Testimony of Emery Simon
on behalf of
The Business Software
On The Copyright Office’s
Report
Pursuant to Section 104 of the
DMCA
Mr. Chairman
and members of the subcommittee, we are grateful for the opportunity to appear
before you today to present the views of the software and computer companies
that are members of the Business Software Alliance[1]
on the Section 104 Report of the Copyright Office.
These
comments will address four areas: the importance of the Copyright Act and the
Digital Millennium Copyright Act (DMCA) to our industry; the first sale
doctrine (section 109); temporary or buffer copies; and some miscellaneous
points raised in the Report. As a
general matter, we think the Report is sound, and well reasoned, and support
its analysis and conclusions. We do have
specific concerns in certain areas, most importantly in its analysis of the
justification for, and scope, of its recommendations in respect of temporary or
buffer copies.
The Section 104 Directive from Congress
It is our understanding that this Committee
and the Congress directed this Report because, at the time of the enactment of
the DMCA, it determined that changes to Sections 109 and 117 were not merited,
beyond a narrow change for maintenance of computer programs that was made to
section 117.
In a very real sense, the Congress
ordered this Report, as a prudential measure: to ensure that the enactment of
the DMCA, and intervening developments in technology, did not harm the
marketplace. The Copyright Office’s
Report concludes that the law is working well, and that changes in technology
and the marketplace do not support significant changes to the law at this
time. We fully concur with this
conclusion.
The Report’s Conclusions on the DMCA
The member companies of the BSA believe
the DMCA is a good law, which has made a substantial contribution to the
development of their businesses. Its
provisions limiting remedies against service providers in certain circumstances
have promoted cooperation by service providers in our efforts to stem the
threat of piracy. While that
collaboration has at times been imperfect, the law is working. Similarly, our companies are increasingly relying
on technological protection measures to defend themselves against those who
would steal their works. In both
respects, the DMCA has accomplished its intended goal of updating the Copyright
Act, and has thus contributed to increasing confidence and encouraging the
greater use of the Internet.
We wholeheartedly support the conclusion
of the Report with respect to Section 1201, the rules on circumvention of
technological protection measures. The Report
states: “We are not persuaded that Title
I of the DMCA has had a significant effect on the operation of Section 109 and
Section 117… Consequently, none of the legislative recommendations made in this
Report are based on effects of section 1201 on the operation of {these} Sections)…”
(At pg. 73)
More specifically, Congress directed the
examination of two provisions of the Copyright Act: the “first sale doctrine”
codified in Section 109, and the backup and archival copies provisions
contained in section 117.
Context
Before commenting on the specific
conclusions of the Report, I would like to note that the BSA’s member companies
approach these issues with two considerations of equal importance.
1.
First,
our member companies are determined and committed to making the Internet and
e-commerce grow and thrive. BSA member
companies make the computers, software, servers, and switches that make
e-commerce possible. Many of these
companies are also in the business of providing web-design, data management,
hosting and other critical services.
2.
As
important, these companies suffer substantial losses due to piracy, amounting
to billions of dollars each year. Strong
copyright protection is the essential tool we rely on to attack and deter
theft.
We highlight these points,
because many of the outside submissions made in the course of this Report suggest
these are incompatible and conflicting goals, and that e-commerce will wither
unless changes are made to Sections 109 and 117. We disagree: we see no evidence in the
marketplace that would support such grim conclusions, and we are gratified to
read that the Copyright Office has reached the same conclusion.
Here are just two facts:
·Ø Under current law, recent estimates
suggest that e-commerce has grown ten fold over the past three years, and even
though our economy has slowed, the growth in online transactions will continue
to explode.
·Ø
By 2005, the BSA’s CEOs anticipate that a compelling 66 percent of software will be distributed over the Internet—compared to only 12 percent in 2000, accounting for over $40 billion in sales.
Having set the commercial context, I
would like to focus in the balance of these comments on Sections 109 and 117.
Section 109
Proposals considered by the Copyright Office included changing Section
109 to make all copies of all works, including software, distributed over the
Internet – whether by purchase, lease or license – transferable, regardless of
the terms on which the copy was acquired.
The Copyright Office Report unequivocally rejects this proposition,
concluding that “…Section 109 does not apply to digital transmissions…” (at pg.
80) and that change in the law are not needed.
Their reasoning, which we find both correct and compelling, focuses on
issues of law and the practical threats of infringement in the
marketplace. With respect to the issue
of statutory interpretation, the Report correctly notes that the language of
Section 109 must be read for what it is – modifying the distribution right –
and if Congress had intended for it cover other rights, such as reproduction,
Congress would have specifically included them.
With respect to the marketplace realities, the Report concludes that it
would be impossible to administer a rule that would require persons re-selling
a copy of a work to simultaneously destroy the original copy in their possession.
BSA agrees with these conclusions.
If Section 109 were read to apply to digital transmissions of works, the
already acute piracy problem our industry faces would become substantially
worse.
Temporary Copies
The second principal issue considered by the Report is that of temporary
copies. In this regard the Report is
mixed: it has elements of legal analysis that we support, but it contains a
number of statements which we find at best imprecise, and potentially quite
disturbing both in terms of their immediate impact and their precedent and
implications.
We are pleased to see that the Report undertakes a thorough and comprehensive
analysis that the reproduction right covers all forms of copies, regardless of
duration, including copies in RAM. It
correctly notes that the leading case, MAI
v. Peak, has been followed without deviation or qualification by all courts
that have considered the issue. In MAI Systems
v. Peak Computer the court held
that:
Because the loading of
software into a computer's RAM creates a copy that can be perceived, reproduced,
or otherwise communicated as defined by the Copyright Act, such loading …
create(s) a copy protected under the Act…
As
the Report correctly notes, this legal conclusion was endorsed and affirmed by
Congress through the enactment of the Digital Millennium Copyright Act. Title III of which creates an exception for
making a copy of a computer program by switching-on a computer for the purposes
of maintenance or repair. This exception
would have been wholly unnecessary if Congress had concluded that temporary
copies should not be subject to protection.
Moreover, Congress had ample opportunity at that time to create a
broader exception. It did not.
Finally, the Report notes that while a number of
academic commentators have criticised Mai
v. Peak, the Report also notes those criticisms are without merit, nor is
there any evidence of confusion among the courts on the issues they raise.
The Importance of Temporary Copies to Software Developers
These conclusions are critically important to both the current and even
more significantly future business models of the
software industry. Because most popular
software programs are very large, consisting of millions of lines of code, computers
that run these programs operate by processing the code in pieces. Code is stored (fixed, buffered or cached in
RAM), until it is needed for the program to operate at which time the central
processor calls up the necessary data.
Proposals submitted to the Copyright Office would have put these copies
of portions of a program outside the scope of the reproduction right.
Our member
companies, which make devices that “buffer” and cache data, do not see the
logic of creating an exception from the reproduction right for these
functions. Moreover, creating such
exceptions could have dire negative economic consequences for the software
industry. While
exemptions from copyright liability are not to be made lightly, we do not
object to creating exemptions from liability for temporary copies made in the
course of otherwise authorized uses.
A substantial percentage
of the software piracy problem consists of unauthorized use of software over
local-area networks (LANs). Piracy results if the number of people using a
software program stored on a central computer known as a “server” exceeds the
number of licenses that the LAN operator has purchased from the copyright
holder.
In the LAN environment, only one permanent copy needs to be installed on a server. Anyone connected to that LAN through a
personal computer, handheld organizer, telephone, or other device, can make
full use of that software by making a temporary copy of all or part of that
program in random access memory (RAM).
There is no need to make a permanent copy of the software on the
internal memory of every PC or device to enjoy the full functionality of the
software. Given the ubiquity of LANs,
denying the software copyright owner the ability to control temporary digital
copies in this environment is likely to significantly diminish the value of the
software.
Using software over the
Internet – which is likely to increase substantially in coming years -- takes
place essentially the same way as in the LAN environment, but on a vastly
larger scale. As in the case of LAN, Internet-based use typically takes place
through the creation of temporary digital copies of some or all a computer
program in the RAM of the PC or other device running the software. Other than the single original copy on the
host computer or server, no permanent copies need be made.
A relatively new development in the software
marketplace is the emergence of application service providers (ASP). ASP’s permit a company to use a software
product, without having to buy or install a copy on a local computer. The software is accessed “as needed,” over
the Internet, for example once a week to write checks for employees and to do
basic bookkeeping. Consumers are also
using web based software services to pay their taxes and design websites.
ASP’s can be a popular choice for business users
because developing and maintaining
an information technology system diverts in-house resources away from a
company’s main line of business.
Companies are increasingly “outsourcing” their business software needs
to outside vendors (ASPs). Companies
find outsourcing attractive for several reasons including:
Ø
Reducing
the burden of maintaining in-house software systems
Ø
Reducing
the need for information technology staff;
Ø
Allowing
faster access to new software; and
Ø
Creating
a predicable cost structure for software use by substituting standard monthly
service charges for up front payments.
The demand for ASP services is expected to grow
rapidly, with some experts predicting that it will become a $21 billion business
by 2002.
The marketplace evidence
is clear: our customers are becoming less interested in possessing a full copy
of our software products, than in having the software available to them, as
they need them. Denying or limiting the
legal ability of the copyright owner to control and manage the making of temporary
copies flies in the face of this marketplace reality.
The Report’s
Recommendation on Buffer Copies
Turning to
the specific conclusion of the Report, it recommends changes in the reproduction
right. While these changes are narrowly
cast with respect to streaming performances of music, and although the BSA
members are not generally in the streaming audio business as such, the analysis
that leads to this recommendation, and the precedents it may set, raises a
number of important questions.
The relevant part of the
Report’s recommendation states:
We recommend that
Congress enact legislation amending the Copyright Act to preclude any liability
arising from the assertion of a copyright owner’s reproduction right with
respect to temporary buffer copies that are incidental to a licensed digital
transmission of a public performance of a sound recording and any underlying
music. (at page 142-43).
This proposal
raises three questions. First, the
language on its face appears to be ambiguous.
It could suggest an amendment which would create an exception to the
reproduction right, but it could also be read to advocate an amendment which
would declare “temporary buffer copies” not to be reproductions within the
meaning of the Copyright Act. For
reasons explained below, we would have substantial reservations about the
either of these approaches. We believe
the intent of the recommendation is to create an exception from liability, but
not from the reproduction right or public performance right -- for copies that are incidental to an otherwise
licensed digital transmission of a public performance. Such an approach, if adopted by Congress,
would be a more logical and measured means to address the interests of all
parties.
Second, the proposed
change would apply to “buffer” copies, and not to all temporary copies, as the
Report makes amply clear. The concept of
buffer copies, however, is really indistinguishable from any temporary copy
made in RAM. In fact, the term “buffer”
describes a function of the copy (fixations of data packets in RAM while they
wait for a call from the device’s processing chip). They are merely one form of RAM copy, and as
the Report points out, RAM copies generally should not be treated differently
from any other reproduction.
Finally, while the
Report lists a number of justifications for recommending this change, we find
very troubling the rationale that these copies should be excused because they
have “…no independent economic significance.” (at pg. 143.) If the Copyright Office is suggesting a
concept of testing for the economic value of a copy in determining whether it
is “a copy” within the meaning of the Copyright Act, its proposal is without
foundation or precedent. Section 101 of
the Act, directs the analysis to determine whether there has been a fixation,
in a material object, from which the work can be perceived, reproduced or otherwise
communicated. It stops there. The Copyright Office’s apparent suggestion
that the Act contains a further precondition of economic value would present
enormous problems to our industry. As I
noted above, in both the local area network use of software, and in the ASP
environment, full enjoyment the work may require only temporary copies. For copyright owners to have to prove that
each such portion copied had distinguishable and independent economic value
would create an enormous burden along with unprecedented uncertainty and insecurity.
While the economic impact of a particular unauthorized temporary copy may be a
relevant factor to be considered in analyzing whether the reproduction in
question constitutes a fair use, see 17 USC 107, this “economic value” evaluation
should have no role in determining whether the making of that copy was an
unauthorized exercise of the reproduction right in the first place.
Section 117
The software industry is
the specific object of the back-up and archival provisions of Section 117. With one notable exception discussed below,
these provisions have not presented substantial issue for our industry. The software industry has been subject to
this provision for over 20 years, and as the Report correctly notes, it has
never been the subject of a reported litigation. The facts summarized in the Report are all
correct: that prudent computer users regularly back-up their files, that such
files may include a number of works, and that the act of making backups may
result in the making of copies not specifically authorized. But there was no evidence presented in the
submissions, nor is there any in the Report, that these practices result in
either uncertainly, confusion or litigation.
The Report discusses in
some detail one aspect of Section 117 that has posed a problem for our
companies. Recently, operators of pirate
web sites have been posting notices on these sites suggesting that downloading
software be excused by Section 117.
Their deliberate goal is to mislead, by suggesting that these acts of
unauthorized downloading are not illegal.
While the Copyright Office Report correctly notes that these posting by
pirates have no basis in law, and are deliberately misleading, the Report does
not make any recommendations on how to address the problem. As this Committee proceeds with its work, we
would urge you to take these facts into account.
Two final points
First, the Report notes
that “tethering” copies of works to a particular machine may, if it becomes widespread,
have implications for the first sale doctrine.
We respectfully disagree.
“Tethering”, as used in the Report, consists of making a copy of a work
available for use with a specified device.
One of the most serious piracy problems confronting the software
industry is the loading on multiple machines, sometimes thousands of machines,
of a single copy of a word processing or accounting software program. This practice, common within corporations,
causes substantial lost sales and direct harm. Copyright owners may, in certain
circumstances, find that "tethering" copies of works, through the use
of technological measures, to one or a limited number of devices is the only
practical solution for addressing piracy of this sort.
Finally, almost as an
afterthought and certainly outside the scope of the Section 104 mandate, the
Report includes a section on contracts and licensing practices. The Report correctly states that there “is
consensus among the courts that enforcement of contracts is not prohibited…” by
the Copyright Act, and cities the leading case of ProCD v. Zeidenberg for this
proposition. It also notes that no court
has overruled contract provisions relying principally in its reasoning on the
Copyright Act. The Report nonetheless
suggests that the freedom of parties to contract should be monitored. We find this concept very troubling
indeed. Parties have long used contracts
to specifically state which of the copyright owners bundle of rights (reproduction,
distribution, translation, etc.) are implicated by a particular
transaction. With the advent of the
Internet, it has become commonplace for software developers to make their works
available subject to a “click-I-agree” contracts where the user must click on
an onscreen “I agree” button in order to begin using the program. These practices and use of contracts generally,
are critical to the way our industry works.
The rules governing these contracts has been upheld consistently the courts. Moreover, contract law has historically been
a matter of state law, and those laws contain safeguards, such as unconscionability
doctrines, to protect against abuse.
Conclusion
In conclusion, every
indication from the marketplace suggests that e-commerce and the Internet will
continue to grow vigorously. Over the
past three years since the enactment of the Digital Millennium Copyright Act,
that growth has accelerated. Thus, we
would urge this Committee to proceed with utmost care to ensure that the positive
developments now underway are not suppressed by the legislative initiatives you
pursue. Our concerns in this regard are
most acute in respect of the changes you may consider with respect to the reproduction
right.
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[1] The Business Software Alliance (www.bsa.org) is the voice of the world's software and Internet industry before governments and with consumers in the international marketplace. Its members represent the fastest growing industry in the world. BSA educates computer users on software copyrights; advocates public policy that fosters innovation and expands trade opportunities; and fights software piracy. BSA members include Adobe, Apple Computer, Autodesk, Bentley Systems, CNC Software/Mastercam, Compaq, Dell, Entrust, IBM, Intel, Intuit, Macromedia, Microsoft, Network Associates, Novell, Sybase, Symantec, and UGS.