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.

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.

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.

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."

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.⁽¹²⁾

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.

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.⁽¹³⁾

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.⁽¹⁴⁾ 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"

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.⁽¹⁵⁾

The legislative history of the 1976 Copyright Act⁽¹⁶⁾

and the Supreme Court's Feist decision⁽¹⁷⁾

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.⁽¹⁸⁾

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;

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.⁽¹⁹⁾

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.

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),⁽²⁰⁾

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.⁽²¹⁾

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).⁽²²⁾

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.

Judiciary Homepage

1. ₀ 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. 932 (S.D.N.Y. 1921), aff'd 281 F. 83 (2d Cir.), cert. denied, 259 U.S. 581 (1922).

2. ₀ 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).

3. ₀ Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991).

4. ₀ 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."

5. ₀ See, e.g., Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977).

6. ₀ 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.

7. ₀ 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.

8. ₀ See footnotes 1-2, above, and accompanying text.

9. ₀ 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).

10. ₀ 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).

11. ₀ 916 F. 2d 718 (10^th Cir. 1990).

12. ₀ "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.

13. ₀ 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.

14. ₀ 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.

15. ₀ 248 U.S. 215 (1918).

16. ₀ See H.R. Rep. No. 94-1476 at 132 (1976) reprinted in 1976 U.S.C.C.A.N. 5659, 5747-48.

17. ₀ Feist, 499 U.S. at 354 n.1.

18. ₀ See, e.g., J. Thomas McCarthy, 1 McCarthy on Trademarks and Unfair Competition, §§ 10:47-10:62 (4^th ed. 1996).

19. ₀ 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.

20. ₀ 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.

21. ₀ 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.

22. ₀ 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.