ARCHIVED: Intellectual Property and the NII

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The following executive summary and analysis of the white paper report, "Intellectual Property and the National Information Infrastructure," was written by Arnold P. Lutzker of the Washington firm of Fish & Richardson. This analysis was prepared at the request of AALL, the American Library Association, the Association of Research Libraries, the Special Libraries Association and the Medical Library Association.



By Arnold P. Lutzker, Esq.
Fish & Richardson, P.C.
Washington, D.C.

September 20, 1995



The Commerce Department has released its long awaited "White Paper," which sets forth recommendations on changes to intellectual property laws. The Report of the Working Group on Intellectual Property Rights (the "Report"), which is part of the Information Infrastructure Task Force ("IITF"), provides an extensive discussion of current laws and policies (most notably copyright, but also patent, trademark and trade secret law) as they relate to digital information and reforms that are needed to maintain a legal structure conducive to exploitation of the new technology. --Importantly, it sets the stage for Congressional hearings and legislative reform in the current Congress.--

The Thesis of the Report is that

... unless the framework for legitimate commerce is preserved and adequate protection for copyrighted works is ensured, the vast communications network will not reach its full potential as a true, global marketplace.

The Working Group believes copyright law is not an obstacle to enhancing the information infrastructure, but rather an essential component in making works available. The principal conclusion in the 238 page Report is that current laws are substantially adequate for the task of advancing the national and global information infrastructures (the "NII" and the "GII"). However, some changes to copyright law are urged to eliminate uncertainty which has materialized. As will be discussed below, the Report has a subtle but meaningful impact on libraries and educational institutions. By emphasizing the economics of copyright over the public interest in accessibility to copyrighted works, it underscores what may be the increasing difficulty of non-profit institutions to secure or grant access to works for little or no cost.


Specifically, the Report recommends amending The Copyright Act of 1976 in the following ways:

1. Transmission

Clarify Section 106(3) by expressly recognizing that copies or phonorecords of works can be distributed to the public by transmission, and that such transmissions fall within the exclusive distribution right of the copyright owner. Related amendments expand the definitional section a) to recognize publication by transmission and b) to indicate that distributing a copy by a device or process so that it can be fixed at a distant location is a transmission.

The Working Group is explicit in its belief that transmissions which are stored in a remote computer constitute a public distribution even if they are not viewed, and may also implicate the reproduction and public performance rights. The amendment, however, would remove legal uncertainty as to whether transmissions are distributions under copyright law.


While the proposed amendments appear modest, they are based on the premise that --all-- transmissions are within the exclusive domain of the copyright proprietor. If that assumption were enacted by the proposed amendments, it would establish a threshold burden for libraries and educational institutions seeking to use digital works. To the extent that the educational exemptions in Section 110 are limitations on the --performance right,-- they may not be recognized as exceptions to the --distribution right.-- As a result, the impact of these changes on "distance learning," where classroom teaching is not only performed live, but also transmitted to remote locations and stored for future review, could be dramatic. If third party works are incorporated in distance learning classes and transmitted to remote locales where they are independently recorded without prior clearance, that downloading could be held to violate the newly clarified "distribution right."

2. Libraries and Archives

Expand the exemption in Section 108 for --libraries and archives,-- which are allowed to engage in certain archival, preservation and lending activities.

Under current law and subject to a number of pre-conditions, libraries (and their staff) may a) reproduce and distribute one copy of an unpublished work in their collection --in facsimile form-- for preservation or research, b) reproduce --in facsimile form-- one copy of a published work to replace a damaged, deteriorated, lost or stolen copy, which is not available at a fair price, and c) reproduce and distribute one copy of an article from a library collection to a qualified researcher, or an entire work when it is determined that the work cannot be acquired at a fair price.

The Report's recommendations would allow libraries to prepare --three copies of works in digital form for preservation purposes-- (only one of which could be publicly used). It would also recognize that copyright notice is no longer mandatory.

The Working Group also discusses interlibrary loan and recognizes the need for institutions to allow reasonable, shared access to copyrighted works. In instances where the fair use doctrine or other exemptions apply, that access may be for no fee, even when borrowing is of the electronic version of a work. But because it believes there is questionable applicability to electronic transactions of CONTU guidelines (which clarify Section 108(g)(2) and provide guidance on the number of copies a library may request through interlibrary loans), the Report urges copyright owners to develop "special, institutional licenses" for schools and libraries as they do in the print domain to facilitate public access.


Unfortunately, the White Paper hedges on the rights of libraries to engage in the real-world use of digital works; namely, their ability to permit digitally acquired (or created) copies to be sufficiently available to the public for research, scholarship and criticism. For example, in the proposed amendment, the Working Group would specifically modify Section 108(b) to permit the making of a --facsimile or digital-- copy of any unpublished work for preservation, but it would allow only a --facsimile-- copy for deposit for researchers.

For the educational and library community, the sobering message of the Report is this:

As long as the commercial marketplace has established a metered, encrypted system for access, the ability of libraries to serve a public mission, which allows for --no fee-- access to published and unpublished works, may be diminished.

3. Visually Impaired

Establish a new exemption for non-profit organizations to reproduce and distribute works to the visually impaired, at cost, provided that the copyright owner has not entered that market during a period of at least one year after first publication.


If the works are made available commercially by the copyright owner within one year of initial publication, this right would be negated. In other words, unless the copyright owner authorizes preparation of these works for the visually impaired, the benefits of access could be delayed at least one year until the copyright owner's plans become known.

4. Anti-Copy Devices or Technology

Prohibit the importation, manufacture or distribution of any device or product, or the provision of any service, the primary purpose or effect of which is to defeat anti-copy devices or technology, or to violate the rights of copyright owners.


This provision would restrict the creation and sale of equipment intended to defeat technology which protects copyright owner rights. However, it could generate controversy when applied to certain technology which may have multiple uses, e.g. is a VCR a device to duplicate copyrighted films or to play original videos. Fair use allows some copying without permission of the copyright owner; however, provisions of the sort proposed by the Working Group would discourage the manufacturer of such equipment from the start.

The Report also recommends criminalization of the mere "offer" or "perform[ance]" of "any service, the primary purpose of effect of which is to avoid, bypass, remove, deactivate, or otherwise circumvent" technology which is intended to inhibit copyright violations. The troubling aspect of the proposed language is that it does not distinguish exemptions or fair uses from outright violations. The nature and scope of "the offer or performance of any service" is vague and could place libraries or educational institutions at criminal risk if they acquire and use equipment with multi-purpose capabilities or attempt novel exercise of their statutory exemptions.

5. Copyright Management Information

Prohibit the dissemination of copyright management information which is known to be false or the removal or alteration of such information.


Although the Copyright Act no longer requires copyright notice to secure rights in the United States (a requirement of our joining the Berne Convention), the White Paper foresees the imbedding of copyright ownership information within the digital code as an important tool to protect copyright rights. Tampering with that information would be made a crime. For libraries, the capacity to access source materials is an important cataloging function and the creation of this information could enhance the researcher's ability to authenticate works.

6. Public Performance

Establish a public performance right for sound recordings. Pending legislation would accomplish this to a limited extent and the Report endorses the legislation, although its authors recommend --full-- performance rights for owners of sound recordings.


While the creators of songs and lyrics and their publishers have enjoyed all copyright rights of Section 106, owners of sound recordings (masters from which records, tapes and CDs are made) have enjoyed limited rights, and most particularly are not entitled to the rights of public performance and public display. First protected in 1972 to prevent tape duplication or record piracy, the key issue for sound recordings has been the absence of a "performance right." Pending legislation would grant the performance right (the ability to collect royalties for broadcasting or other transmissions of recordings) for some digital works. The Working Group would prefer to see the right extended to all recordings, not just digital works.

Again, for libraries and educational institutions, the expansion of any right means that unless use is exempted or covered by fair use, there is greater exposure to a claim of infringement. Any library or educational institution which pays performance societies today for use of music on records, tapes or CDs, could face cost increases if the sound recording owners' rights are enlarged.

7. Criminal Copyright Violation

Establish a criminal copyright violation when works with retail value of $5,000 are wilfully reproduced or copied without permission.


By establishing a $5,000 threshold, the intent of this provision would be to criminalize larger scale distribution of computer programs or copyrighted works, not incidental, individual exploitation. The panel was particularly concerned that one defendant who made Internet distribution of computer programs, even though such distribution was not for commercial gain, escaped criminal liability. This provision would change that result. It does not matter that the defendant did not make a profit. As long as the aggregate value of the works exceeded $5,000, the criminal sanctions would apply.


The Working Group expresses confidence in the marketplace to develop strong protections against infringements. There is an extensive discussion of technological solutions at the server levels, by encryption, digital signatures and steganography ("digital watermarking"). It rejects statutory licensing schemes and argues strongly for creative licensing in the on-line environment. To facilitate licensing, the Report suggests that the Uniform Commercial Code (U.C.C.) should expressly recognize the validity of agreements entered on-line or electronically.


The Working Group's faith in technology poses a dilemma for educational institutions and libraries. To the extent that the commercial owners control transmissions of works as a public distribution, copy or display, and are encouraged to develop and employ technological envelopes to restrict unauthorized, non-compensated access to works, those in the public sector that wish enhanced access to copyrighted works may be stymied. As long as a paid mechanism for access exists, the commercial vendors may challenge fair use claims.

Moreover, merely opening a technologically sealed envelope may be a copyright violation. However, that is not the law. Fair use, which is a defense to a claim of infringement, allows that notwithstanding the exclusive grant of copyright to creators of works, use may be made of a work without the copyright owner's express consent (e.g. no fee use). Fair use fulfills certain statutory goals, including serving education, comment, criticism, scholarship, teaching and the like. The criteria at the heart of a fair use analysis are: the nature of the use (commercial or non-commercial), the nature of the work, the substantiality of the portion used as a percent of the whole, and the impact of the use on the marketplace value of the original.

It is important to understand that these are criteria - tools of analysis - not absolute standards. The fair use analysis is "fact driven." This means that how works are acquired may also be reviewed; however, merely because a work is sealed technologically does not mean that work is not subject to fair use. Otherwise, all a copyright owner would have to do is place figurative fence around a work and warn the public NO USE is allowed without express permission and compensation. That result would negate the statutory doctrine.

In sum, if the Report's thorough embrace of technology as an answer to digital copying and distribution takes hold, applying the fair use doctrine and the policies behind the library and educational exemptions would become more difficult.


The Report frankly acknowledges the importance of intellectual property to international trade and places the debate in an international context. The GII is developing as fast as the NII, and the exposure of copyrighted works to infringement internationally is perhaps a greater threat than domestically. The Commerce Department makes no pretense in suggesting that the United States is taking the lead in the development of standards for the information infrastructure and will look to modifying international conventions along the lines proposed in the White Paper.


Internationally, the Working Group sees harmonization as a theme, with the goal of bridging differences between common law and civil law systems. However, its perspective is set forth in its discussion of "moral rights," the European principal that independent of economic interests there are rights of personality in works which individuals may assert (e.g. "paternity" or right of authorship and "integrity" the right to prevent material changes which harm one's reputation).

Even though "moral rights" are embodied in the Berne Treaty, the pre- eminent international copyright convention, and even though when the United States acceded to the convention in 1988 the U.S. Congress found that U.S. laws had sufficient legal protection of moral rights interest to support ratification of the Treaty, the White Paper questions the constitutionality of moral rights. The effort at harmony will be to move foreign copyright laws and treaties closer to the U.S. commercial model.


The Working Group convened a Conference on Fair Use ("CONFU") and has continued to support discussion groups on this central issue. The work of CONFU is to focus on achieving voluntary agreements respecting the definition of fair use in the digital environment, especially for educational and library purposes.


Throughout the Report, the Working Group acknowledges that while policy considerations could drive a regulatory or legislative solution, it will await the results of CONFU, before articulating its position. To the extent that interested groups can reach accord and establish workable guidelines, that would minimize the need for fair use copyright reform. However, the treatment of fair use is incomplete. The references to the doctrine as being a "murky" limitation, to metering as a way of tracking use, and to the --Texaco-- case, which found liability by a commercial researcher where copies were available at "reasonable cost" through the Copyright Clearance Center, suggests an interest in contracting fair use. Libraries and educational institutions should be very attentive to these discussions and watchful over any effort to diminish fair use.


The Report contains numerous discussions of the impact of copyright and related legal principles on the evolving on-line/Internet environment. The Working Group's most fundamental conclusion is that it is premature to relieve those who use the NII to transmit information (e.g. bulletin board and on-line services) of legal responsibility for the transmissions on their network.


While some courts have split on the issue of service provider liability for copyright infringement, libel and other legal offenses and calls for legal reform have been heard, the Working Group does not agree. It believes the service provider should be responsible and that it is in the most practical position to correct abuses. The meaning of this principle for educational institutions is not at all clear; however, it must be assumed that if educators and libraries offer large amounts of materials on-line, under this standard they could be held legally responsible for all that content.


In the preliminary draft of this Report, the so-called "Green Paper," the Working Group proposed a change in the "first sale doctrine." This copyright doctrine acknowledges that the physical copy of a work is different from its copyright and that the copyright owner should not prevent redistribution of lawfully acquired copies. In other words, when one purchases a book, he "owns" that copy, even though one does not own the copyright to the work. Under the first sale doctrine, the copyright owner is given very substantial freedom to choose the first medium of sale of a work; however, once the work is publicly distributed, anyone who acquires a lawful copy is free to sell, give or otherwise dispose of that copy.

Reconciling the first sale doctrine to the issues of transmissions was the subject of the Green Paper proposal. In that case, the Working Group proposed to exempt disposing of a copy --by transmission-- from the first sale doctrine. In the White Paper, the Working Group has retreated from the recommendation that first sale provision of the Copyright Act be amended. Rather, it discusses the doctrine as it applies in practice and concludes that there are sufficient safeguards for owners under the rights of reproduction, distribution and display (including specific language limiting the doctrine as it relates to computer programs and sound recordings) so that no change is required.


The retreat on the change to the first sale doctrine is not as dramatic as might appear at first blush. In the text of the Report, the Working Group establishes several legal theories under current law that suggest transmissions of works would violate copyright rights of owners, despite the protective shell of the first sale doctrine. Of special importance to libraries is that matter of how to display works lawfully acquired and dispose of them to others without running afoul of the doctrine. The most restrictive interpretation, that only one copy might be displayed at a given time and if a work were transferred from a computer to a computer, the first computer owner would have to erase the work in the hand-off, leaves the library community with limited room to maneuver in the digital world.


The Report reviews patent, trademark and trade secret law. Although it makes no recommendations for changes of these related areas of intellectual property law, it acknowledges that the NII will have an important impact. For example, since the NII will make much more information publicly available, it could trigger reassessment of patent grants, which are dependent upon review of publicly available data (so-called "prior art").

With regard to trademark law, the Report acknowledges there may be increased potential for international conflicts over domain names. The current national system may yield overlapping disputes over name ownership and use. Further, the Working Group encourages changes in the international classification scheme to ensure the status of goods and services for information technology.

Trade secret law operates on a common law or state statutory system, not a federal basis. The most direct impact of the NII on this body of law will be the capacity of those concerned with trade secrets to utilize the NII as a secure means of communication.


After almost two years of consideration and hearings, the Report of the Working Group is one of the most comprehensive assessments of legal issues and on-line/digital technology. While its legal initiatives appear modest, the core thrust of the Report is far-reaching. It posits the thesis that copyright is an economic right of owners to be exploited. In its view, the copyright law as a code of regulation should facilitate economic exploitation of works which is in the commercial interests of the United States and its citizenry. It defines copyright law as a flexible statute which needs only minor, definitional tinkering to greet the digital era.

Although the Report makes some positive recommendations to enhance the capacity of libraries to copy certain works in a digital format, the broader impact of the Report should not be lost. Since the pervasive theme of the recommendations is enhancement of the economic exploitation of copyrighted works, less heed is paid to the public interest aspects of copyright law or established exceptions to copyright rights.

There is also a strong article of faith that technology can solve current problems, through the wizardry of encryption, digital signatures, steganography and the like. The weakest part of the Report is its assessment of the relationship of fair use to digital use. The Working Group will await the recommendations of CONFU before tackling this thorny question.