPY LIST

    Members of the House Subcommittee on Courts and Intellectual Property

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  The Honorable Jim Sensenbrenner, Jr. (R–WI)
  The Honorable Elton Gallegly (R–CA)
  The Honorable Robert W. Goodlatte (R–VA)
  The Honorable Sonny Bono (R–CA)
  The Honorable Edward A. Pease (R–IN)
  The Honorable Christopher B. Cannon (R–UT)
  The Honorable Bill McCollum (R–FA)
  The Honorable Charles T. Canady (R–PA)
  The Honorable Barney Prank, Ranking Minority (D–MA)
  The Honorable John Conyers, Jr. (D–MI)
  The Honorable Howard L. Berman (D–CA)
  The Honorable Rick Boucher (R–VA)
  The Honorable Zoe Lofgren (D–CA)
  The Honorable William D. Delahunt (D–MA)

    The Honorable George E. Brown, Jr., Ranking Minority (D–CA)
  House Science Committee

    The Honorable John McCain, Chairman (R–AZ)
  Senate Committee on Commerce, Science, and Transportation

    The Honorable Ernest F. Hollings, Ranking Minority (D–SC)
  Senate Committee on Commerce, Science, and Transportation

    The Honorable Orrin G. Hatch, Chairman (R–UT)
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  Senate Committee on the Judiciary

    The Honorable Patrick J. Leahy, Ranking Minority (D–VT)
  Senate Committee on the Judiciary

    The Honorable John Ashcroft (R–MO)
  Senate Committee on the Judiciary

    John H. Gibbons
  Assistant to the President for Science and Technology, and Director, Office of Science and Technology Policy

    Marybeth Peters
  Register of Copyrights and Associate Librarian of Congress for Copyright Services, Library of Congress

    American Association for the Advancement of Science

    William A. Wulf, Vice Chairman, National Research Council

CERTAIN CONCERNS AND SUGGESTIONS REGARDING THE PRACTICE OF STATISTICS RELATIVE TO H. R. 2652—THE COLLECTIONS OF INFORMATION ANTIPIRACY ACT

GENERAL

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    There are many areas of general concern to scientists in this bill, arising from potential tensions between the equally desirable goals of preventing data piracy and promoting scientific data sharing. We concentrate here on just a few issues with potential unintended adverse consequences for the practice of statistics and its benefits to society at large.

    Basically, the thrust of the bill is stated succinctly:

  ''Any person who extracts, or uses in commerce, all or a substantial part of a collection of information [made by another] so as to harm that other person's actual or potential market for a product or service that incorporates that collection of information . . . shall be liable . . .''

    There may also be criminal penalties. The bill explicitly defines the protected information as:

  ''facts, data, works of authorship, or any other intangible material capable of being collected and organized in a systematic way.''

CONCERN FOR STATISTICAL ANALYSIS

    It is historically and currently legal—and highly socially desirable—for statisticians to use all of a database (to which they have legal access, of course) to distill and summarize its essential information. Because the product of a statistical analysis is inherently different than the raw data, there has never been any concept that such analysis was inappropriate, provided the source of the data is acknowledged. Proponents of the present bill have not objected to such use, even now. Still, experts in intellectual property law—while recognizing that this bill protects investment, not specifically intellectual property—have confirmed our fears that the bill's language supports an interpretation that independent statistical analysis is not permitted. Implicitly, the organization originating a database might conceivably, at some future time, want to publish its own statistical analysis. The ''potential market'' for that potential analysis could be viewed as being ''harmed'' by a prior independent analysis.
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    The very possibility that some judge, somewhere, might credit such a claim could be sufficient to ''chill'' statistical practice in such cases. Nor would it be sufficient for the statistician to obtain permission to analyze the data from the original compiler. Undeterminable entities who might have ''verified'' or ''maintained'' the data could also claim the statistician was liable.

    This problem is generalizable to other forms of scientific analysis besides statistics. It could chill or prevent the application of, say, computer simulations based in part on someone else's original data to investigations in fields such as immunology, epidemiology, cosmology, and genetics. As Dr. William A. Wulf of the National Research Council testified on October 23, ''A hallmark of modern research is to obtain and use dozens or even hundreds of databases, extracting and merging portions of each to create new databases and new sources for knowledge and innovation.''

SUGGESTED SOLUTION

    A way to prevent that unintended consequence would be to include in the H.R. 2652 bill:

  ''Nothing in this Chapter shall prevent the independent use of a legally accessed collection of information for purposes of statistical or other scientific analysis, provided the collection is cited and the original data itself is not incorporated in the product of the statistical or scientific analysis.''

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CONCERN FOR CONTINUED FREE AVAILABILITY OF GOVERNMENT DATA

    The language of the bill excluding government collections states:

  ''Protection under this chapter shall not extend to a governmental entity, whether Federal, State, or local, including any employee or agent of such an entity, or any person exclusively licensed by such an entity, with respect to collections of information gathered, organized, or maintained within the scope of such employment agency, or license.''

    This language does not say that public right of access to data compiled at taxpayer expense shall be exempt from privatization for profit—just the opposite. As noted approvingly by the Statement of the Coalition Against Database Piracy, ''databases compiled at public expense would not be protected under H.R. 2652.'' Instead, the taxpayer-funded data could be appropriated by ''value-adding entrepreneurs'' to create commercially protected products. Those products might or might not combine governmental and non-governmental data seamlessly, such that statisticians and other scientists could not readily distinguish the sources. The existence on the commercial market of a product incorporating governmental data can lead to ''budget savings'' of the government not maintaining its own files or distributions. This process erodes the availability and affordability of government-generated data to statisticians, scientists generally, and the taxpaying public at large.

SUGGESTED SOLUTION

    The cure would be a statement to the effect:

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  ''No data generated by any level of government or ''government-equivalent data'' (defined below) can be protected under this Chapter, including in a subsequent value-added product. The value-added content or features, if clearly so labeled in such a product, can be protected under this Chapter or by other law, including copyright law. ''

CONCERN FOR AVAILABILITY OF GOVERNMENT–EQUIVALENT DATA

    Scientific data sharing principles demand that some non-governmental data be treated similarly. With the growth of useful knowledge and reduced government funding for research, donated data from foundations, universities, other non-profits, and even for-profit corporations constitute an increasing portion of what might be called ''scientific data in the public commons.''

    H.R. 2652 should specifically provide for original compilers in the private sector, who choose to do so, to label specific collections of factual information as ''government-equivalent data,'' meaning that they intentionally share the data under ''free and open access'' principles with the public at large. The principles of ''free and open access'' in scientific data sharing are discussed, inter alia, in the National Research Council study, Bits of Power. Of course, there would be no lessening of protection for any private sector compiler who did not proactively so label a collection of information. There may also need to be some restriction to avoid designation of frivolous or low-quality collections as '' government-equivalent. ''

SUGGESTED SOLUTION

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    The label, ''government-equivalent data'' shall be restricted to collections of information meeting two criteria: first, the private sector compiler of the data must expressly donate the data for free and open public access and so label the collection. Second, an authorized official of a federal or state agency or equivalent local government office must certify that the data have been accepted for use in scientific research or policy analysis within the scope of authority of that governmental entity. The latter certification must also be contained in the labeling of the collection as disseminated by the private sector compiler.

CONCERN FOR GOVERNMENT–PRIVATE SECTOR PARTNERSHIPS AND RESULTING DATA

    While we all applaud the shrinking of the federal budget deficit, we must recognize societal and scientific process shins which contribute to it. One of those highly beneficial changes is the increasing share of research involving public-private partnerships. These reduce research costs to the taxpayer, promote efficiency, and enlarge the scope of research benefits to the economy and to society at large.

    It is important that the Government exclusion clause in H. R. 2652 not be seen to offer a lesser degree of protection to commercial entities which engage in such partnerships versus those competitors who do not. Should such a perception emerge, it would have a chilling effect on the willingness of the private sector to aid valuable research in public health, biomedical research, and other scientific endeavors. The result would be increased government cost, decreased achievements of beneficial research, or both. Statisticians are very sensitive to the value of data produced by these partnerships, and we urge that they be safeguarded.

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SUGGESTED SOLUTION

    ''In cases of government/private industry partnerships, the investment rights, as well as the intellectual property rights, of the private sector participants shall rely on the specific terms of the partnership agreement. Nothing in this Chapter shall be interpreted to override the terms of such agreements or otherwise to disadvantage the economic interests of private sector partners as a consequence of their partnership with government.''

   

THE AMERICAN FARM BUREAU FEDERATION BEFORE THE HOUSE SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY, HOUSE JUDICIARY COMMITTEE
105TH CONGRESS FIRST SESSION—HEARING OF OCTOBER 23, 1997, ON H.R. 2652—THE COLLECTIONS OF INFORMATION ANTIPIRACY ACT

    The American Farm Bureau Federation (AFBF) submits this written testimony in connection with H.R. 2652, the Collections of Information Antipiracy Act.

    AFBF strongly supports passage of legislation providing sui gerzeris, non-copyright protection for databases (or ''collections of information'' as they are characterized in the bill). However, AFBF believes that Section 1201 (''Prohibition Against Misappropriation'') needs modification so as not to exclude areas of database protection vital to the interests of agriculture by limiting protection to only those collections of information incorporated in a ''product or service''.

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    The American Farm Bureau Federation was founded in 1919 in Chicago, Illinois and was incorporated in 1920 under the Illinois Not-For-Profit Corporation Act and is exempt under Section 501(C)(5) of the Internal Revenue Code. AFBF is a voluntary, nongovernmental, membership organization with affiliated Farm Bureau organizations in all 50 states and Puerto Rico. AFBF speaks as the voice of America's agriculture representing over 4.7 million member families who include America's independent farmers and ranchers and others who support the policies of AFBF. The purpose of AFBF is to promote, protect and represent the agricultural interests of the nation's farmers and ranchers and to develop agriculture. AFBF and its state affiliates provide a wide variety of programs and information to its members including legislative, commodities and marketing, education, health and safety, environmental, and the like. With only 1.6 percent of America's national work force in 1996, America's farmers and ranchers produced 10.4 percent of the value of this nation's total exports.

    Like almost every other sector of the U.S. economy, the agricultural community has utilized the fruits of the explosive growth of information technology to farm more efficiently and effectively, especially using a cutting edge method called ''site specific farming'' or, more colloquially, ''farming by the foot.''

    Site specific farming employs yield monitoring and soil sensing and testing techniques in combination with signals from Global Positioning Systems (GPS) satellites to create databases containing square foot-by-square foot evaluations of a farm's productivity resulting from variations in the chemical content of the soil and the relative mix of seed and fertilizer applied to it. The farmer then applies ''geographical information system'' (GIS) software to the resulting database to create a computer map of his land detailed down to foot-by-foot variations in yield, soil content, seed, and fertilizer factors.
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    The farmer loads the computerized map into computers on his tractor, which in turn use signals from the GPS satellites to electronically ''locate'' the field position of the tractor on the computerized map. The computer system then controls variable rate applicators to adjust the mix of fertilizer and seed applied to each square foot of the land so as to create the maximum yield from minimum input.

    Each farmer's database gives him an important competitive advantage, by enabling him to farm more effectively and efficiently. His database therefore constitutes confidential business information which warrants strong protection. Such databases also warrant protection on privacy grounds, an issue which is not unique to independent, individual farm families. Additionally, site specific farming data, particularly when aggregated from a large number of farms, constitutes a valuable information source which can be licensed for compensation, thereby creating potential additional profit for the farmer beyond the advantages realized through increased efficiency in yield.

    Protection of site specific farming databases has considerable importance beyond the issues of guarding individual farmer's interests. On the domestic front, unauthorized access to such data, particularly in the aggregate, carries the risk of misuse by unscrupulous vendors and suppliers to gain unfair advantages over independent farmers and over their direct competitors in the agricultural fertilizer, crop protection, and equipment supply market. Misuse of data to manipulate commodities exchanges also represents a realistic cause for concern. On a global scale, it is crucial to fashion a statute which is broad enough and strong enough to support reciprocity for U.S. owners under the European database protection law which becomes effective in 1998. Unlimited access to agricultural databases by foreign competitors and governments obviously could result in the manipulation of world markets to the extreme detriment of U.S. agriculture.
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    Site specific farming equipment is very expensive, and also involves significant training time, as well as a re-ordering of traditional farming operations. The absence of strong protection for databases will significantly compromise the farmer's initiative to undertake the expense, time, and disruption of adapting to site specific farming methods. The obvious result will be missed opportunities to significantly increase the effectiveness and efficiency of the agricultural community which feeds this nation and exports to the world. Moreover, beyond individual farmer interests, lack of strong database protection carries the frightening prospect of database misuse by unscrupulous domestic and foreign predators, who will not hesitate to manipulate both the U.S. and global marketplace, and gain unfair advantages in worldwide commodities exchanges.

    It should be clear from the foregoing that, with the exception of providing licensing and access to agricultural databases for profit, none of the reasons for protection of farming databases enumerated above necessarily comprehends the incorporation of such collections of information in a product or service. For example, a farmer needs protection when he provides the database to a third party for GIS data processing, if he does not possess enough computer capacity to process the data himself. Databases not only have value to the farmer, but also reveal soil, seed, fertilizer and output information which has significant importance apart from their incorporation in commercial products or services and need to be guarded from misuse for serious policy reasons. In other words, in many of its uses and manifestations, site specific farming data is really a significant by-product of the site specific farming process. Although the farming process results in a product, i.e., food and other agricultural commodities, the by-product of the process, i.e., the database, is not incorporated in the product itself. But unauthorized taking and/or misuse of this ''by-product'' creates a disincentive for the development and use of site specific farming methods, and carries the potential for damage to the agricultural community and the U.S. economy by domestic and foreign predators. As discussed in other testimony before this Committee, current copyright, contract, trade secret and misappropriation laws provide inadequate safeguards for such data.
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    Agricultural data needs stronger protection. AFBF therefore enthusiastically supports database protection legislation, but believes strongly that H.R. 2652 simply does not go far enough. Accordingly, AFBF suggests that the language of Section 1201 be broadened to include protection for collections of information which are the ''by-products'' of commercial activities or the production of products or services, so as not to exclude from coverage the important agricultural and public policy interests discussed above.

   


Information Industry Association
Washington, DC, October 31, 1997.
Hon. HENRY HYDE, Chairman,
Committee on the Judiciary,
United States House of Representatives,
Washington, DC.

    DEAR MR. CHAIRMAN: Enclosed is a copy of the written statement of the Information Industry Association (IIA) in regard to the October 23, 1997 hearing before the House Subcommittee on Courts and Intellectual Property on H.R. 2652, the Collections of Information Act.

    IIA has been a strong proponent of database protection, and I trust you will find these comments helpful. If you have any questions or concerns, please contact me at (202) 319–0157.
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    Thank you for your attention to this important matter.

Sincerely,

Daniel C. Duncan,
Vice President, Government Relations.
WRITTEN STATEMENT OF INFORMATION INDUSTRY ASSOCIATION

INTRODUCTION

    The Information Industry Association (''IIA'') submits this statement for the record in relation to consideration of H.R. 2652, the Collections of Information Antipiracy Act, by the House Subcommittee on Courts and Intellectual Property of the Committee on the Judiciary. At the outset, IIA wishes to thank Chairman Coble for introducing this legislation. It is another important step in the attempt, begun last year by this Subcommittee, to fashion the type of database protection legislation that is necessary to ensure a reasonable and workable legal environment in the United States for the continued production and availability of quality databases.

    IIA is a 29-year old trade association representing all sectors of the information industry. The Association's 550 member companies include organizations, both large and small, that create, manage and distribute information products and services. IIA members serve every conceivable market, whether domestic or global, including businesses, government, libraries, educational institutions and increasingly, the general public.

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    While IIA's membership includes companies that develop and offer software, telecommunications and Internet services, the focus of the Association's public policy program is to foster an environment for the continued availability of high quality, timely and reliable information products and services. This information is provided in a variety of traditional formats—print-on-paper, microfiche and microfilm—but IIA members are also working to meet the ever-growing demands of the marketplace for delivery of comprehensive collections of information in digital formats, particularly CD–ROM and online.

The Need to Establish a Supplemental Legal Protection for Databases

    Over two years ago, IIA's Board of Directors adopted a resolution calling for database protection legislation in the United States. The Association's concerns about the gap in legal protections for databases arose because of several developments. First, IIA saw the need for supplemental protection in the face of the growing importance of databases to the development of interstate and foreign commerce and the changing nature of the information marketplace. Second, the Association recognized a need for a supplemental form of protection to augment copyright and other laws domestically. Finally, IIA recognized a growing threat to the U.S. database industry because of the establishment of new legal protections for databases supplied by overseas competitors.

The Importance of Databases in the Changing Information Marketplace

    All parties engaged in the debate about legal protection for databases have acknowledged that collections of information are of great economic value. In an era of growing global electronic commerce, the availability of information is a key to success, and the lack of ready, reliable, and logically organized collections of data is often a precursor to failure. Databases provide valuable sources of information to every segment of the economy. They range from products and services that meet specialized needs to those that provide information to the general public. Whether professionals and educators are seeking accurate, up-to-date information to answer questions about law, medicine, agriculture or the state of the economy or whether individual consumers want to know which product has performed most safely and successfully, there is undoubtedly a private sector database product or service that provides the answer.
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    Such private sector products and services are not, however, either easy or cheap to create, maintain and market. Of the billions of bits of data available, database-producers must select which are most relevant to any particular topic, check the reliability of the information, organize it in a form that is most appropriate to the user, and present it in a format that best meets customer needs. Those are just the initial steps. As more and more data flows into the information stream, producers must continue to analyze and compare facts, update their products and services to retain timeliness and accuracy, and be ever mindful of incorporating new developments in technology that allow for speedier delivery and easier access. All of this requires enormous commitment on the part of the producer to the integrity of the service, and such commitment can be maintained only with substantial investment in time, money and personnel.

    The nature of today's—and tomorrow's—global electronic commerce is of constant concern to information providers. Increasingly, the technologies that have spurred advances in providing and accessing information are also the very technologies that allow ease of unauthorized copying and distribution. Moreover, the days when the value of information might be judged according to the specific geographic market it served are long gone. Along with the globalization of all commercial activities, the Internet has certainly transformed the information marketplace into a global trading arena. The thirst for information from and about all nations is not confined within any country's borders, and the competition to supply data to any user in the world is steadily increasing.

    The United States has thus far retained leadership in the world's provision and use of databases. Roughly three-fifths of the world's collections of information are produced in America. It is a multi-billion dollar industry, employing hundreds of thousands of workers, and one that continuously contributes positively to our trade balance. This enviable state of affairs is attributable in large part to the development of policies that have provided a favorable environment for the production and use of information. Encouraging the private sector to create and market valuable collections of data to the general public has long been a hallmark of U.S. law. It must remain a fundamental principle of our legal system, if we are to continue enjoying the vast array of information products and services that has helped make our society and economy models that others seek to emulate.
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The Inadequacy Copyright Law to Protect Databases Sufficiently

    The scope of a general legal protection for databases—an important factor in fostering their development and dissemination—changed dramatically with the Supreme Court's decision in Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1991). Prior to Feist, database producers believed themselves generally to have adequate protection under U.S. copyright law. Database producers offering comprehensive, logically organized collections of information in the marketplace took comfort in the belief that the line of court decisions extending protection under the ''sweat of the brow'' doctrine would remain intact. As noted in the Report on Legal Protection for Databases prepared earlier this year by the U.S. Copyright Office (''Copyright Office Report''), the sweat of the brow doctrine was used by many courts to ''prevent the copier from competing unfairly with the compiler by appropriating the fruits of the compiler's efforts or creativity. In this sense, courts treated copyright protection for compilations much like a branch of unfair competition law.''(see footnote 100)

    Owners of less comprehensive compilations felt secure in relying on the copyrightability of their works under the terms of the 1976 Copyright Act, which extends protection to ''the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship.''(see footnote 101) However, the sweeping pronouncements in Feist significantly altered the landscape for both classes of database producers.
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    IIA will not repeat the Copyright Office Report's thorough and objective analysis of the Supreme Court's 1991 Feist decision and the case law that has developed since then.(see footnote 102) However, the Association does believe the conclusion reached by the Copyright Office bears special emphasis:

  Consistent with Feist's pronouncement that copyright affords compilations only 'thin' protection, most of the post-Feist appellate cases have found wholesale takings from copyrightable compilations to be non-infringing. This trend is carrying through to district courts as well.''(see footnote 103)

    Thus, the database industry is faced with an intolerable situation under domestic copyright law. Currently copyright provides only limited protection for databases. First, a database may qualify for copyright protection only if the information it contains is selected, coordinated or arranged originally. Even then, according to the majority of opinions after Feist, much of the information in this type of database is available for wholesale copying. Second, databases whose producers attempt to meet the growing market demand for comprehensive, logically organized collections of information may never achieve the originality standard in some circuits. Not only is the information in their works freely available for copying, but under decisions of some courts of appeals their method of organization—and even their entire product—may also be replicated with abandon by others, including unscrupulous competitors looking to make a quick profit by reaping where they have not sown.(see footnote 104)
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    With the erosion of copyright law as a protection for databases, there is a need for Congress to supplement it with a different type of law. Otherwise, U.S. producers will be discouraged from responding to market demands for high-quality, comprehensive sets of data that require considerable investment and effort to create, maintain and make available in any number of formats.

Other Forms of Protection

    Prior to adoption by IIA's Board of Directors of a resolution calling for new database protection legislation, the Association examined other forms of protection that might be available to U.S. database companies. Three among these alternatives have been widely discussed by other parties as well: (1) state misappropriation law; (2) contracts; and (3) technological protections. In the end, however, IIA determined that none were completely satisfactory, either alone or in combination. The Association disagrees strongly with those who assert that these options make database protection unnecessary.

    State misappropriation and unfair competition laws and judicial doctrines suffer inevitably from a lack of uniformity. As the Copyright Of Lice Report noted, they are ''somewhat ill-defined and uncertain in scope.''(see footnote 105) Moreover, it is not available in all states. In today's global information marketplace, such uniformity in law is particularly essential to the efficient operation of the database industry.

    Even for those states that do have such laws in place, they may now be even more restrictive in their scope of protection. This is due in large part to a recent decision of the Second Circuit in National Basketball Association v. Motorola, Inc., which while clarifying and perhaps granting greater authority to the misappropriation doctrine, held it to be available only narrowly. From the perspective of database producers, perhaps the most unfortunate aspects of the Second Circuit's opinion are that the misappropriation defense can be invoked only if the information taken is ''time-sensitive'' and only if the data pirate is ''in direct competition with a product or service offered. . . .''(see footnote 106) Many important and valuable databases contain information that is not ''time-sensitive''—or is even historical in nature—and their commercial value can be seriously undermined even if they are misappropriated by someone other than a direct competitor.
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    Contract law, while an important component of any adequate legal regime, is by no means a substitute sufficient by itself. Opponents of database protection contend that information providers can simply rely on contract to control misuse, but the most obvious defect in that argument is that enforcement of the contract extends only to those who are a party to it. Once the information is accessed and used by someone not bound by the contract, any control over misuse is lost irrevocably.

    Moreover, like misappropriation, contract law is a state-based form of protection, and there are variances among state laws in this area. There is currently underway an effort to create a new Article 2B of the Uniform Commercial Code. If successful, this will help bring greater uniformity in the future to the general rules governing contracts for informational.(see footnote 107) Even should a sound Article 2B of the Uniform Commercial Code be enacted in every state, U.S. contract law will give little protection to American database products and services delivered in other nations whose traditions and legal protections differ from ours.

    IIA believes that the role of technological protections for databases, while potentially helpful, is often overstated. First, technological protections apply only to products and services delivered in digital form and will offer no safeguard for hard copy formats, which are easy to duplicate using scanning technologies. Even for digital works, these technologies are still in their infancy and have yet to be proven truly effective, especially when there are those who break through protective technologies as quickly as they are developed. Finally, the effect of using these technologies may prove a double-edged sword. On the one hand, they will provide greater security to both the producer and user that the information transmitted is what was requested. On the other hand, they will require that both producers and users incur additional costs in equipment and software to ''encrypt'' and ''decrypt'' protected information. Users will also have to employ greater sophistication in operating digital systems. The end result will be to make access to valuable data sources more difficult, expensive and time-consuming—hardly a goal commensurate with providing greater availability.
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The Overseas Threat to U.S. Database Producers

    As noted above, the information marketplace is rapidly becoming a competitive, global trading arena. Other nations are seeking to usurp the U.S. lead in database production as the thirst for information in all parts of the world grows and as technology makes it easier to deliver information across borders. Nowhere is this threat to the American database industry more evident than in Europe. On March 11, 1996, the European Union's Directive on the legal protection of databases (''EU Directive'') was adopted by the European Parliament and the European Council. The deadline for all 15 members of the European Union to implement the terms of the EU Directive is December 31, 1997, and it is clear that the vast majority of EU countries intend to meet this deadline.(see footnote 108)

    Many aspects of the EU Directive are troubling to IIA and its members, but two are of particular concern. First, several paragraphs in the preamble to the EU Directive make clear reference to the need to increase investment in Europe's database industry.(see footnote 109) Second, and even more troubling, is the discrimination between databases produced in the European Union and those produced elsewhere. On the one hand, the EU Directive requires EU members states to extend sui generis protection to all databases produced in an EU country. However, it does not obligate these same member states to extend similar protection to databases producers in non–EU nations unless such ''companies and firms . . . hav[e] . . . their registered of rice, central administration or principal place of business within the Community.''(see footnote 110) The EU Directive suggests another means by which U.S. database producers will be adequately protected for their products and services in Europe: to have the United States adopt its own database protection legislations/(see footnote 111) Without U.S. database legislation, there is no hope that American providers will receive any of the supplemental sui generis protection necessary if their products and services are stolen by European competitors and marketed against them—whether pirated copies appear in Europe, the United States or elsewhere in the world.
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    Even before finalizing the EU Directive, the European Union proposed a sui generis model for an international treat on database protection at the World Intellectual Property Organization (''WIPO'') in February 1996. The EU proposal was silent on the question of whether member nations would be required to protect ''foreign'' databases and thus would have allowed WIPO member nations to adopt domestic legislation that precluded protection for databases created by ''foreigners.'' Such an international standard of reciprocity for the protection of databases would have run counter to the efforts of the United States to encourage national treatment for intellectual property rights under international agreements, and the U.S. government responded appropriately with its own treaty proposal in May 1996. WIPO prepared a draft treaty for the sui generis protection of databases in August of last year, but that treaty was not negotiated during the December 1996 diplomatic conference which resulted in two copyright treaties. Instead, WIPO has delayed any further formal negotiations on database protection, opting for a process of information exchange among the member nations of WIPO that is currently scheduled for completion in September 1998. In the interim, however, the EU nations and other WIPO members are instituting sui generis protection regimes under their own national laws, and databases produced in the United States will not be protected.(see footnote 112)

    Clearly, then, there is a need for Congress to create a supplemental national law for the protection of databases. The changing nature of the global information marketplace requires the establishment of a stable legal environment for U.S. producers. The 1991 Feist decision and jurisprudence since that time have continued to erode the copyright protection that provided important incentives for database owners to invest substantial time, money and personnel in creating and maintaining quality collections of information. Other existing and proposed means of protection available to database producers lack the requisite robustness and level of protection needed in today's global information marketplace. Finally, with regard to the increasing global competition for databases, the Europeans have sent a clear signal that they intend to protect their producers under a new legal regime as a means of gaining a greater market share.
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    Those who call for further, hard evidence of ''real harm,'' particularly those who refuse even to discuss the prospects of database protection short of proven ''market failure,'' may be unlucky enough to get more than they ask for. Without U.S. leadership in this important area of the law, the rate of growth in the U.S. database industry, already slowing since the Feist decision,(see footnote 113) will only decline further. Congress should not wait to witness destruction of an important segment of our economy before determining that action is required. Nor should it wait until other nations follow Europe's lead in establishing self-protective trade barriers. Inaction will deny American information providers and users the rich variety of U.S.-produced databases crucial to global electronic commerce. That outcome can only harm both our society and our economy.

Evaluation of H.R. 2652, the Collections of Information Antipiracy Act

General Comments

    As noted at the beginning of this statement, IIA considers introduction of H.R. 2652 to be an important further step in moving toward adoption of a necessary, supplemental type of database protection in the United States. Even more promising is the fact that this Subcommittee has conducted the first hearings on this issue as a means of assuring an open, deliberative process where all points of view may be heard and considered.

    In analyzing the Collections of Information Antipiracy Act, IIA must express some reservations about the general approach taken. As stated in comments provided to the Copyright Of rice and Congress prior to the appearance of the Copyright Of flee Report, the Association would prefer that new legislation—with appropriate modifications to address reasonable concerns raised during last year's debate—build upon last year's proposed statute, U.S. treaty proposal, and the WIPO draft treaty. All of these proposals adopted a sui generis form of protection for databases, and despite the rhetoric of opponents, IIA believes it remains a viable model for the protection of databases outside of copyright and a more workable model for evolution of the law in other countries and on the global level.
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    The creation of a specific set of rights under a sui generis type of protection is more in tune with traditional means of protecting intellectual property under U.S. law. It would be more likely to create incentives for new producers to enter the market and for current providers to continue improving products and services by adding new materials and adapting them to new formats. IIA also believes that such a sui generis approach has the distinct and important advantage of being accepted as ''comparable'' protection under the terms of the EU Directive.

    In contrast, the misappropriation approach adopted in H.R. 2652 requires database owners to bear the burden of proving harm in order to obtain redress for that harm. As the experience of Warren Publishing demonstrates,(see footnote 114) database providers whose materials have been unfairly copied and marketed against them can endure years of expensive litigation, even when protection under the law could be assumed reasonably to extend to their products or services. Particularly in an era where technology allows replication and unauthorized redistribution to potentially thousands of users in a matter of seconds, IIA believes that protection for databases that is limited solely to a misappropriation model may not provide sufficient incentive to foster increased marketplace competition.

    Nevertheless, IIA recognizes that in introducing H.R. 2652, Chairman Coble took special note of many of the concerns expressed in connection with the sui generis protection proposals mentioned above. Indeed, in its general approach, this legislation seems tailored after the type of unfair competition protection many outside IIA have supported.(see footnote 115) It is not an unworkable proposal, and as such, the specific language of the bill is deserving of further analysis.
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Comments on Specific Provisions

    IIA believes that the statement of prohibited acts under proposed Section 1201 is broad enough to cover legitimate concerns of database producers about unauthorized extractions and uses of their databases. This section also appropriately prohibits harmful activities whether or not they are competitive in nature. Many databases are offered in markets where the threat of harm from competing database providers is less than the threat of unauthorized copying and redistribution from unscrupulous users. The Association would suggest, however, that the legislative history accompanying the bill clarify that ''in commerce'' refers to databases that are offered to the general public as well as those that may be developed and used only in limited commercial settings.

    Moreover, while most database owners undertake the acts listed in this section, there are in today's market a number of database producers who incur substantial costs or undergo substantial efforts to make available to their customers collections of information gathered from other sources, particularly information provided originally from government entities. IIA would urge that the term ''made available'' be added to proposed Section 1201 on line 6, page 2.(see footnote 116)

    Even more important is the fact that intrastate competitors and uses, especially in the aggregate, can also inflict significant harm on database producers. Therefore, IIA would also urge that this section be amended by striking the words ''in commerce'' in line 4, page 2 of H.R. 2652, while maintaining that same phrase as it now appears in line 11.
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    By stressing that protection is extended only to collections of information that are the result of ''the investment of substantial monetary or other resources,'' the reach of the bill will not extend to incidental database products and services, while still helping to meet the requirements of comparable protection demanded by the EU Directive. Moreover, by limiting prohibited acts to those that harm the market for a particular product and service, the bill should allay fears that database producers will be able to prohibit the development of truly ancillary databases.

    IIA notes that this section includes many terms already familiar under copyright—including ''substantial'' and ''potential market''—but that the word ''extraction,'' a new concept in intellectual property law, may need further explication in the statute and/or legislative history.

    Proposed Subsection 1202(a) is an important aspect of the legislation and assures that individual facts are not to be protected. Equally critical is proposed Subsection 1202(b) which assures that database producers are granted no exclusive right to data sources, although IIA urges inserting the words ''or using'' after the word ''extracting'' in line 2, page 3.

    This latter subsection has been criticized by many for not addressing adequately the issue of so-called sole-source database providers. IIA believes that laws mandating special access to such database products and services are ill-advised and will have a chilling effect on further development of the database market and the future, widespread availability of particular types of information. Existing antitrust and other laws are fully adequate to address any problems that may arise in this sphere.
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    Providers that devote enormous time and expense in gathering data from sources that are available to any other person at the time of their discovery, but which may for any number of reasons vanish or become more difficult to collect, should not be penalized for their efforts. If legislation were to require free and open access to databases containing unique items of information or ones incorporating information that is no longer available from the original source, then providers will be reluctant to gather any data, for fear that someday their product or service may be designated ''sole source.'' In the long run, the effect of such a legislative provision would be the disappearance of some of the most valuable data, since the information would be available from neither the original source nor the private sector producer who otherwise would have gathered and maintained it.

    While the Association supports the concept underlying proposed Subsection 1202(c) and recognizes the importance to database users, particularly scientists and researchers, of using databases to verify other information, IIA believes clarification of the bill's language is necessary. If producer A compiles a database that is 100% accurate and producer B compiles one that is only partially accurate, producer B should not then be able to extract and use the correct information from producer A's database in a manner that harms producer A' market. Again, IIA believes that such is not the intent of the language but this matter should be clarified.

    Proposed Subsection 1202(d) addresses a thorny issue. For constitutional reasons. database protection legislation must lie outside copyright, but the copyright concept of fair use should be incorporated in any new law dealing with database protection. IIA has stated on numerous occasions its belief that the legitimate, special needs of educators, librarians and scientists must be taken into account under a database protection statute in the United States or abroad. At the same time, however, the Association opposes attempts to expand such special treatments for the not-for-profit communities in relation to databases beyond those that have developed under our copyright laws, for example by mandating access to ''underlying data'' in private sector databases, as suggested by the library community.(see footnote 117)
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    This subsection provides adequate guarantees that information drawn from databases can be used in much the same manner as the law permits limited, exceptional uses of copyrighted materials. The Association strongly opposes the notions offered in Subcommittee testimony that federal law should force database providers to begin offering products designated as useful or necessary by the research and education communities on terms and conditions dictated by these parties.(see footnote 118) Such forced subsidization will prove detrimental in the long run to the development of quality and products and services for all users.

    Database providers routinely offer a wide variety of products and services to libraries, educators and researchers at substantially reduced prices and under special terms and conditions.(see footnote 119) These practices have the benefit of allowing special classes of users lower-priced and less restrictive access than is often the case in other market segments. To overturn such beneficial market practices and institute a system of price and contract controls for any product which researchers and scientists may label as ''essential'' would only serve to lessen the incentive for database providers to invest in creating and maintaining such products and services, many of which also serve the needs of other users. It should also be kept in mind that in many cases the only market for a particular database may be within the educational, research and library communities. A system of price and contract controls would render the markets for these types of databases much less attractive, with the end result that those markets will be increasingly underserved.

    Proposed Subsection 1202(e), which permits acts of extracting or using information for the sole purpose of news reporting, does require some reworking. While IIA is ever-conscious of the importance of maintaining First Amendment protections, the Association believes this subsection should parallel the language of proposed Subsection 1202(d) in allowing extraction and use of information from databases only to the extent that it does not harm the actual or potential market for the original collection of information. Adding such language to proposed Subsection 1202(e) is only logical, would not be overburdensome, and follows similar criteria under Section 107 of the 1976 Copyright Act.
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    The exclusion from protection for databases created by or for government contained in proposed Subsection 1203 is important and fully consistent with longstanding IIA policy positions. Proposed Subsection 1203(a) may nevertheless benefit from some further clarification. For example, there are instances in which government entities license their information to more than one person in a manner that may interfere with ''timely and equitable availability of public information to the public.''(see footnote 120) The legislative history accompanying the bill should make clear that the statutory language is intended to cover such situations. Concerns have also been raised by some that the language could be read to prohibit protection for collections of information created for non-governmental purposes under government grants, such as private research. Again, legislative history should be sufficient to clarify when such researchers are neither government agents nor exclusive licensees and that in such instances, their activities do not fall within the scope of this subsection.

CONCLUSION

    IIA believes that Chairman Coble's introduction of H.R. 2652 and the Subcommittee's first hearing on this legislation are important steps in the process of crafting and adopting a workable database protection statute. The threat to the database industry and its customers is real and present, both domestically and internationally, and without such protection both providers and users of American databases will suffer. The Association applauds Chairman Coble for recognizing these realities and acting positively to address them.

    The comments offered in this statement, while as complete as possible, should not be considered the final evaluation of IIA and its members on the specific provisions contained in H.R. 2652 or on the subject of how best to craft domestic database protection legislation. The Association's views will evolve as the process moves forward and as others offer helpful suggestions. Most importantly, however, the discussion is moving forward. Such progress is long overdue, and IIA looks forward to working with the Subcommittee and its members toward the goal of developing and enacting fair and balanced database protection legislation.
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Morrison & Foerster LLP,
Washington, DC, October 28, 1997.
Hon. HOWARD COBLE,
Subcommittee on Courts and Intellectual Property
Washington, DC.

Re: H.R. 2652

    DEAR CHAIRMAN COBLE: I am writing you on behalf of the Online Banking Association to express its concerns with H.R. 2652, the ''Collections of Information Antipiracy Act.'' Last October, the Patent and Trademark Office requested comments on the intellectual property treaties then pending before the World Intellectual Property Organization. The Online Banking Association and 856 other entities and individuals submitted comments opposing the Database Treaty, while only five entities supported the Treaty. The concerns noted in the 857 comments against the Database Treaty apply with equal force to H.R. 2652. For the subcommittee's convenience, I am enclosing tables which summarize the positions contained in the comments. Please include these tables in the record for last week's hearing on H.R. 2652.

Sincerely,


Jonathan Band.
COMMENTS ON WIPO DATABASE TREATY
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    In response to its October 1996 request for comments on the three intellectual property treaties under consideration at the December 1996 World Intellectual Property (WIPO) Diplomatic Conference in Geneva, the U.S. Patent and Trademark Office received over a thousand comments. The first table attached lists all the organizations which filed comments, and the positions they took on the database treaty. The second table contains similar information for individuals who stated their occupation. Rather than attempt to reflect the gradations of support or concern, the tables simply indicate whether the group or individual generally expressed support for or concern with the treaty.

    The PTO received an additional 645 electronic mail comments opposing the database treaty from individuals who did not state their occupations. It does not appear that the PTO received any e-mail messages from individuals in favor of the database treaty. Table 3 aggregates these e-mail comments with the results of tables 1 and 2.

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Chicago Mercantile Exchange,
Washington, DC, February 6, 1998.
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.

Re: H.R. 2652, the ''Collections of Information Antipiracy Act''

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    DEAR CHAIRMAN HYDE: The Chicago Mercantile Exchange (''CME'') appreciates this opportunity to comment on a pending bill, H.R. 2652, the ''Collections of Information Antipiracy Act'', in connection with the legislative hearing on this subject to be held on Thursday, February 12, 1998 by the Subcommittee on Courts and Intellectual Property of the Committee on the Judiciary, U.S. House of Representatives.

    As a producer and compiler of real-time price information concerning financial and agricultural futures and options on futures products traded on or subject to its rules, CME believes that its real-time price information is an invaluable component of the risk management and price discovery services we offer to the world. But CME, like many other commercial producers and compilers of information, is necessarily limited in its ability to police and enforce restrictions on unauthorized redistribution of its proprietary information by virtue of its status as a private enterprise. CME believes that the solution lies in the imposition of tough federal criminal and civil penalties on those that would wrongfully divert the flow of valuable information for their own gain without payment of just compensation to the source of such information.
    For the foregoing reasons, CME applauds the objectives of the pending bill and urges its favorable consideration.

Sincerely,

M. Scott Gordon, Chairman of the Board
T. Eric Kilcollin, President & CEO



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Law Offices of
James Buckley Ostmann
Washington, DC, February 13, 1998.
Hon. J. HOWARD COBLE, Chairman,
Subcommittee on Courts
and Intellectual Property,
House of Representatives, Washington, DC.

RE: HR 2652, ''Collections of Information Antipiracy Act''

    DEAR MR. COBLE: THE BELOW-SIGNED REPRESENTS THE SOCIAL LIST OF WASHINGTON, INC., PUBLISHER OF THE ''GREEN BOOK.'' THIS LETTER IS IN SUPPORT OF THE ABOVE-CITED BILL, AND IT IS REQUESTED THAT THIS LETTER BE MADE A PART OF THE RECORD REGARDING SUCH BILL.

    The Social List has published the Green Book in Washington, DC since 1930. Each year, substantial effort and money is expended to prepare the current edition. A Board of Governors reviews recommendations for new listees, forwards questionnaires to suggested listees, reviews the status of current, listees, forwards questionnaires to government agencies, Embassies an others for information about current high government officials and Ambassadors, and performs other similar and related activities. The Social List will traditionally hire additional personnel during this phase of its work. Additionally, the Social List expends monies to prepare and publish the Green Book.

    Over the years, the Social List has encountered a problem of unauthorized copying of the listees in the Green Book, not for the purpose of creating another social register, but rather for the purpose of creating a mailing list for commercial solicitation. As with many publications that list individuals, the Social List uses certain ''seed names'' to identify such use. Prior to the Feist decision of the United States Supreme Court, it was clear that a copying of the listees for commercial purposes involved a violation of the U.S. Copyright laws. Since Feist, the situation has become even more muddled by virtue of subsequent court decisions. A few of those decisions have extended copyright protection to the content of compilation works. Lipton v. Nature Co., 781 F Supp. L032 (1992); Penelope v. Brown, 792 F Supp. 132 (D. Mass. 1992); Corersearch, Inc. v.Thompson and Thompson, 792 F. Supp. 305 (SDNY 1992). There have been as well, many courts that have ruled otherwise on this issue.
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    Other aggrieved plaintiffs have tried alternate theories in seeking a remedy to the copying of their works. In ProCD, Inc. v. Zeidenberg, 908 F Supp. 640 (WE Wis. 1966), rev'd 86 F3rd 1447 (7th Cir. 1996), the Court of Appeals held that a shrinkwrap license agreement was enforceable. (As Prof. Jane Ginsburg noted in here submittal, though, that issue is far from settled as well.) In G.S. Rasmussen & Asso., Inc., v. Kalitta Flying Service, Inc., 958 F2nd 896 (9th Cir. 1992), the plaintiff, who had created a supplemental type certificate for airworthiness (STC) proceeded against the defendant upon a theory of misappropriation and unfair competition. In that case, it was shown that substantial time, effort and money were expended in creating this STC, which was used for converting a commercial aircraft from passenger to cargo use. There was no claim of copyright infringement.

    The Rasmussen court reviewed the ancient theories of ''tragedy of the commons'' and ''free ride'', pointing out courts had generally favored creating a property right where one had expended effort and monies to formulate something of value. The court held that plaintiff had created such a right in the STC, and upon a showing that defendant had taken such asset without payment, and had benefited therefrom, found for plaintiff.

    While these cases can offer some solace to compilers, it would be of enormous value to them to have a Federal statute setting forth that right. Under the present state of the law, publishers of compilations face a daunting, uncertain and expensive task in litigating to protect their products.

    Further, the bill would encourage those who would consider publishing compilations, which often can provide much useful information in various areas, to go forward. The present chilling atmosphere, where the spectre of one's efforts being taken and used for profit, would be eliminated.
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    Thank you for considering these comments in regard to H.R. 2652.

Very truly yours,

James Buckley Ostmann


The ChicagoBoard Options Exchange,
Chicago, IL, February 10, 1998.
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.

Re: H.R. 2652—The ''Collection of Information Antipiracy Act''

    DEAR MR. CHAIRMAN: I am the Chairman and Chief Executive Officer of Chicago Board Options Exchange, Incorporated (''CBOE''). CBOE is the world's largest options exchange, and the second largest securities exchange in the United States. CBOE trades 7000,000 option contracts daily accounting for over 47 percent of trading in equity options, over 95 percent of index options trading and over 65 percent of all options trading.

    I am writing to urge your support of HR 2652—the ''Collection of Information Antipiracy Act.'' The Act, currently pending in the House Subcommittee on Courts and Intellectual Property, will make it illegal for anyone to copy an existing database and sell it as a new product. The bill protects the time, money, and energy companies currently expend creating databases and,ultimately, will save jobs. As you know, the European Union recently passed a Database Directive, which took effect in January 1998, which we believe provides the protection for uncopyrightable databases that is necessary. In light of this Directive, American producers of databases are at a competitive disadvantage, and will remain so until HR 2652 is passed.
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    The Act has particular importance to CBOE because the Securities Exchange Act of 1934 (''Exchange Act'') obligates exchanges to make available to all investors accurate, current securities market information. CBOE, as a participant in the Options Price Reporting Authority (''OPRA''), a securities information processor registered under the Exchange Act, collects, processes and disseminates current market data to brokers, dealers and investors throughout the world each day. As you may know, the Exchange Act permits exchanges to impose reasonable nondiscriminatory fees upon persons who have access to this information to offset a part of the costs of collecting and disseminating the market data. The revenue derived from the dissemination of this market data enable CBOE and other securities exchanges to make available the highest quality market data, which ultimately ensures the integrity and efficiency of the securities markets.

    Currently, CBOE and other producers of databases are afforded very little legal protection from misappropriation beyond privity of contract. Because the underlying market data which CBOE and other securities exchanges disseminate is factual, it is not entitled to copyright protection. In addition, as a result of the Supreme Court's decision in Feist Publications, Inc. v. Rural telephone Service Co., the compilation (i.e.) of this market data also is not entitled to copyright protection, absent some original ''creative'' selection and/or organization of the market data. The efficacy of state misappropriation laws to protect producers of databases is in doubt as a result of the Second Circuit's recent decision in National Basketball Association v. Motorola.

    The Act will provide protection to CBOE and other database producers from commercially harmful misappropriation of the financial data it collects, processes and disseminates through OPRA each day. As noted above, the Exchange Act obligates CBOE and other securities exchanges to collect, process and disseminate this market information, and the Exchange Act contemplates that CBOE will charge reasonable fees to persons with access to the information. If individuals were able to misappropriate this information, CBOE and other exchanges would be deprived of the revenues they rely upon to defray the costs incurred in handling this information, but they would still remain subject to the statutory obligation to collect and make the information available to the public. Further, those who might misappropriate and redistribute securities market information would operate outside the structure of the Exchange Act, and thus would not be subject to the regulatory safeguards that currently assure the accuracy and reliability of the information.
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    CBOE greatly appreciates your having taken the time to meet with Tom Knorring and Patrick Sexton of CBOE with the group at Cahners Publishing in Des Plaines on January 12th. CBOE would be pleased to discuss this matter further with you or your staff, or provide any additional support.

Sincerely,

William J. Brodsky, Chairman and
Chief Executive Officer.



Chicago Board of Trade,
Chicago, IL, February 11, 1998
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR CHAIRMAN HYDE: Thank you for your recent letters to the Chicago Board of Trade (CBOT) regarding the exchange's views on H.R. 2652, the ''Collections of Information Antipiracy Act''. The Chicago Board of Trade appreciates your invitation to submit a statement into the record of the planned February 12, 1998 hearing on this important legislation. The CBOT strongly believes that a national database protection statute is critically important to the United States and to the broad-based and robust domestic information industry which now produces the majority of databases in the world.

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    The Chicago Board of Trade, the world's oldest and largest commodity futures exchange where a wide variety of financial and agricultural futures contracts are traded, is an active participant in the information industry. To keep market users informed about the state of the markets, the CBOT compiles records of its trading activity and creates databases of that market information which are then disseminated over its broad distribution network. This information is used daily by hundreds of thousands of citizens throughout the world for trading activity affecting every sector of the economy.

    The CBOT is also an active member of the Information Industry Association (IIA), a 550-member trade association of entities that create, manage and distribute information products and services. IIA submitted a detailed written statement on the legislation in October 1997 and will be testifying before the Subcommittee on February 12, 1998. The CBOT concurs with the IIA analysis presented in those submissions.

    We believe that the international competitive threats to the U.S.information industry combined with the existing gaps in domestic protections for investments in commercially significant databases demand federal legislation to outlaw database piracy. Congressman Howard Coble is to be applauded for introducing H.R. 2652 and holding hearings to move the legislative process along.

    We at the CBOT look forward to working with you and Congressman Coble to enact a fair and balanced federal law that continues the long U.S. legal tradition of providing incentives for the private sector to collect, maintain and provide commercially viable databases to ensure the ongoing general availability of essential information.

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Sincerely,

Thomas R. Donovan, President and
Chief Executive Officer.


Warren Publishing, Inc.,
Washington, DC, February 18, 1998.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts &
Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR CHAIRMAN COBLE: I am writing in response to the written statement submitted by Tim D. Casey on behalf of the Information Technology Association of America regarding the Collections of Information Antipiracy Act, H.R. 2652. While I disagree with almost all of Mr. Casey's remarks, I am limiting my response to the portions of his testimony that relate to Warren Publishing.

    As you have noted many times before, there are growing gaps in current U.S. law that leave database products—created only through substantial investments of time, money and human resources by companies like ours—vulnerable to the unscrupulous actions of pirates. Rather than acknowledge the extreme unfairness of this situation, Mr. Casey, on page 10 of his testimony, blithely attempts to cover these gaps by suggesting that our problems result from ''inadequate legal representation.'' Not only is this an unfounded assertion, it highlights his own inadequate examination of the ''published decisions'' in our case.
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    Mr. Casey claims that we made''no effort to invoke existing laws against misappropriation.'' This is not true. As the very first footnote in the published decision of the 11th Circuit Court of Appeals noted, Warren ''. . . asserted a claim for unfair competition . . . [This] claim remain[s] undisposed if,'' Warren Publishing, Inc. v. Microdos Data Corp., 52F.3d950, 950 n.1 (11th Cir. 1995), vacated 115F.3d 1509 (11th Cir. 1997)(en banc). I am not a lawyer and am unprepared for a detailed discussion on the question of preemption, however, I have been informed that under federal preemption, an unfair competition claim based on state law could not be considered while the copyright claim on the same materials is outstanding. Now that our selection of cable systems has been ruled uncopyrightable, we will learn if the unfair competition claim survives the 'catch-22' of preemption or whether the gap in existing laws leaves our creation completely unprotected from piracy.

    Mr. Casey also attempts, on page 14 of his testimony, to portray our copyright infringement claim as based on ''the copying of facts.'' Again, this is not true. From the very first filing of our complaint against Microdos, throughout all of our arguments before all of the different courts where this case has been considered, we always acknowledged that facts are not copyrightable. our case was about whether or not our original selection of cable systems, based on our own definition of cable systems, was protectible. We believe that the 11th Circuit was wrong when it said our selection was lacking in the modicum of originality required for copyrightability, a belief shared even by many of the most vocal opponents to your legislation (e.g., the written statement of Jonathan Band on behalf of the Online Banking Association and his oral testimony before you on Feb. 12, 1998). What started as a small drop of water in the Supreme Court's Feist decision has been transformed by the 11th Circuit into a deep lake of uncertainty for us and other database providers.
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    As for Mr. Casey's claims that we did not show ''actual financial injury'' from the piracy, as is often the situation, our case addressed only the liability question with damages set for a later phase. Because the 11th Circuit ultimately ruled against us on the liability question, we will never have the opportunity to address the damages issue. In addition, most copyright owners wisely attempt to stop piracy at its inception—before their ''actual financial injury'' has become so large as to threaten the continued viability of their business. You should know that in our case, the district court granted an injunction and impounded defendants' copies of our database because the judge thought the risk to our business from defendants' actions was grave.

    Finally, Mr. Casey purports that ''it is understandable that traditional database producers are feeling threatened by the advent of new and innovative forms of competition.'' Speaking for myself, and probably for most other database producers, nothing could be further from the truth. I have always believed that honest competition was health, not only for the marketplace, but for my business as well. It keeps us on our toes and helps to ensure that we keep up with the information needs of a constantly changing business environments. As I said when I appeared before the subcommittee last October, Warren Publishing is happy to compete with anyone who, like us, uses their own industriousness to produce a database product. But let me be clear—there is nothing new or innovative about copying someone else's product and calling it your own. That is nothing more than old-fashioned, garden-variety theft.

    Mr. Chairman, I thank you again for introducing this legislation that goes a long way towards restoring fairness to the Database industry.

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Sincerely,

Paul Warren, Executive Publisher.


Yellow Pages Publishers Association,
Denver, CO, February 18, 1998.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property
Committee on the Judiciary,
House of Representatives, Washington, DC.

Re: H.R. 2652, the ''Collections of Information Antipiracy Act''

    DEAR CHAIRMAN COBLE: The Yellow Pages Publishers Association (''YPPA'') is the largest trade association of Yellow Pages-related businesses in North America, representing nearly 400 members. Its membership represents 93 percent of all Yellow Pages directories published in North America. Some of YPPA's members are affiliated with local telephone exchange providers. YPPA wishes to take this opportunity to respond to the testimony presented by William Hammack, President of the Sunshine Pages, (representing the Association of Directory Publishers, ADP) to the House Judiciary Committee's Subcommittee Courts and Intellectual Property during the February 12, 1998 hearing on H.R. 2652, the ''Collections of Information Antipiracy Act.''

    Mr. Hammack's testimony reflects ADP's concern about the rights of independent directory publishers to obtain subscriber listing information gathered by local telephone companies. He alleges that abuses by certain telephone companies—companies that have imposed excessive charges or refused to provide listings—have continued ''unabated.''
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    The issues raised by Mr. Hammack were considered by Congress and resulted in the enactment of Section 222(e) of the Communications Act. That section requires that listings be made available to all directory publishers on ''nondiscriminatory and reasonable rates, terms and conditions.'' YPPA strongly supported its adoption in the Telecommunications Act of 1996 (P.L. 104–104), and continues to support it now. Accordingly, YPPA supports new Section 1205(d) as it is currently drafted in H.R. 2652, which makes clear that nothing in this new copyright legislation will affect the rights of directory publishers to obtain directory listing information on nondiscriminatory and reasonable rates, terms and conditions. YPPA supports its inclusion in H.R. 2652 as is, without changes, additions, or editorial comment.

    YPPA does not, however, believe that a codification of the Feist case, only as it relates to directory publishing, is either necessary or appropriate. Section 222(e) was intended to ensure that directory publishers have access to listings, and that those who provide the information are fairly compensated for the value of the listings. The current statute strikes the proper balance between publishers and telephone companies. YPPA is also concerned that under the guise of codifying Feist, other substantive changes could be made without the benefit of full public debate.

    YPPA would also like to respond to some points in Mr. Hammack's testimony, in which he alleges that certain telephone companies are violating Section 222(e) and not providing subscriber listing information, or are requiring unreasonable conditions. If this is the case, the appropriate remedy is to file a complaint at the Federal Communications Commission (FCC) under Section 222(e). YPPA is not aware of any such complaint filed at the FCC. A review of Mr. Hammack's testimony, however, raises questions about whether these telephone companies are, in fact, violating Section 222(e).
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    For example, Mr. Hammack claims that one telephone company is earning a 1300% profit on its subscriber list information, and suggests that this is in violation of the Act. This particular allegation is unfounded, and is based on a selective manipulation of costs by ADP. ADP has chosen to exclude all of the costs of gathering and maintaining the listings, instead, only counting as costs those incremental costs associated with creating a copy of one more tape of the subscriber listings. It is hardly surprising that if you exclude all the costs of creating, correcting, updating, enhancing, and maintaining the information, the alleged profit margins can be portrayed as astronomical.

    The telephone company in question—BellSouth—provides listings at four cents per listing. In a proceeding before the Florida Public Service Commission (PSC), BellSouth was asked about its incremental cost of running an additional tape of its listings. The cost figure provided excluded all costs of creating, correcting, enhancing, updating and maintaining the database, and any other costs associated with the listings. Based on the full record before it, the Florida PSC approved BellSouth's four cent per listing pricing as being fair, reasonable, and in compliance with Section 222(e). In so doing, it joined the U.S. Congress in rejecting incremental costs as a basis for providing listing information.

    Incremental costs for duplication of records have nothing to do with ''nondiscriminatory and reasonable rates,'' which is the standard under 47 U.S.C. 222(e), and also ignores the value of the listing information provided. Under ADP's scenario, the first book publisher, usually the local exchange carrier's (LEC) affiliated publisher, would pay prices based on the full costs of gathering and maintaining the database, and each subsequent publisher—generally a non-affiliated publisher—then only pays the ''incremental'' cost of running one copy of the listing tape. This would make the affiliated publisher pay for the cost of creating, correcting, enhancing, updating and maintaining the listing information database, and Mr. Hammack's company and others would receive the value, essentially for free, merely paying a duplication fee. The equivalent would be to require the creator of a software program to only charge customers the cost of an additional copy of the software on diskette, and not allowing the creator to recover its development costs.
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    If every publisher, affiliated and non-affiliated, paid only the incremental costs of duplication, the telephone subscriber, i.e. the ratepayer, would end up being saddled with the entire cost of gathering and maintaining the database, while directory publishers, who use the information contained in the database as the foundation of their product in a competitive, profit-making business, pay next to nothing. The Federal statute avoided this negative, unfair, and diseconomic outcome by simply requiring that the price be reasonable and nondiscriminatory, and not be based only on the incremental cost of duplication of an additional tape.

    Hammack also claims that local phone companies charge different prices for different uses of the directory listing information. Some phone companies do, indeed, charge different prices for multiple uses of the information, or if the information is not being used to publish a directory.(see footnote 121)

    Charging more for additional uses is standard licensing practice in many fields. If an individual purchases software for installation on one computer, the software license is one price. If it is purchased for an office for installation on a series of computers, the price is generally much higher, even though the cost to the manufacturer is exactly the same. If two publishers use the same subscriber list information, and publisher A uses it once and publisher B uses it multiple times, publisher B receives more value and it is reasonable for publisher B to pay for a greater portion of the cost of creating, correcting, enhancing, updating and maintaining the database. The House Committee Report was clear the subscriber list information provisions ensure ''that the telephone companies that gather and maintain such data are compensated for the value of the listings.''(see footnote 122)
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    YPPA thanks the Subcommittee for the opportunity to clarify these points. YPPA again urges that Section 1205(d) not be modified.

Sincerely,
Edward G. Blackman, III, Executive Vice President.


STATEMENT OF THE ASSOCIATION OF AMERICAN PUBLISHERS, INC. ON HR 2652, THE COLLECTIONS OF INFORMATION ANTIPIRACY ACT

    Although many comments have been provided to the subcommittee on HR 2652, the Collections of Information Antipiracy Act, the Association of American Publishers (AAP) is uniquely qualified to comment on this legislation because its members, individually and collectively, are both major users and producers of databases in electronic and print formats. As a result, the AAP perspective reflects a balanced approach to the issue that is intended to be workable for all concerned. AAP members agree that ''free-riding'' which destroys the incentives for investing in database creation and distribution ultimately harms users as well as producers and, therefore, the public interest. They also agree, however, that legislation intended to deter, punish and remedy such activity must not sweep the legitimate user and legitimate uses of databases under its ambit.

    In brief, the position of AAP is that:

 Legislation to protect databases is needed because of the inadequacy of the extant legal protections.
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 Through its adoption of a Misappropriation'' approach, HR 2652 provides a solid framework from which to address these issues.

 Database legislation must balance the needs of users and producers of databases.

 Some modifications to the provisions of H.R.2652, including a broad-based ''fair use'' type provision protecting transformative editorial uses, are needed to achieve this balance.

Why the AAP members believe they need protection for non-copyrightable databases

    The nearly 200 members of AAP include most of the major commercial book publishers in the United States, as well as smaller and non-profit publishers, university presses and scholarly societies. AAP members publish hardcover and paperback books in every field, professional and scholarly journals, and a range of educational materials for the elementary, secondary, post-secondary and professional markets. Members of the Association also produce computer software and electronic products and services, such as online databases and CD–ROMs. They are continuing to explore new ways to provide content and information to the public, while investing in a variety of new technological approaches (including Internet distribution) in an effort to meet marketplace needs for timely and continuously-updated information.

    These publishers recognize that extant legal protections—including copyright, contractual licensing, trademark and state misappropriation law—do not provide the certainty of protection for their investments in developing new databases. Particularly as a result of the Supreme Court's Feist decision, they realize that some databases are clearly no longer protectible, while the protection available for others is uncomfortably thin and uncertain. They also feel that self-help technological fixes alone can never provide adequate protection.
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    In addition, AAP members who produce databases are concerned about the language and intent of the European Directive's statement that ''the right to prevent unauthorized extraction and/or re-utilization in respect of a database should apply to databases whose makers are nationals or . . . residents of third countries [non-EU] . . . only if such third countries offer comparable protection to databases Produced by nationals of a member state. . . .'' [emphasis added]. Without legislation providing comparable protection in the United States, US produced databases are in jeopardy of wholesale takings, because they might not be protected according to the terms of the Directive in many of the countries in Europe.

    The AAP members in their position as users of databases, as distinct from their position as producers of databases, recognize that reasonable protection for database producers is necessary in order to insure the continued availability of high quality databases.

    Accordingly, AAP's members agree that a legislative solution is needed to provide protection against unauthorized taking of substantial portions of databases to encourage the continued investment in the creation and maintenance of databases and to discourage ''free-riders'' and pirates.

HR 2652 adopts an appropriate approach to database legislation

    Publishers who create databases, and those who see themselves primarily as secondary users of such information for transformative editorial uses, both view the ''misappropriation'' approach embodied in HR 2652 as a workable framework for protecting databases without denigrating the interests of database users. They believe it can satisfactorily address the key concerns of both groups.
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    AAP members agree that the core provision of HR 2652, which would impose liability on ''any person who extracts, or uses in commerce, all or a substantial part of a collection of information gathered, organized, or maintained by another person through the investment of substantial monetary or other resources, so as to harm that other person's actual or potential market for a product or service that incorporates that collection of information and is offered by that other person in commerce . . .,'' is an appropriate starting point.

    However, many publishers provide database products and services almost exclusively to non-profit institutions, such as libraries and universities. While we would contend that these uses are ''in commerce,'' it is uncertain and publishers are concerned that the phrase ''uses in commerce,'' as a qualification on restricted takings, may be too limiting of protection. If non-profit organizations were deemed by the inclusion of that phrase to be permitted to take substantial parts of collections of information to avoid purchase or subscription, it could seriously harm the creator who organized and maintained the collection.

    AAP members believe protection should be provided against wholesale taking by ''free-riders'' whether their purpose is to compete or simply to avoid legitimate costs of acquisition or use.

    Thus, misappropriation should embrace market harm not only from competitors but also from customers or other persons who would negate further potential sales through their noncommercial reproduction and distribution of all or a substantial part of the collection of information. Permitting ad noncommercial uses, even when they cause the described commercial harm, would be inconsistent with the bill's limited ''permitted use'' exception for ''not-for-profit educational, scientific or research purposes.''
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HR 2652 must balance the needs of users and producers of databases

    AAP appreciates the efforts of the drafters of HR 2652 to build into the bill a balance between the need to protect the incentives and investments of database producers and the needs to ensure fair treatment of the users of information embodied in databases. AAP members have carefully examined the proposed ''permitted uses'' and ''exclusions,'' and concluded that the bill would be helped by an approach that embodies general qualifying criteria which would be applied on a case-by-case basis to the specific facts and circumstances involved in particular use situations.

    The categorical ''permitted use'' approach in the current draft of HR 2652 inevitably omits some important categories of use, while addressing others in a manner that (depending on one's perspective) is either under inclusive or over inclusive in its use allowance. With evolving technology and the changes inherent in responding to a more technologically sophisticated marketplace, the application on a case-by-case basis of general criteria that balance the interests of database producers and users would better assure needed flexibility in the statute to respond to the changing nature of publishing.

    Under this approach, the bill would establish a set of interest-balancing factors similar to the ''fair use'' of Section 107 of the Copyright Act. Although the new legislation is not intended to replicate copyright protection, the concept of balancing rights of owner/creators with the needs of users is well established in that context. By providing similar criteria, the bill would make it possible to balance the transformative nature of a use against its effect on the value or market for the database. The obvious cases of substantial taking to compete in commerce would be clearly outside the scope of permitted uses while research and scholarly uses to create new works would be permitted.
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    We recognize that H.R.2652 already attempts to incorporate standards similar to three of the four statutory ''fair use'' criteria into its framework. However, the results of this effort are undermined by the shortcomings of the ''permitted use'' categories which provide explicit bases for permitting certain uses. Each categorical provision raises concerns regarding potential unanticipated abuses. For example, the idea of permitting use for ''Verification'' raises the specter of a ''free rider'' assembling a very sketchy database and then ''correcting'' the omissions by claiming the right to ''verify'' missing data. Obviously, the drafters have no intention to create such a loophole. But without a balancing of the substantiality of the portion taken and the nature of the underlying work and the nature of the resulting work, this categorical ''permitted use'' could easily be misused.

    Similarly, the permitted use for ''Not-for-Profit Educational, Scientific or Research Uses'' raises concerns among those AMP members who view themselves more as users, rather than producers, of databases. These commercial publishers have long relied on the ''fair use'' provisions of copyright law to make transformative editorial use of facts and data. The restriction of this category of permitted use to specific ''not-for-profit'' entities gives them cause for concern, while at the same time the category raises concerns among those AAP members who are database producers and whose primary or sole market is the ''not-for-profit'' sector of libraries and educational institutions. A balancing of factors perhaps could better accommodate both concerns.

    The permitted use for ''news reporting'' also raises concems, due to the absence of any time-sensitive (i.e., ''hot news'') limitation on the scope of this provision, and the absence of any consideration of how it would apply when the user of a substantial portion of a database is in direct commercial competition with the database producer. Without a balancing of factors, the concept of harm to the market has no bearing on the extent of the use.
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    Hence, on balance, AAP supports a generic approach that encourages a balancing of factors to determine permitted uses, rather than relying on categorical permitted uses.

Exclusions

    As noted above, AAP's membership includes scientific societies who are both publishers and membership organizations. These groups are particularly aware of efforts in other countries to restrict use of government data by scientists and researchers. This concern is reflected in the bill's provisions excluding Government collections of information and ''computer programs'' from its protection against misappropriation. AAP agrees with the intention of the provision in HR 2652 to exclude government collections of information, including those gathered, organized or maintained by persons exclusively licensed by the government for such purposes. However, AAP wants to be sure that the categorical sweep of this provision would not have an adverse impact on government-funded projects at educational institutions by excluding them from necessary protection against misappropriation.

    In addition, as noted in testimony from the science community, the recent advent of digital technologies for collecting, processing, storing and transmitting data has led to an exponential increase in the size and number of databases created and used. This explosion has also underscored the need for more creative packaging and arrangement of data and the development of new search engines and indexing tools and new methods of dissemination of the database contents. The legislation recognizes that government data should be freely available but that value-added services provided by the producer of a database using government data are and should remain protectible in order to insure that there continues to be incentive for creating these value added products and the new index tools and search engines mentioned above.
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Some modifications to the remedies section of the bill are needed.

    The intention of HR 2652 is to insure protection for collections of information against piracy by providing not only liability but adequate penalties for infringement. Experience with unauthorized takings of substantial portions of such collections of information argues for strong remedies, but the question has been raised as to whether the scope of the remedies is appropriate for the types of abuses contemplated. If the major problem addressed by a misappropriation approach is market harm or elimination of incentives to create and maintain databases, AAP wonders if criminal penalties are appropriate. Perhaps, if existing criminal tools such as mail and wire fraud are still applicable, there would be no need for criminal penalties.

    AAP is also concerned about the provision in HR 2652 authorizing courts to order ''remedial modification'' of all copies of contents of a misappropriated collection of information in that it implies judicial control over editorial output. An injunction saying that the unauthorized taking cannot be included provides the same effect—to stop the infringing use—while not interfering with editorial control over content.

Licensing

    Section 1205 (c) makes clear that the legislation in no way impedes the rights of parties to freely enter into licenses or any other contracts with respect to the use of information. AAP agrees that this is a necessary provision. We have prepared a position paper on ''Contractual Licensing, Technological Measures, and Copyright Law'' that elaborates on why licenses benefit users as well as producers of information products. We would be happy to share this with the Subcommittee.
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    We would be happy to work with the Subcommittee to revise H.R. 2652 to insure that ''collections of Information'' can be protected against misappropriation without otherwise restricting necessary and appropriate uses of such information.











(Footnote 29 return)
Directive 96/9/EC of the European Parliament and of the Council of the European Union of 11 March 1996 on the legal protection of databases, Recitals (7), (10), (11) and (12).


(Footnote 30 return)
See EU Directive, Art. 11 (2).


(Footnote 31 return)
Id. at Art. 11(3): (''Agreements extending the right . . . to databases made in third countries . . . shall be concluded by the [European] Council . . .'' and Recital (56), which notes that protection in Europe ''should'' be granted to other nations databases only if those nations ''offer comparable protection to databases produced by [EU] nationals. . . .'').


(Footnote 32 return)
U.S. Copyright Office, Report on Legal Protection for Databases, August 1997, at 5 [hereinafter Copyright Office Report].


(Footnote 33 return)
Id., at 17–18.


(Footnote 34 return)
See, e.g., Warren Publishing, Inc. v. Microdos Data Corp., 115 F.3d 1509 (11th Cir. 1997), cert. denied, 118 S. Ct. 397 (1997), (a comprehensive listing of cable systems did not exercise sufficient originality in selecting the information and therefore was unprotected against wholesale copying).


(Footnote 35 return)
Cf. United States v. LaMacchia, 871 F. Supp. 535 (D. Mass. 1994).


(Footnote 36 return)
Copyright Office Report, at 83.


(Footnote 37 return)
National Basketball Association v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir. 1997).


(Footnote 38 return)
The prospect of relying on encryption technology is unclear due to the Constitutional challenge to the Department of Commerce rules regulating export of certain encryption, currently pending in the U.S. Court of Appeals for the Ninth Circuit. Compare Bernstein v. United States Department of Commerce, 974 F. Supp. 1288 (N.D. Cal. 1997) with Karn v. United States Department of State, No. 96–5121, 1997 WL 71750 at *1 (D.C. Cir. Jan. 21, 1997). If the export restrictions are upheld by the Ninth Circuit, it is very unlikely that database producers will rely on encryption technology to protect against piracy, as the most reliable encryption products will be precluded from use in international electronic commerce.


(Footnote 39 return)
Statement of J. H. Reichman, Visiting Professor of Law, University of Michigan and Professor of Law, Vanderbilt University concerning H.R. 2652, before the Subcommittee on Courts and Intellectual Property, Committee on the Judiciary, House of Representatives, October 23, 1997, at 10–11.


(Footnote 40 return)
See MCI Communications v. American Tel. & Tel., 708 F. 2d 1081, 1132–1133 (7th Cir.), cert. denied, 464 U.S. 891 (1983).


(Footnote 41 return)
See Bell South Advertising and Publishing Corp. v. Donnelly Information Publishing, Inc., 719 F. Supp 1551, 1566 (S.D. Fl. 1988).


(Footnote 42 return)
15 U.S.C.A. §78k–1 (c)(1)(D) (West 1997).


(Footnote 43 return)
Although Warren distributed their factbook with the assumption that it was subject to a valid copyright, the 11th Circuit's decision raises the specter of licensing or ''shrink-wrapping'' similar print databases in order to preserve redress in state court for breach of contract.


(Footnote 44 return)
See, e.g., Copyright, Contract and Sui Generis Protection for Databases in the US and Abroad, forthcoming 66 U.Cinn. L. Rev. (1997); Digital Libraries and Some of the Copyright Issues they Raise, 169 RIDA 5 (July 1996); No Sweat? Copyright and Other Protection for Works of Information After Feist v. Rural Telephone, 92 Colum. L. Rev. 338 (1992); Creation and Commercial Value: Copyright Protection of Works of Information, 90 Colum. L. Rev. 1865 (November 1990).


(Footnote 45 return)
Feist Pubs., Inc. v. Rural Telephone Serv. Co., 499 U.S. 340 (1991).


(Footnote 46 return)
Banks v. McDivitt, 2 F.Cas. 759, 13 C.O. Bull 101 (C.C.S.D.N.Y. 1875).


(Footnote 47 return)
Kiernan v. The Manhattan Quotation Telegraph Co., 50 How. Pr. 194, 14 C.O. Bull. 1493 (N.Y. Sup. Ct. 1876) (property right in AP foreign financial news).


(Footnote 48 return)
See e.g., Farmer v. Elstner, 33 F. 494, 13 C.O. Bull. 970, 972 (C.C.E.D. Mich. 1888) (appropriation of historical data unique to plaintiff's scholarly work on the history of Detroit by publisher of non competing work, an advertising directory for Detroit; injunction, limited to passages from plaintiff's work, awarded: ''defendant has made numerous, but not very lengthy, excerpts from plaintiff's book. These excerpts, however, are from the most valuable part of his work, and contain facts which had never before been published and which were obtained from original sources, at very considerable labor and expense.''); Trow Directory, Printing & Bookbinding Co. v. Boyd, 97 F.586, 15 C.O. Bull. 2644 (C.C.S.D.N.Y. 1899) (injunction entered against directory compilor some of whose canvassers, rather than conducting independent surveys simply copied from plaintiff's directory); Sampson & Murdock Co. v. Seaver-Radford Co., 140 F. 539 (1st Cir. 1905) (Boston city business directory: defendant made original canvass, then used plaintiff's directory for verification, and went to original sources for confirmation; court enunciated principle that second-comer cannot benefit by predecessor's expenditure of ''time labor and capital;'' in holding infringement, the court emphasized that 20,000 (or 12%) names in defendant's directory were gathered from plaintiff's). Cf. Edward Thompson Co. v. American Law Book Co., 122 F.922 (2d Cir. 1903) (no infringement to use plaintiff's legal encyclopedia as a source for case citations, when defendant contributed its own commentaries and descriptions to the citations; declaration ''If it be held that an author cannot consult the authorities collected by his predecessors, the law of copyright, enacted to promote the progress of science and useful arts, will retard that progress,'' 122 F. at 923, understood in context, concerns the leeway allowed diligent creators of substantially original works to rely on predecessors' efforts; the statement does not suggest that second-comers may be dispensed from independent labors.) See also Dun v. Lumbermen's Credit Ass'n., 209 U.S. 20 (1908) (limitation of plaintiff's recovery to a remedy at law, when defendant had copied some listings from plaintiff's credit reports, but had also engaged in such substantial, and costly, independent efforts that defendant's compilation contained more information than plaintiff's).


(Footnote 49 return)
The classic misappropriation decision is International News Service v. Associated Press, 248 U.S. 215 (1918), in which the Supreme Court announced a federal general common law ''quasi-property'' right in the dissemination of information. At issue were news reports, published by AP on the East Coast, where they were copied by rival INS and relayed to INS' Midwest and West Coast papers, simultaneously or even ahead of their receipt by AP's local counterparts. The information was not copyrighted; AP had not complied with copyright formalities when it published the bulletins; moreover,''information concerning current events'' was not subject to ''the exclusive right for any period to spread the knowledge of [them].'' Id. at 234. The actual holding of INS was fairly narrow: it granted AP protection against its competitor during the period of initial dissemination of the information to AP's members.


(Footnote 50 return)
Cary v. Kearsley, 4 Esp. 168, 170 (K.B. 1802); Webb v. Powers, 29 Fed. Cas. (No. 17,323) 511, 517 (C.C.D. Mass. 1847). See also Sayre v. Moore, 1 East 361n, 102 Eng. Rep. 139n (K.B. 1785) (Mansfield, L.J.)(limiting scope of protection for fear of putting ''manacles upon science'').


(Footnote 51 return)
Financial Info. Inc. v. Moody's Inv. Serv., 808 F.2d 204 (2d Cir. 1986), cert. denied, 484 U.S. 820 (1987) (index cards bearing bond call information lack sufficient subjective authorship to qualify as original works of authorship); Southern Bell, supra note 8, 756 F.2d at 809 (directory meets §102(a) originality requirement ''when the directory is the product of subjective 'selection, organization and arrangement of the preexisting materials' ''); Eckes v. Card Prices Update, 736 F.2d 859 (2d Cir. 1984) (listing of baseball cards held copyrightable because subset of listings displayed subjective selection); Dow Jones & Co. v. Board of Trade, 546 F.Supp. 113 (S.D.N.Y. 1982) (stock market index displays sufficient subjective choice of listed stocks).


(Footnote 52 return)
See, e.g., Southern Bell Tel. & Tel. Co. v. Assoc. Tel. Dir. Pubs., 756 F.2d 801, 809 (11th Cir. 1985) (industriousness no longer a relevant criterion of copyrightability under the 1976 Copyright Act); Miller v. Universal City Studios, 650 F.2d 1365, 1369 (5th Cir. 1981) (pre-1976 Act directory cases better viewed as ''in a category by themselves''; copyright in directories now ''properly viewed as resting on the originality of the selection and arrangement of the factual material, rather than on the industriousness of the efforts to develop the information.'')


(Footnote 53 return)
See, e.g., Illinois Bell Tel. Co. v. Haines & Co., 683 F.Supp. 1204 (N.D. Ill. 1988), aff'd., 15 USPQ 2d 1353 (7th Cir. 1990); National Business Lists v. Dun & Bradstreet 552 F.Supp. 89 (N.D. Ill. 1982). See also Rockford Map Pubs., Inc. v. Dir. Serv. Co., 768 F.2d 145 (7th Cir. 1985), cert. denied, 106 S.Ct. 806 (1986).


(Footnote 54 return)
See, e.g., National Business Lists, supra note 10, Rockford Map, supra note 10.


(Footnote 55 return)
See, e.g., National Business Lists, supra note 10; Rand McNally v. Fleet Mgmt., 591 F.Supp. 726 (N.D. Ill. 1983); Robert Denicola, Copyright in Collections of Facts: A Theory for the Protection of Nonfiction Literary Works, 81 Colum. L. Rev. 516 (1981)(reviewing doctrine).


(Footnote 56 return)
Hearing Before the House Subcommittee on Intellectual Property and Judicial Administration, 102d Cong. 1st sess. (April 10, 1991), Statement of Ralph Oman, Register of Copyrights, at p. 8.


(Footnote 57 return)
See, e.g., Haines, supra, note 10; Leon v. Pacific Tel. & Tel., 91 F.2d 484 (9th Cir. 1937).


(Footnote 58 return)
See Paul Goldstein, Copyright, 38 J. Copyright Soc. 109, 119 (1991) (Feist declares a constitutional originality standard ''no fewer that thirteen times'').


(Footnote 59 return)
The concern that mass market contracts might conflict with the user privileges established under copyright law sparked the proposal of an amendment to UCC 2B–308 that would have provided ''In mass market licenses a term that is inconsistent with applicable provisions of copyright law cannot become part of a contract.'' Members of the American Law Institute passed the proposal by a vote of 86–83 at the Annual Meeting of the ALI, May 20, 1997. The amendment provoked strong opposition from many quarters, and on July 29, the National Conference of Commissioners on Uniform State Laws adopted a motion rejecting the amendment, in favor of a ''position of neutrality.'' The NCCUSL motion states:


(Footnote 60 return)
See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996).


(Footnote 61 return)
For more detailed explanation of the application of fair use analysis to the preemption of shrink wrap licenses covering information products, see Maureen O'Rourke, Copyright Preemption After the ProCD Case: A Marked-Based Approach, 12 Berkeley Tech. L.J. 53 (1997).


(Footnote 62 return)
Subsection (b) of see, 104A(d)(3), concerning existing derivative works based on restored works, reads:


(Footnote 63 return)
Feist Publications v. Rural Telephone Service Co., 499 U.S. 340 (1991).


(Footnote 64 return)
Corsearch, Inc. v. Thomson & Thomson, 792 F. Supp. 305 (S.D.N.Y. 1992).


(Footnote 65 return)
Id. at 322.


(Footnote 66 return)
Warren Publishing, Inc. v. Microdos Data Corp., 115 F.2d 1509 (11th Cir.), cert. denied, 118 S. Ct. 397 (1997).


(Footnote 67 return)
ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996).


(Footnote 68 return)
NBA v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997).


(Footnote 69 return)
As noted in the OBA's August 19, 1997 letter to Chairman Coble, OBA has serious concerns regarding certain provisions of H.R. 2281.


(Footnote 70 return)
Martha E. Williams, The State of Databases Today: 1998, in Gale Directory of Databases at xviii (Erin E. Holmerberg ed., Sept. 1997).


(Footnote 71 return)
Id. at xix.


(Footnote 72 return)
Id. at xxi.


(Footnote 73 return)
Id. at xxvii.


(Footnote 74 return)
Tyson Report, Appendix A at 3.


(Footnote 75 return)
See Leon v. Pacific Tel. & Tel. Co., 91 F.2d 484 (9th Cir. 1937); Jeweler's Circular Publishing Co. v. Keystone Publishing Co., 274 F. 923 (S.D.N.Y. 1921), aff'd 281 F. 83 (2d Cir.), cert. denied, 259 U.S. 581 (1922).


(Footnote 76 return)
See, e.g., Worth v. Selchow & Righter Co., 827 F.2d 569, 574 (9th Cir. 1987), cert. denied, 485 U.S. 977 (1988); Financial Information, Inc. v. Moody's Investor Serv., 808 F.2d 204 (2d Cir. 1986), cert. Denied, 484 U.S. 820 (1987); Financial Information, Inc. v. Moody's Investor Serv., 751 F.2d 501 (2d Cir. 1984).


(Footnote 77 return)
Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991).


(Footnote 78 return)
U.S. Const. art. I, §8, cl. 8 empowers Congress ''[t]o 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 Inventions.''


(Footnote 79 return)
See, e.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977).


(Footnote 80 return)
For example, patents often expire when they still have enormous commercial value because of the constitutional requirement to give no more of a monopoly than minimally necessary to give inventors the incentive to invent.


(Footnote 81 return)
In this regard, it is important to emphasize that the interests to be balanced by Congress are not just the private interests of producers and users of databases, but the broader interests of the American public.


(Footnote 82 return)
See footnotes 1–2, above, and accompanying text.


(Footnote 83 return)
Compare Nash v. CBS, Inc., 899 F.2d 1537 (7th Cir. 1990) (no copyright in historical facts), with Illinois Bell Tel. Co. v. Haines & Co., 905 F.2d 1081, (7th Cir. 1990) (copyright infringed by copying of facts in telephone listings), vacated 499 U.S. 944 (1991).


(Footnote 84 return)
See United Tel. Co. v. Johnson Publishing Co., 855 F.2d 604 (8th Cir. 1988); West Publishing Co. v. Mead Data Central, Inc., 616 F. Supp. 1571 (D. Minn. 1985), aff'd, 799 F.2d 1219 (8th Cir. 1986), cert. denied, 479 U.S. 1070 (1987).


(Footnote 85 return)
916 F. 2d 718 (10th Cir. 1990).


(Footnote 86 return)
''Free-riding'' is not per se bad for society. Indeed, the Restatement 3d of Unfair Competition recognizes that overzealous limits on free-riding can be harmful to society, and would therefore eliminate or seriously circumscribe the existing state common law doctrines of misappropriation.


(Footnote 87 return)
Interestingly, under its former ownership, LEXIS appeared as an amicus curiae in Feist in support of the abolition of the sweat of the brow doctrine.


(Footnote 88 return)
West's licensing practices in this regard were a point of controversy in its effort to get the Antitrust Division of the Justice Department to approve the acquisition of West by Thomson. See United States v. Thomson, 42 U.S.P.Q. 2d (BNA) 1867 Feb. 27, 1997.


(Footnote 89 return)
248 U.S. 215 (1918).


(Footnote 90 return)
See H.R. Rep. No. 94–1476 at 132 (1976) reprinted in 1976 U.S.C.C.A.N. 5659, 5747–48.


(Footnote 91 return)
Feist, 499 U.S. at 354 n.1.


(Footnote 92 return)
See, e.g., J. Thomas McCarthy, 1 McCarthy on Trademarks and Unfair Competition, §10:47–10:62 (4th ed. 1996).


(Footnote 93 return)
Just as the Copyright Clause could not be invoked in support of trademark legislation because trademarks could not be the subject matter of copyright, see The Trade-Mark Cases, 100 U.S. 82 (1879), so, too, the Commerce Clause cannot be invoked to legislate inconsistently with the ''limited time'' and subject matter limits on intellectual property protections imposed by the Copyright Clause.


(Footnote 94 return)
CADP points to the incident in which MIT student distributed unauthorized copies of popular computer programs, LaMacchia v. United States, 871 F. Supp. 535 (D. Mass. 1994), as an example of the need for a new law. The student's malicious acts in that case were, of course, copyright infringement under existing law, but the student was not prosecuted for his acts due to a flaw in the criminal provisions of existing copyright law (the requirement that a criminal defendant have acted for commercial advantage). This flaw has since been corrected and there is no need for H.R. 2652 to further address the issue.


(Footnote 95 return)
Of course, traditional misappropriation doctrine need not rigidly cabin potential legislation in all respects. For example, assuming that a case could be made for some form of federal statutory protection against misappropriation, ITAA believes that the time-sensitive limitation on misappropriation identified in NBA probably would allow protection to a broader class of data than just the ''hot news'' at issue in INS v. AP.


(Footnote 96 return)
Assuming that there were some reason to be concerned about the effects of the reciprocity provisions of the EU directive, it is far from clear that H.R. 2652 would be anything close to ''equivalent'' to the extremely broad sui generis approach of the EU directive. It is also worthwhile to consider whether the reciprocity provisions of the EU directive offend the national treatment requirements of the WTO and, if so, whether the interests of Americans would be better served by protesting them before the WTO.


(Footnote 97 return)
John H. Harland Co v. Clarke Checks, Inc., 711 F.2d 966, 980 (11th Cir. 1983), cited in Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 764 n.1 (1992).


(Footnote 98 return)
This issue is addressed by H.R. 1661, 105th Congress, 1st Session.


(Footnote 99 return)
H.R. 3163 does not use the term ''inherently distinctive,'' but that term has been used in many court decisions, including Two Pesos Inc. v. Taco Cabana Inc., 505 U.S. 763 (1992), to characterize trade dress which can be protected without proof of acquired distinctiveness or ''secondary meaning.''


(Footnote 100 return)
U.S. Copyright Office, Report on Legal Protection for Databases, August 1997, at 5 [hereinafter Copyright Office Report].


(Footnote 101 return)
17 U.S.C. 101.


(Footnote 102 return)
Copyright Office Report, at 7–18.


(Footnote 103 return)
Id., at 17–18.


(Footnote 104 return)
See, e.g. Warren Publ., Inc. v. Microdos Data Corp., 115 F.3d 1509 (11th Cir. 1997) (holding that a comprehensive listing of cable systems did not exercise any creativity in selecting the information and therefore was liable to wholesale copying).


(Footnote 105 return)
Copyright Office Report, at 83.


(Footnote 106 return)
See, National Basketball Association v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997), at 845.


(Footnote 107 return)
IIA questions the motivation of some parties who have championed contract law over a uniform national legal protection for databases. See, e.g. McManis, Charles R., ''Do Not Support 'Privatizing' of Copyright Law,'' National Law Journal, Oct. 13, 1997, at A24. An amendment to proposed Article 2B favored by Prof. McManis would prevent including a term in any contract with is ''inconsistent with 17 U.S.C. Section 102(b),'' a formulation which he interprets to prevent contracts from covering noncopyrightable materials, including most databases. When Prof. McManis first offered this amendment at the May 1997 meeting of the American Law Institute, he stated its language was provided to him by the Digital Future Coalition. Mr. James G. Neal, in testimony before the Subcommittee on behalf of four members of the Digital Future Coalition, specifically mentioned ''contracts'' among the current, adequate forms of for databases that would preclude the need to adopt legislation such as H.R. 2652. See, Statement of James G. Neal, Director, The Milton S. Eisenhower Library, Johns Hopkins University, before the Subcommittee on Courts and Intellectual Property, Committee on the Judiciary, Hearing on Collections of Information Antipiracy Act, October 23, 1997, at 2.


(Footnote 108 return)
At the Information Meeting on Intellectual Property in Databases held September17–19, 1997 at the World Intellectual Property Organization, the EU delegation stated that the pace for implementation of this Directive is much taster than for other directives. Moreover, delegations from ten EU member countries that spoke at the meeting stated their countries' intention to proceed with implementation of the Directive by year's end.


(Footnote 109 return)
See particularly, Directive 96/9/EC of the European Parliament and of the Council of the European Union of 11 March 1996 on the legal protection of databases, Recitals (9), (10) and (11) [hereinafter EU Directive].


(Footnote 110 return)
EU Directive, Art. 1 1(2).


(Footnote 111 return)
See particularly, Art. 11(3): ''Agreements extending the right . . . to databases made in third countries . . . shall be concluded by the [European] Council . . .; and Recital (56), which notes that protection in Europe ''should'' be granted to other nation's databases, if those nations ''offer comparable protection to databases produced by [EU] nationals . . . .''


(Footnote 112 return)
See footnote 10 above. In addition to the statements offered by EU member nations at the WIPO Information Meeting, the nations of Greece and France (also EU members) indicated their intention to go forward with sui generis protection for databases. Mexico, Norway and Sweden stated that they also offer such protection already.


(Footnote 113 return)
Tyson, Laura D. & Sherry, Edward F., Statutory Protection for Databases: Economic and Public Policy Issues, Law and Economics Consulting Group, September 1997, at 6, Table 1.


(Footnote 114 return)
Statement of Paul Warren, Executive Publisher, Warren Publishing, Inc. on the Collections of Information Antipiracy Act, before the Subcommittee on Courts and Intellectual Property, Committee on the Judiciary, U.S. House of Representatives, Legislative Hearing on H.R. 2652, the Collections of Information Antipiracy Act, October 23, 1997.


(Footnote 115 return)
Copyright Office Report, at 89–91. See also, Reichman, J. H. and Samuelson, Pamela, ''intellectual Property Rights in Data?,'' Vanderbilt Law Review, 50(1), at 138 {in which two vociferous opponents of a sui generis approach to database protection acknowledge that an unfair competition approach is ''a means of providing interim relief at an acceptable social cost.'')


(Footnote 116 return)
Similar amendments would also be required in proposed Subsections 1202(b) and (c), on lines 3 and 11 of page 3, and in proposed Section 1203, on line 4, page 4.


(Footnote 117 return)
See, footnote 9 above, op. cit., Neal, at 3.


(Footnote 118 return)
Statement of J. H. Reichman, Visiting Professor of Law, University of Michigan and Professor of Law, Vanderbilt University concerning H.R. 2652, before the Subcommittee on Courts and Intellectual Property, Committee on the Judiciary, House of Representatives, October 23, 1997, at 10–1 1.


(Footnote 119 return)
See, e.g. Tyson and Sherry, op. cit., at 10; and Copyright Office Report, at 24–26.


(Footnote 120 return)
21 44 U.S.C. 3506(d)(4)(A).


(Footnote 121 return)
Section 222(e) only requires that telecommunications carriers provide the subscriber list information ''for the purpose of publishing directories in any format.''


(Footnote 122 return)
H.R. Rpt. No. 104–204, Part I, 104th Cong., 1st Sess. at p. 89 (1995) (emphasis added).