Intellectual Property and the National Information Infrastructure

Intellectual Property and the
National Information Infrastructure

A Preliminary Draft of the Report of the Working Group on Intellectual
Property Rights

Bruce A. Lehman, Assistant Secretary of Commerce and Commissioner of
Patents and Trademarks, Chair

INFORMATION INFRASTRUCTURE TASK FORCE
Ronald H. Brown, Secretary of
Commerce, Chair

July 1994


INTRODUCTION 1

BACKGROUND 5

I. LAW 11

A. COPYRIGHT 11

1. SUBJECT MATTER AND SCOPE OF PROTECTION 11

a. ELIGIBILITY FOR PROTECTION 11

b. PUBLISHED AND UNPUBLISHED WORKS 15

c. WORKS NOT PROTECTED 18

d. CATEGORIES OF PROTECTIBLE WORKS 20

2. COPYRIGHT OWNERSHIP 28

a. TRANSFER OF OWNERSHIP 31

b. LICENSING 32

3. TERM OF PROTECTION 34

4. EXCLUSIVE RIGHTS 34

a. THE RIGHT TO REPRODUCE THE WORK 35

b. THE RIGHT TO PREPARE DERIVATIVE WORKS 37

c. THE RIGHT TO DISTRIBUTE COPIES 38

d. THE RIGHT TO PERFORM THE WORK PUBLICLY 42

e. THE RIGHT TO DISPLAY THE WORK PUBLICLY 44

5. LIMITATIONS ON THE EXCLUSIVE RIGHTS 44

a. FAIR USE 45

b. FIRST SALE DOCTRINE 53

c. LIBRARY EXEMPTIONS 56

d. EDUCATIONAL USE EXEMPTIONS 60

e. OTHER LIMITATIONS 61

6. COPYRIGHT INFRINGEMENT 65

a. GENERAL 65

b. INFRINGING IMPORTATION 72

c. CONTRIBUTORY AND VICARIOUS LIABILITY 73

d. CONFLICT OF LAWS 82

7. INTERNATIONAL IMPLICATIONS 82

a. BACKGROUND 82

b. THE INTERNATIONAL FRAMEWORK 85

c. COPYRIGHT HARMONIZATION 89

d. NATIONAL TREATMENT 90

e. PRIVATE COPYING ROYALTY SYSTEMS 94

f. MORAL RIGHTS 94

B. PATENT 95

C. TRADEMARK 102

D. TRADE SECRET 106

II. TECHNOLOGY 108

A. CONTROLLING ACCESS TO PROTECTED WORKS 108

1. CONTROLLING ACCESS AT THE SERVER LEVEL 109

2. CONTROLLING ACCESS AT THE FILE LEVEL 110

B. CONTROLLING USE OF THE WORK 112

C. AUTHENTICATING THE WORK 113

D. MANAGING RIGHTS IN THE WORK 114

E. DEVELOPMENT OF STANDARDS 116

III. EDUCATION 117

IV. PRELIMINARY FINDINGS AND RECOMMENDATIONS 120

A. LAW 120

1. DISTRIBUTION BY TRANSMISSION 120

a. THE DISTRIBUTION RIGHT 120

b. PUBLICATION 123

c. FIRST SALE DOCTRINE 124

d. OTHER RELATED AMENDMENTS 125

2. TECHNOLOGICAL PROTECTION 125

3. COPYRIGHT MANAGEMENT INFORMATION 130

4. PUBLIC PERFORMANCE RIGHT 131

5. FAIR USE 133

6. LICENSING 134

7. INTERNATIONAL 135

B. TECHNOLOGY 139

C. EDUCATION 140

INTRODUCTION

In February 1993, President Clinton formed the Information
Infrastructure Task Force (IITF) to articulate and implement the
Administration's vision for the National Information Infrastructure (NII). The
IITF is chaired by Secretary of Commerce Ronald H. Brown and consists of
high-level representatives of the Federal agencies that play a role in
advancing the development and application of information technologies. Guided
by the principles for government action described in The NII Agenda for
Action,
[1] the participating
agencies are working with the private sector, public interest groups, Congress,
and State and local governments to develop comprehensive telecommunications and
information policies and programs that best meet the country's needs.

To drive these efforts, the IITF is organized into three committees: the
Telecommunications Policy Committee, which formulates Administration positions
on key telecommunications issues; the Committee on Applications and Technology,
which coordinates Administration efforts to develop, demonstrate and promote
applications of information technologies in key areas; and the Information
Policy Committee, which addresses critical information policy issues that must
be dealt with if the NII is to be fully deployed and utilized. In addition,
the IITF recently established a Security Issues Forum to asses the security
needs and concerns of users, service providers, information providers, State
governments and others.

The Working Group on Intellectual Property Rights, which is chaired by
Assistant Secretary of Commerce and Commissioner of Patents and Trademarks
Bruce A. Lehman, was established within the Information Policy Committee to
examine the intellectual property implications of the NII.

This Report represents the Working Group's examination and analysis
to date. While it addresses each of the major areas of intellectual property
law, it focuses primarily on copyright law and its application and
effectiveness in the context of the NII.[2]

To prepare this Report, the Working Group drew upon the expertise of its
members from the Executive Branch and observers from the Legislative Branch.
In addition, the Working Group received and considered views of the
public.

The Working Group held a public hearing on November 18, 1993, at which 30
witnesses testified. The Working Group also solicited written comments and
received some 70 statements during a public comment period which closed on
December 10, 1993. Through this process, the Working Group heard from
representatives of a wide variety of interested parties, including the computer
software, motion picture, music, broadcasting, publishing and other information
industries, as well as various electronic industries. Views of the academic,
research, library and legal communities were also heard, as well as those of
individual copyright owners and users.

The special intellectual property concerns and issues raised by the
development and use of the NII are the subject of this Report; it does not
attempt to address all existing intellectual property issues.[3] Because of the legal nature of the
subject, this Report uses certain words and phrases that may be unfamiliar to
some readers or that do not have their ordinary meaning when used in the
context of intellectual property law. The Working Group has attempted to
identify these terms of art and provide their legal definitions.

The Working Group is issuing this Preliminary Draft of its Report to
solicit public comment on the Report and, particularly, its preliminary
findings and recommendations. An original and four copies of written comments
should be submitted on or before September 7, 1994, to:

      The Commissioner of Patents and Trademarks
      U.S. Patent and Trademark Office
      Box 4
      Washington, D.C.  20231

          Attention:	Terri A. Southwick
          Attorney-Advisor
          Office of Legislative and International Affairs

Alternatively, comments may be submitted electronically to the following
Internet address: nii-ip@uspto.gov.

Comments received will be available for public inspection at the
Scientific and Technical Information Center of the U.S. Patent and Trademark
Office, Room 2CO1, Crystal Plaza 34, 2021 Jefferson Davis Highway, Arlington,
Virginia, between the hours of 9 a.m. and 4 p.m., Monday through Friday.

Reply comments may be submitted electronically or in writing no later than
September 28, 1994.

This Report is also available on the IITF Bulletin Board. The Bulletin
Board can be accessed through the Internet by pointing the Gopher Client to
iitf.doc.gov or by telnet to iitf.doc.gov (log in as gopher). The Bulletin
Board is also accessible at 202-501-1920 using a personal computer and a
telephone modem. The Report may be found under "Speeches, Testimony and
Documents" and is listed as "Intellectual Property Working Group Draft
Report."

Public hearings will be held on this Report, and will be announced in the
press, on the IITF Bulletin Board and in the Federal Register.

BACKGROUND

Intellectual property is a subtle and esoteric area of the law that
evolves in response to technological change.[4] Copyright law, in particular, responds to
technological challenges for authors and copyright owners, from Gutenberg's
moveable type printing press to digital audio recorders, and everything in
between -- photocopiers, radio, television, videocassette recorders, cable
television and satellites. The use of computer technology -- such as
digitization -- and communications technology -- such as fiber optic cable --
has had an enormous impact on the creation, reproduction and dissemination of
copyrighted works. The development of the National Information Infrastructure
will merge computer and communications technology into an integrated
information technology, and will generate both unprecedented challenges and
important opportunities for the copyright marketplace.

A national information infrastructure already exists. Telephones,
televisions, radios, computers and fax machines are used every day to receive,
store, process, perform, display and transmit data, text, voice, sound and
images in homes and businesses throughout the country. Fiber optics, wires,
cables, switches, routers, microwave networks, satellites and other
communications technologies connect telephones to telephones, computers to
computers, and fax machines to fax machines. The NII of tomorrow will be much
more than these separate communications networks; it will integrate them into
an advanced high-speed, interactive, broadband, digital communications system.
Computers, telephones, televisions, radios, fax machines, and more will be
linked by the NII and will be able to communicate and interact with other
computers, telephones, televisions, radios, fax machines and more -- all in
digital format.[5]

The NII has great potential to increase access to information and
entertainment resources that will be delivered quickly and economically
anywhere in the country in the blink of an eye. For instance, hundreds of
channels of "television" programming, thousands of musical recordings, and
literally millions of "magazines" and "books" can be made available to homes
and businesses across the United States and, eventually, the world.[6] It can improve the
nation's educational and health care systems. It can enhance the ability of
U.S. firms to compete and succeed in the global economy, generating more jobs
for Americans. New job opportunities can also be created in the processing,
organizing, packaging and dissemination of the information and entertainment
products flowing through the NII.

Yet, the potential of the NII will not be realized if the information and
entertainment products protectible by intellectual property laws are not
protected effectively when disseminated via the NII. Owners of intellectual
property rights will not be willing to put their interests at risk if
appropriate systems -- both in the U.S. and internationally -- are not in place
to permit them to set and enforce the terms and conditions under which their
works are made available in the NII environment. Likewise, the public will not
use the services available on the NII and generate the market necessary for its
success unless access to a wide variety of works is provided under equitable
and reasonable terms and conditions, and the integrity of those works is
assured. All the computers, telephones, fax machines, scanners, cameras,
keyboards, televisions, monitors, printers, switches, routers, wires, cables,
networks and satellites in the world will not create a successful NII, if there
is not content. What will drive the NII is the content moving through
it.

The development of the NII is obviously neither the first nor the last
technological challenge to copyright owners' ability to prevent unauthorized
uses of their works.[7] For instance,
the advent of the photocopying machine caused great apprehension among
copyright owners of printed works.[8]
But time, cost and quality were on the copyright owner's side. It was, and
still is, more efficient and cheaper to buy an extra copy of most books than to
photocopy them -- and the quality of a book from the original publisher is
typically higher than that of a photocopy. The introduction of audio tape
recorders also posed problems for copyright owners. But again, the physical
attributes of the work made reproductions cheaper, but lower in quality --
until, of course, the introduction of digital audio recorders, which
reproduce sound recordings both cheaply and with no degradation of sound
quality. Congress responded to this threat to sound recordings with enactment
of the Audio Home Recording Act of 1992, which combined legal and technological
safeguards.[9]

Advances in digital technology and the rapid development of electronic
networks and other communications technologies raise the stakes considerably.
Any two-dimensional work can readily be "digitized" -- i.e.,
translated into digital code (a series of zeros and ones). The work can then
be stored and used in that digital format. This dramatically increases: the
ease and speed with which a work can be reproduced; the quality of the copies
(both the first and the hundredth "generation"); the ability to manipulate and
change the work; and the speed with which copies (authorized and unauthorized)
can be "delivered" to the public. Works also can be combined easily with other
works into a single medium, such as a CD-ROM, which is causing a blurring of
the lines that typically divide types of works.

The establishment of high-speed, high-capacity electronic information
systems makes it possible for one individual, with a few key strokes, to
deliver perfect copies of digitized works to scores of other individuals -- or
to upload a copy to a bulletin board or other service where thousands of
individuals can download it or print unlimited "hard" copies on paper or disks.
The emergence of integrated information technology is dramatically changing,
and will continue to change, how people and businesses deal in information and
entertainment products and services, and how works are created, owned,
distributed, reproduced, displayed, performed, licensed, managed, presented,
organized, sold, accessed, used, and stored. This leads, understandably, to a
call for change in the law.

Thomas Jefferson stated:

I am not an advocate for frequent changes in laws and constitutions. But
laws and institutions must go hand and hand with the progress of the human
mind. As that becomes more developed, more enlightened, as new discoveries are
made, new truths discovered and manners and opinions change, with the change of
circumstances, institutions must advance also to keep pace with the times. We
might as well require a man to wear still the coat which fitted him when a boy
. . . .[10]

Our task is to determine whether the coat still fits in this new
information age.

Our intellectual property regime must (1) recognize the legitimate rights
and commercial expectations of persons and entities whose works are used in the
NII environment, whether at their instance or without their permission, and (2)
ensure that users have access to the broadest feasible variety of works on
terms and conditions that, in the language of the Constitution, "promote the
progress of science and the useful arts."[11]

For more than two centuries copyright law, with periodic amendment, has
provided protection for an increasing variety of works of authorship. The most
recent complete revision of the law -- The Copyright Act of 1976 -- was enacted
in response to "significant changes in technology [that had] affected the
operation of the copyright law."[12]
The legislative history of the 1976 Act noted that those changes had "generated
new industries and new methods for the reproduction and dissemination of
copyrighted works, and the business relations between authors and users have
evolved new patterns."[13]

We are once again faced with significant changes in technology, and views
on the appropriate response to these changes vary widely. There are some who
argue that the Copyright Act is adequate without any modification. Others
suggest that a complete overhaul of the intellectual property regime is in
order.[14] We believe that with no
more than minor clarification and amendment, the Copyright Act, like the Patent
Act, will provide the necessary protection of rights -- and limitations on
those rights -- to promote the progress of science and the useful arts. There
must be, however, effort in three disciplines -- the law, technology and
education -- to successfully resolve the intellectual property issues raised by
the development and use of the NII.

I. LAW

A. COPYRIGHT

1. SUBJECT MATTER AND SCOPE OF PROTECTION

a. ELIGIBILITY FOR PROTECTION

The subject matter eligible for protection under the Copyright Act[15] is set forth in Section 102(a):

Copyright protection subsists . . . in original works of authorship fixed
in any tangible medium of expression, now known or later developed, from which
they can be perceived, reproduced, or otherwise communicated, either directly
or with the aid of a machine or device.[16]

From this provision, the courts have derived three basic requirements for
copyright protection -- originality, creativity and fixation.

The requirements of originality and creativity are derived from the
statutory qualification that copyright protection extends only to "original
works of authorship."[17] To be
original, a work merely must be one of independent creation --
i.e., not copied from another. There is no requirement that the
work be novel (as in patent law), unique or ingenious. While there must also
be a modicum of creativity in the work, the level of creativity required is
exceedingly low; "even a slight amount will suffice."[18]

The final requirement for copyright protection is fixation in a tangible
medium of expression. Protection attaches automatically to an eligible work of
authorship the moment the work is sufficiently fixed.[19] Congress provided considerable room for
technological advances in the area of fixation by noting that the medium may be
"now known or later developed."[20]

The Copyright Act divides the possible media for fixation into "copies"
and "phonorecords":

"Copies" are material objects, other than phonorecords, in which a work is
fixed by any method now known or later developed, and from which the work can
be perceived, reproduced, or otherwise communicated, either directly or with
the aid of a machine or device.[21]

"Phonorecords" are material objects in which sounds, other than those
accompanying a motion picture or other audiovisual work, are fixed by any
method now known or later developed, and from which the sounds can be
perceived, reproduced, or otherwise communicated, either directly or with the
aid of a machine or device.[22]

According to the House Report accompanying the Copyright Act of 1976,
Congress intended the terms "copies" and "phonorecords" to "comprise all of the
material objects in which copyrightable works are capable of being
fixed."[23]

The form of the fixation and the manner, method or medium used are
virtually unlimited. A work may be fixed in "words, numbers, notes, sounds,
pictures, or any other graphic or symbolic indicia"; may be embodied in a
physical object in "written, printed, photographic, sculptural, punched,
magnetic, or any other stable form"; and may be capable of perception either
"directly or by means of any machine or device 'now known or later
developed.'"[24]

All works created for placement on the NII or transmission through it will
be "fixed" in a manner that requires their protection by copyright. In a
digital format, a work is fixed in a series of zeros and ones, which fits
within the House Report's list of permissible manners of fixation.[25] Virtually all works also will be fixed
in acceptable material objects. For instance, floppy disks, compact discs
(CDs), CD-ROMs, optical disks, CD-Is, digital tape, and other digital storage
devices are all stable forms in which works may be fixed and from which works
may be perceived, reproduced or communicated by means of a machine or
device.[26]

The question of whether interactive works are fixed (given the user's
ability to constantly alter the sequence of the "action") has been resolved by
the courts in the context of video games and should not present a new issue in
the context of the NII. Such works are generally considered sufficiently
fixed.[27] The sufficiency of the
fixation of works transmitted via the NII, however, where no copy or
phonorecord has been made prior to the transmission, is not so clear.

A transmission is not a fixation. While a transmission may result in a
fixation, a work is not fixed by virtue of the transmission alone. Therefore,
works transmitted "live" via the NII will not meet the fixation requirement,
and will be unprotected by the Copyright Act unless the work is being fixed at
the same time as it is being transmitted.[28] The Copyright Act provides that a work
"consisting of sounds, images, or both, that are being transmitted" meets the
fixation requirement "if a fixation of the work is being made simultaneously
with its transmission."[29] To obtain
protection for a work under this "simultaneous fixation" provision, the
simultaneous fixation of the transmitted work must itself qualify as a
sufficient fixation.

A simultaneous fixation (or any other fixation) meets the requirements if
its embodiment in a copy or phonorecord is "sufficiently permanent or stable to
permit it to be perceived, reproduced, or otherwise communicated for a period
of more than transitory duration."[30]
Works are not sufficiently fixed if they are "purely evanescent or transient"
in nature, "such as those projected briefly on a screen, shown electronically
on a television or cathode ray tube, or captured momentarily in the 'memory' of
a computer."[31] Electronic network
transmissions from one computer to another, such as e-mail, may only reside on
each computer in RAM (random access memory), but that has been found to be
sufficient fixation.[32]

b. PUBLISHED AND UNPUBLISHED WORKS

Although prior to 1978, Federal copyright protection generally was
available only for published works, such protection is now available for
published as well as unpublished works.[33] The Copyright Act provides a definition
of "publication" to draw the line between published and unpublished
works.

"Publication" is the distribution of copies or phonorecords of a work to
the public by sale or other transfer of ownership, or by rental, lease, or
lending. The offering to distribute copies or phonorecords to a group of
persons for purposes of further distribution, public performance, or public
display constitutes publication. A public performance or display of a work
does not of itself constitute publication.[34]

The definition was intended to make clear that "any form of dissemination
in which a material object does not change hands -- performances or displays on
television, for example -- is not a publication no matter how many people are
exposed to the work."[35] Therefore,
unless otherwise published, a work only displayed or performed via the NII
would not be considered "published" under the Copyright Act, no matter how many
people have access to it. The House Report also states, however, that the
definition was intended to clarify that the offering of copies or phonorecords
to a group of, for instance, wholesalers, broadcasters or motion picture
theater operators constitutes publication if the purpose of the offering is
"further distribution, public performance, or display."[36] Therefore, if sufficient numbers of
actual copies of the work are offered to bulletin board system ("BBS")[37] operators or others for upload onto
systems on the NII, publication may occur.

The classification of a work as either published or unpublished has
significant repercussions under the Copyright Act. For example:

. works that are published in the United States are subject to mandatory
deposit in the Library of Congress;[38]

. unpublished works are eligible for protection without regard to the
nationality or domicile of the author;[39]

. published works must bear a copyright notice if published before March 1,
1989;[40]

. certain limitations on the exclusive rights of a copyright owner are
applicable only to published works;[41]

. deposit requirements for registration with the Copyright Office differ
depending on whether a work is published or unpublished;[42] and

. the duration of protection for works made for hire may be determined by
the date of publication.[43]

c. WORKS NOT PROTECTED

Certain works of authorship are expressly excluded from protection under
the Copyright Act, regardless of their originality, creativity and fixation.
Copyright protection, for example, does not extend to any "idea, procedure,
process, system, method of operation, concept, principle, or discovery,
regardless of the form in which it is described, explained, illustrated, or
embodied" in such work.[44] Thus,
although a magazine article on how to tune a car engine is protected by
copyright, that protection extends only to the expression of the ideas, facts
and procedures in the article, not the ideas, facts and procedures themselves,
no matter how creative or original they may be. Anyone may "use" the ideas,
facts and procedures in the article to tune an engine -- or to write another
article on the same subject. What may not be taken is the expression used by
the original author to describe or explain those ideas, facts and
procedures.[45]

Copyright protection is not extended under the Copyright Act to works of
the U.S. Government.[46] A work of
the U.S. Government may, therefore, be reproduced and distributed without
infringement liability under U.S. copyright laws.[47] Titles, names, short phrases, and
slogans[48] also do not enjoy
copyright protection under the Copyright Act.[49]

d. CATEGORIES OF PROTECTIBLE WORKS

The Copyright Act enumerates eight broad categories of protectible subject
matter:

(1) literary works;

(2) musical works, including any accompanying words;

(3) dramatic works, including any accompanying music;

(4) pantomimes and choreographic works;

(5) pictorial, graphic and sculptural works;

(6) motion pictures and other audiovisual works;

(7) sound recordings; and

(8) architectural works.[50]

LITERARY WORKS

Although many categories of works will be available via the NII, the
majority of works currently available on computer networks such as the Internet
are literary works.

"Literary works," are works, other than audiovisual works, expressed in
words, numbers, or other verbal or numerical symbols or indicia, regardless of
the nature of the material objects, such as books, periodicals, manuscripts,
phonorecords, films, tapes, disks, or cards, in which they are embodied.[51]

Literary works include computer programs,[52] articles, novels, directories, computer
databases, essays, catalogs, poetry, dictionaries, encyclopedias, and other
reference materials.[53]

MUSICAL WORKS

A musical work consists of the musical notes and lyrics (if any) in a
musical composition.[54] A musical
work may be embodied in any form, such as a piece of sheet music or a compact
disc.[55] Musical works may be
"dramatic," i.e., written as a part of a musical or other
dramatic work, or "nondramatic," i.e., an individual,
free-standing composition.

DRAMATIC WORKS

Generally, a dramatic work is one in which a series of events is presented
to the audience by characters through dialogue and action as the events happen,
such as in a play.[56]

PANTOMIMES AND CHOREOGRAPHIC WORKS

This category was first added to the list of protectible subject matter in
1976.[57] While pantomimes and
choreographic works, such as dances, can be fixed in a series of drawings or
notations, they are usually fixed on film or videotape.

PICTORIAL, GRAPHIC AND SCULPTURAL WORKS

A significant percentage of the works traveling through the NII will be
pictorial and graphic works. Works in this category include:

[T]wo-dimensional and three-dimensional works of fine, graphic, and applied
art, photographs, prints and art reproductions, maps, globes, charts, diagrams,
models, and technical drawings, including architectural plans.[58]

MOTION PICTURES AND OTHER AUDIOVISUAL WORKS

The Copyright Act provides definitions of "audiovisual works" and the
subcategory "motion pictures."

"Audiovisual works" are works that consist of a series of related images
which are intrinsically intended to be shown by the use of machines, or devices
such as projectors, viewers, or electronic equipment, together with
accompanying sounds, if any, regardless of the nature of the material objects,
such as films or tapes, in which the works are embodied.[59]

"Motion pictures" are audiovisual works consisting of a series of related
images which, when shown in succession, impart an impression of motion,
together with accompanying sounds, if any.[60]

The House Report notes that the key to the subcategory "motion pictures" is
the conveyance of the impression of motion, and that such an impression is not
required to qualify as an audiovisual work.[61]

ARCHITECTURAL WORKS

An "architectural work" is "the design of a building, as embodied in any
tangible medium of expression, including a building, architectural plans, or
drawings."[62] It includes the
overall form as well as the "arrangement and composite of spaces and elements"
in the design of the building.[63]

"MULTIMEDIA" WORKS

Increasingly, works from different categories are fixed in a single
tangible medium of expression.[64]
This will certainly be true as development of the NII progresses and the
ability to create and disseminate interactive so-called "multimedia" or "mixed
media" products increases.

A prefatory note may be warranted because of the manner in which these
terms are used in the context of copyright law. The terms "multimedia" and
"mixed media" are, in fact, misnomers. In these works, it is the types
or categories of works included that are "multiple" or "mixed" -- not
the media. The very premise of a so-called "multimedia" work is that it
combines several different elements or types of works
(e.g., text (literary work), sound (sound recording), still
images (pictorial works), and moving images (audiovisual work) into a single
medium
(e.g., a CD-ROM) -- not multiple or mixed
media.[65] However, in recognition of
the prevalent use of the term, this Report refers to this type of work as a
"multimedia" work.

Multimedia works are not categorized separately under the Copyright Act;
nor are they explicitly included in any of the eight enumerated categories.
While most current multimedia works would be considered compilations,[66] that classification does not resolve the
issue of subject matter categorization.[67]

Despite the fact that the Copyright Act enumerates eight categories of
works, works that do not fit into any of the categories may, nevertheless, be
protected. The list of protectible works in Section 102 is intended to be
illustrative rather than exclusive. The House Report explains that the
categories of works "do not necessarily exhaust the scope of 'original works of
authorship' that the [Act] is intended to protect."[68] However, absent the addition of a new
category, a work that does not fit into one of the enumerated categories is, in
a sense, in a copyright no-man's land.[69]

Categorization of works (and, specifically, proper categorization)
holds a great deal of significance under the Copyright Act. For instance, two
of the exclusive rights granted in Section 106 apply only to certain categories
of works.[70] In addition, many of
the limitations on rights in Sections 108 through 120 are not applicable to all
types of works.[71] Therefore,
categorization of multimedia works is an important issue.

Generally, multimedia works include two or more of the following
preexisting elements: text (literary works), computer programs (literary
works), music (sound recordings), still images (pictorial and graphic works)
and moving images (audiovisual works). The definition of "literary works"
begins with the phrase "works, other than audiovisual works, . . .
"[72] Therefore, a reasonable
interpretation is that text and computer programs that would otherwise be
categorized as literary works may be considered part of an audiovisual work if
included in a work of that type. Such is also the case with sound recordings.
A music video is not categorized as both a sound recording and an audiovisual
work; it is categorized as an audiovisual work.[73] Thus, in the case of literary works and
sound recordings, the "audiovisual works" category appears to "trump" the
others. Audiovisual works also include still images -- at least related
ones.[74] Therefore, generally,
multimedia works would likely be considered audiovisual works.

The somewhat strained analysis needed to find a category for multimedia
works and the increasing "cross-breeding" of types of works demonstrate that
categorization may no longer be useful. Its necessity is also questionable,
except, perhaps, in the case of sound recordings, which are not granted the
full panoply of rights.[75]
Consideration may be given to eliminating categorization under the Copyright
Act in the future.

COMPILATIONS AND DERIVATIVE WORKS

A "compilation" is "a work formed by 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."[76] Directories,
magazines and anthologies are types of compilations. A "derivative work" is a
work "based upon" one or more existing works.[77] A derivative work is created when one or
more existing works is "recast, transformed, or adapted" into a new work, such
as when a novel is used as the basis of a movie or when a drawing is
transformed into a sculpture.[78]
Translations, musical arrangements and abridgments are types of derivative
works.

The Copyright Act makes clear that the subject matter of copyright
specified in Section 102 (literary works, musical works, sound recordings,
etc.) includes compilations and derivative works.[79] The copyright in a derivative work or
compilation, however, extends only to the contribution of the author of the
derivative work or compilation (the compiler), and does not affect the
copyright protection granted the preexisting material.[80] The copyright protection for an
individual musical work, for instance, is not reduced or enlarged, or shortened
or extended if the work is included in a compilation, such as a medley of
songs. Copyright in a compilation or derivative work does not imply any
exclusive right in the preexisting material employed in the compilation or
derivative work.[81]

2. COPYRIGHT OWNERSHIP

Copyright ownership in a work initially vests in the author of the work.
[82] If the work is a "joint work"
with two or more authors, those authors are co-owners of the copyright in the
work.[83]

Under certain circumstances, the copyright in a work is not granted to the
actual preparer of the work. In the case of "works made for hire," the
employer of the preparer or the person for whom the work was prepared is
considered the "author" for purposes of the Copyright Act.[84] There are two types of works made for
hire -- those prepared by an employee and those prepared by an independent
contractor under special order or commission. The copyright in a work prepared
by an employee within the scope of employment vests in the employer, and the
employer is the author.[85] The
copyright in a work specially ordered or commissioned vests in the person for
whom the work was prepared if the work falls into one of nine specified
categories and if the parties expressly agree in writing that the work will be
considered a work made for hire.[86]

Copyright ownership, or ownership of any of the exclusive rights (or
subdivision thereof), may be transferred to one or more persons, but the
transfer must be in writing and must be signed by the transferor.[87]

Copyright ownership entitles the copyright owner to:

(1) exercise the exclusive rights granted under Section 106;

(2) authorize others to exercise any of those exclusive rights; and

(3) prevent others from exercising any of those exclusive rights.

An important distinction to understand is the difference between ownership
of a copyright in a work and ownership of a copy of a work.
Ownership of a copy -- a material object in which a copyrighted work is fixed
(e.g., a book, CD or videocassette) -- carries with it no
interest in the copyright.[88]

Ownership of a copyright, or any of the exclusive rights under a copyright,
is distinct from ownership of any material object in which the work is
embodied. Transfer of ownership of any material object, including the copy or
phonorecord in which the work is first fixed, does not of itself convey any
rights in the copyrighted work embodied in the object; nor, in the absence of
an agreement, does transfer of ownership of a copyright or of any exclusive
rights under a copyright convey property rights in any material object.[89]

Ownership, possession or any other attachment to or relationship with a
copy of a copyrighted work (including obtaining access to it through a computer
network or other service) does not entitle one to exercise any of the exclusive
rights of the copyright owner (e.g., to reproduce it or
distribute it).

a. TRANSFER OF OWNERSHIP

A copyright in a work is divisible; the exclusive rights of a
copyright owner may be transferred in whole or in part.[90] A transfer of copyright ownership may
occur through an assignment, exclusive license, mortgage "or any other
conveyance, alienation, or hypothecation" of a copyright or any of the
exclusive rights.[91] A transfer of
copyright ownership may be limited in time or in place, but it must be an
exclusive transfer of whatever right or rights are involved
(i.e., nonexclusive licenses are not considered transfers of
ownership).[92] Any of the exclusive
rights in the work[93] may be
separately transferred and owned, and the owner of a particular right is
considered the "copyright owner" with respect to that right.[94]

In the case of any copyrighted work other than a "work made for hire," all
transfers of copyright ownership (as well as all nonexclusive licenses)
executed by the author of the work may be terminated by the author after 35
years.[95] This right to terminate,
intended to protect authors, cannot be waived by contract or other
agreement.[96] However, termination is
not automatic; an author must assert his or her termination rights and comply
with certain statutory requirements to regain copyright ownership.[97]

b. LICENSING

The exclusive rights of a copyright owner may be licensed on an
exclusive basis (i.e., copyright ownership in one or more rights
is transferred by the copyright owner) or on a nonexclusive basis
(i.e., the copyright owner retains ownership of the copyright and
may grant similar licenses to others). A nonexclusive licensee is not a
copyright owner and thus does not have standing to sue for any infringement of
the copyright in the work by others.[98]Unlike exclusive licenses,
nonexclusive licenses need not be in writing.[99]

Licensing issues are, and will continue to be, significant in the context
of the development of the NII. Services on the NII will provide the
opportunity for new uses for copyrighted works. If rights with respect to
these new uses are not expressly granted or retained in license agreements,
conflicts will arise between copyright owners and licensees. For instance,
public display on a bulletin board system may not have been contemplated in
licenses granting the public display right that were executed before the advent
or proliferation of such systems. Failure to contemplate possible future
developments, of course, is not a new problem, and is one based primarily in
contract rather than copyright law. Whenever new technologies have produced a
new use for works, courts have been called upon to decide whether the new use
is covered by old licenses.[100]

A variety of licensing methods will be possible as the NII develops. For
instance, rights in copyrighted works offered via the NII may be licensed
off-line or on-line. They may be licensed directly (through individual
transactions between the rightsholder and the licensee) or through other
licensing arrangements, such as voluntary collective licensing. Licensing of
rights may be on a per-use, per-work or other basis.

The licensing of rights for the creation of multimedia works -- whose
creators may wish to include dozens of preexisting works (or portions thereof)
-- can be difficult. Because registration and copyright notices are not
required for copyrighted works, identification of copyright owners alone can be
complicated. The relative newness of the multimedia industry can result in an
uncertainty on the part of copyright owners and multimedia creators with regard
to appropriate terms and conditions for such uses.

3. TERM OF PROTECTION

Generally, a copyrighted work is protected for the length of the author's
life plus another 50 years.[101] In
the case of joint works, copyright protection is granted for the length of the
life of the last surviving joint author plus another 50 years.[102] Works made for hire, as well as
anonymous and pseudonymous works, are protected for a term of either 75 years
from the year of first publication or 100 years from the year of creation,
whichever is shorter.[103] When the
term of protection for a copyrighted work expires, the work is said to "fall
into the public domain."

4. EXCLUSIVE RIGHTS

The Copyright Act grants to the copyright owner of a work a bundle
of exclusive rights:

(1) to reproduce the copyrighted work in copies or phonorecords;

(2) to prepare derivative works based upon the copyrighted work;

(3) to distribute copies or phonorecords of the copyrighted work to the
public by sale or other transfer of ownership, or by rental, lease, or
lending;

(4) in the case of literary, musical, dramatic, and choreographic works,
pantomimes, and motion pictures and other audiovisual works, to perform the
copyrighted work publicly; and

(5) in the case of literary, musical, dramatic, and choreographic works,
pantomimes, and pictorial, graphic, or sculptural works, including the
individual images of a motion picture or other audiovisual work, to display the
copyrighted work publicly.[104]

These rights, in most instances, have been well elaborated by Congress and
the courts. For the most part, the provisions of the current copyright law can
serve the needs of creators, owners, distributors and users of copyrighted
works in the NII environment. In certain instances, small changes in the law
may be necessary to optimize the intellectual property component of the
NII.

a. THE RIGHT TO REPRODUCE THE WORK

This fundamental right -- to reproduce copyrighted works in copies
and phonorecords[105] -- appears
likely to be implicated in innumerable NII transactions. Indeed, because of
the nature of computer-to-computer communications, it appears to be a right
that will be implicated in most NII transactions. For example, when a computer
user simply "browses" a document resident on another computer, the image on the
user's screen exists -- under contemporary technology -- only by virtue of the
copy that has been reproduced in the user's computer memory. It has
long been clear under U.S. law that the placement of a work into a computer's
memory amounts to a reproduction of that work (because the work may be, in the
law's terms, "perceived, reproduced, or . . . communicated . . . with the aid
of a machine or device").

In each of the instances set out below, one or more copies[106] is made, and, necessarily, in the
absence of a proof of fair use or other relevant defense,[107] there is an infringement of the
reproduction right:[108]

. When a work is placed into a computer, whether on a disk, diskette, ROM,
or other storage device or in RAM for more than a very brief period, a copy is
made.

. When a printed work is "scanned" into a digital file, a copy -- the
digital file itself -- is made.

. When other works -- including photographs, motion pictures, or sound
recordings -- are digitized, copies are made.

. Whenever a digitized file is "uploaded" from a user's computer to a
bulletin board system or other server, a copy is made.

. Whenever a digitized file is "downloaded" from a BBS or other server, a
copy is made.

. When a file is transferred from one computer network user to another,
multiple copies are made.[109]

. Under current technology, when a user's computer is being used as a
"dumb" terminal to "look at" a file resident on another computer (such as a BBS
or Internet host), a copy of the portion viewed is made in the user's computer.
(Without such copying into the RAM or buffer of the user's computer, no screen
display would be possible.) As long as the amount viewed is more than
de minimis, it is an infringement unless authorized or
specifically exempt.

b. THE RIGHT TO PREPARE DERIVATIVE WORKS

The copyright law grants copyright owners the right to control the
abridgment, adaptation, translation, revision or other "transformation" of
their works.[110] A user who
modifies -- by annotating, editing, translating or otherwise significantly
changing -- the contents of a downloaded file creates a derivative work.
(Although the law does not provide an exemption for the purely private creation
of derivative works for personal use, such acts are largely undetectable by the
law unless and until the derivative work is reproduced, distributed, publicly
performed or publicly displayed.)

c. THE RIGHT TO DISTRIBUTE COPIES

Before addressing issues raised by the distribution right in the context
of the NII, it is necessary to understand its application and shortcomings with
respect to conventional modes of exploitation and infringement.

The right to distribute copies of works is substantially circumscribed by
the "first sale" doctrine set out in Section 109(a):

Notwithstanding the provisions of section 106(3), the owner of a particular
copy or phonorecord lawfully made under this title, or any person authorized by
such owner, is entitled, without the authority of the copyright owner, to sell
or otherwise dispose of the possession of that copy or phonorecord.[111]

This doctrine limits copyright owners' rights by making only the initial
distribution of a particular copy of a copyrighted work subject to their
control.

The first sale doctrine's importance in the NII context should not be
underestimated: if a transaction by which a user obtains a "copy" of a work is
characterized as a "distribution," then, under the current law, the user may be
entitled to make a like distribution without the copyright owner's permission
(and without liability for infringement).[112] This may demonstrate the unintended
consequence of characterizing many electronic disseminations as
"distributions." Indeed, the system encompassed by Sections 106(3) and 109(a)
appears to "fit" only "conventional" transactions in which possessory interests
in tangible copies are conveyed in the first instance, for example, from
publisher to wholesaler (exclusive distribution right applies) and thereafter
from wholesaler to retailer (first sale doctrine denies publisher any control),
from retailer to user (first sale doctrine denies publisher any control), and
from user to user (first sale doctrine denies publisher any control).
Electronic disseminations, by contrast, typically involve the proliferation of
copies, with the "publisher" retaining its copy and the user acquiring a new
one. This suggests that, under the current law, the reproduction right, rather
than the distribution right, may be both more logically applicable and more
legally appropriate (by virtue of its more limited exceptions).[113]

One court decision has construed the unauthorized downloading of digitized
photographic images by BBS subscribers as implicating the distribution
right.[114] The court's discussion
in Playboy Enterprises Inc. v. Frena[115] reflects some uncertainty over the
meaning and scope of the various rights provided in Section 106:

Public distribution of a copyrighted work is a right reserved to the
copyright owner, and usurpation of that right constitutes infringement . . . .
[Playboy Enterprise's] right under 17 U.S.C. 106 to distribute
copies to the public has been implicated by Defendant Frena [the bulletin board
service operator]. Section 106(3) grants the copyright owner "the exclusive
right to sell, give away, rent or lend any material embodiment of his work."
There is no dispute that Defendant Frena supplied a product containing
unauthorized copies of a copyrighted work. It does not matter that Defendant
Frena claims it did not make the copies itself.[116]

The court appears to have glossed over the reproduction right, apparently
because of its uncertainty whether the operator of the bulletin board system
could be held to have reproduced a work that was (a) uploaded by one subscriber
and (b) downloaded by another. (As discussed below, the BBS operator publicly
displayed the works by the same conduct, and was found liable by the court for
infringing the display right.)

Whether the litigants in Playboy put the issue properly in dispute
or not, the right to distribute copies of a work has traditionally covered the
right to convey a possessory interest in a tangible copy of the work. Indeed,
the first sale doctrine implements the common law's abhorrence of restraints on
alienation of property by providing that the distribution right does not
generally prevent owners of lawfully made copies from alienating them in a
manner of their own choosing.[117]
It is clear that a Frena subscriber, at the end of a transaction, possessed a
copy of a Playboy photograph, but it is rather less clear whether, under the
current law, Frena "distributed" that photograph or the subscriber "reproduced"
it (and, if the latter, whether current law clearly would have made Frena
contributorily liable for the unauthorized reproduction.)[118]

In a similar case, Sega Enterprise Ltd. v.MAPHIA,119 a court, on a motion for a preliminary injunction,
made findings of fact regarding (a) the use of a bulletin board system to
"make and distribute" copies of copyrighted video games, (b) the
"unauthorized copying and distribution" of the games on the bulletin board, and
(c) the profits made by the defendant from the "distribution " of the
games on the bulletin board.[120]
The court's conclusions of law, however, did not specify infringement of the
distribution right.[121]

d. THE RIGHT TO PERFORM THE WORK
PUBLICLY

The public performance right is available to all types of
"performable" works -- literary, musical, dramatic, and choreographic works,
pantomimes, motion pictures, and other audiovisual works -- with the exception
of sound recordings.[122] While some
have urged that many NII transactions be characterized as "performances," it is
important to understand:

. the definition of "perform" in the copyright law,[123]

. that only "public" performances are covered by the copyright law,[124]and

. the limitations set out in the statute that render the performance right
ineffective in a variety of circumstances (mostly of a nonprofit
nature).[125]

A distinction must be made between transmissions of copies of
works, transmissions of performances of works, and performances of works in the
NII context. When a copy of a work is transmitted over wires or satellite
signals in digital form so that it may be captured in a user's computer,
without being "rendered" or "shown," it has rather clearly not been performed.
Thus, for example, a file comprising the digitized version of a motion picture
might be transferred via the Internet without the public performance right
being implicated. When, however, the motion picture is literally "rendered"
-- by showing its images in sequence -- so that users with the requisite
hardware and software might watch it with or without copying the
performance
, then, under the current law, a "performance" has
occurred.

The "public" nature of a performance -- which brings it within the scope
of copyright -- is sufficiently broadly defined to apply to multiple individual
viewers who may watch a work being performed in a variety of locations at
several different times. Courts have repeatedly imposed public performance
infringement liability upon entities that, for example, develop novel modes of
delivering motion picture performances to customers (and novel legal arguments
as to why their performances are not "public").[126]

e. THE RIGHT TO DISPLAY THE WORK PUBLICLY

The right to display a work publicly is extremely significant in the
context of the NII. The analyses that attend the determination of whether a
particular transmission might amount to a "distribution" or a "performance" are
rarely necessary. To display a work means to "show a copy of it, either
directly or by means of a . . . television image, or any other device or
process . . . ."[127] The definition
of "display" clearly encompasses the behavior of, for instance, the defendant
BBS operator in the Playboy case.[128] Thus, when any NII user visually
"browses" through copies of works in any medium (but not through a list of
titles or other "menus" that are not copies of the works),[129] a public display occurs. A display is
"public" on the same terms as a "performance"; therefore, virtually all NII
uses would appear to fall within the law's current comprehension of "public
display."

5. LIMITATIONS ON THE EXCLUSIVE RIGHTS

The exclusive rights of copyright owners are not without exception.
The Copyright Act specifies certain violations of a copyright owner's exclusive
rights that the copyright owner cannot prevent.[130]

a. FAIR USE

The most significant and, perhaps, murky of the limitations on a copyright
owner's exclusive rights is the doctrine of fair use.[131]

Fair use is an affirmative defense[132] to any action for copyright
infringement. It is potentially available with respect to all unauthorized
uses of works in all media. If it is proven, then the use may continue without
any obligation on the user's part to seek the permission of the copyright
owner, pay royalties, or the like. The doctrine of fair use is rooted in some
200 years of judicial decisions and is, in general, most likely to be found
when a user incorporates some of a pre-existing work into a new work of
authorship._133 It is thus widely accepted, for example,
that quotation from a book or play by a reviewer, or the capturing of
copyrighted music in a television news broadcast is fair use. As one moves
away from such favored uses into the area of uses that are -- for practical
purposes -- competitive with the copyright owner's exploitation of the work,
the ease of analysis shrinks (as the number of litigated cases grows).

Before examining the doctrine developed by the courts, it is useful to
examine the statutory language concerning fair use. Section 107 of the
Copyright Act provides:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a
copyrighted work, including such use by reproduction in copies or phonorecords
or by any other means specified by that section, for purposes such as
criticism, comment, news reporting, teaching (including multiple copies for
classroom use), scholarship, or research, is not an infringement of copyright.
In determining whether the use made of a work in any particular case is a fair
use the factors to be considered shall include --

(1) the purpose and character of the use, including whether such use is of
a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the
copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair
use if such finding is made upon consideration of all the above factors.[134]

The language may usefully be divided into two parts: the
introduction, which is largely tautological ("fair use . . . is not an
infringement of copyright"), and the analysis required by the second sentence.
The recitation of assorted uses in the middle of the first sentence has been
held neither to create a presumption that such uses are fair[135] nor to prevent a fair use analysis from
being applied to other "unlisted" uses.

The core of Section 107 is the second sentence, in which Congress
elaborates a test little different from that articulated by Justice Story more
than a century ago.[136] It is
clear that courts must evaluate all four factors in determining whether a
particular use is fair, but may also take into account unenumerated "extra"
factors, when appropriate.

THE PURPOSE AND CHARACTER OF THE USE

Although, as discussed below, the fourth factor has
repeatedly been held to be the most important, the first factor often plays a
major role in determining the result when a defendant asserts a fair use
defense.

The first factor contrasts "commercial" uses with "nonprofit educational"
uses. There is, of course, a continuum between these two opposites, with most
uses not falling neatly into either the favored or disfavored pigeonhole. The
weight of the factor may be inferred from the Supreme Court's very limited fair
use jurisprudence: In the four fair use cases that it has decided, one
noncommercial noneducational use was held fair,[137] two commercial uses were held
unfair,[138] and one commercial use
was held potentially fair.[139]

In the Sony case, the Court announced a "presumption" that helps
explains courts' near universal rejection of fair use claims in commercial
contexts. It declared that all commercial uses were to be presumed unfair,
thus placing a substantial burden on a defendant asserting that a particular
commercial use is fair. The Campbell case made clear that the
Sony presumption was of greatest applicability in the context of
verbatim copying, thus giving greater leeway to commercial but transformative
uses.

Indeed, "mere reproduction" has fared very badly in court under the
Copyright Act, even in actual and ostensible educational contexts. Courts have
denied fair use, for example, to:

. a teacher's reproduction, in text materials, of the copyrighted material
of another teacher,[140]

. a school system's practice of taping educational broadcasts for later use
in classrooms,[141] and

. off-campus copy shops' manufacture -- to teachers' specifications -- and
distribution of photocopies of anthologies containing portions of textbooks and
periodicals.[142]

Taken together, these cases indicate that, for the most part,
educational fair use is limited to the type of copying expressly authorized in
the "classroom guidelines," a part of the legislative history incorporating
provisions to which copyright owners and educators agreed.[143]

THE NATURE OF THE COPYRIGHTED WORK

This second factor tends to play a smaller role than the first in
fair use litigation. Courts have held that it weighs in the copyright owner's
favor when works of fiction[144] and
unpublished works[145] are copied,
and in defendant's favor when factual works[146] and published works[147] are copied.

THE AMOUNT AND SUBSTANTIALITY OF THE PORTION USED

This is probably the least important factor, given that the
taking of even a small amount -- if it is considered the "heart" of the work --
can lead to a finding of infringement.[148] Indeed, the most cited copyright
treatise devotes only some four sentences to its discussion:

The third factor listed in 107 is "the amount and
substantiality of the portion used in relation to the copyrighted work as a
whole." This raises an issue discussed in a preceding section [concerning the
quantum of copying that constitutes infringement], and may be regarded as
relating to the question of substantial similarity rather than whether the use
is "fair." This includes a determination of not just quantitative, but also
qualitative substantiality. In any event, whatever the use, generally it may
not constitute a fair use if the entire work is reproduced.[149]

THE EFFECT OF THE USE

Courts have repeatedly identified this as the most important of the
four factors.[150] It is important
to recall that it weighs against a defendant not only when a current market
exists for a particular use, but also when a potential market could be
exploited by the copyright owner. Harm in either market will, in most
instances, render a use unfair.[151]

The Supreme Court's decisions demonstrate the significant weight given
this factor:

. In Sony, the absence of any market for home taping licenses,
combined with the testimony of some copyright owners that they were indifferent
to home copying, led the Court to conclude that there was no cognizable
harm.[152]

. In Harper & Row, the Court accepted the argument that the
"scooping" of "Time" magazine's right to make the first serial publication of
President Ford's memoirs, which caused cancellation of the magazine's contract
with Harper & Row, caused harm to the copyright owner.[153]

. In Stewart, performances of the movie palpably harmed the economic
interests of the owner of the copyright in the underlying short story.[154]

. In Campbell, the Court -- because the parody was "transformative"
-- rejected the court of appeals' determination that the commercial purpose of
the parody required its creator to overcome Sony's presumption of market
harm.[155]

It is reasonable to expect that courts would approach claims of fair use
in the context of the NII just as they do in "traditional" environments.
Commercial uses that involve no "transformation" by users will likely always be
infringing, while nonprofit educational transformative uses will likely often
be fair. Between these extremes, courts will have to engage in the same type
of fact-intensive analysis that typifies fair use litigation and frustrates
those who seek "bright lines" clearly separating the lawful from the
infringing.[156]

Courts in two cases decided to date concerning the unauthorized
"uploading" and "downloading" of copyrighted materials have held that such uses
were not fair uses.[157] In the
Playboy case, the court characterized the issue as whether "unrestricted
and widespread conduct of the sort engaged in by the defendant bulletin board
system operator (whether in fact engaged in by the defendant or others) would
result in a substantially adverse impact on the potential market for or value
of [Playboy's copyrighted photographs],"[158] and determined that it would. This, in
turn, led the court to conclude that there was market harm, and, thus,
infringement.

In the other case, Sega Enterprise Ltd. v.
MAPHIA
,159 the court found that Sega established a prima
facie
case of direct and contributory infringement in the operation of
the defendant's bulletin board system (where Sega's copyrighted video game
programs were uploaded and downloaded).[160] In issuing a preliminary injunction,
the court found that each of the four factors weighed against a finding of fair
use, but found that the fourth factor, in particular, weighed "heavily" against
such a finding:

Based on Defendant's own statement that 45,000 bulletin boards like MAPHIA
operate in this country, it is obvious that should the unauthorized copying of
Sega's video games by Defendants and others become widespread, there would be a
substantial and immeasurable adverse effect on the market for Sega's
copyrighted video game programs.[161]

Cases already decided in other contexts will give valuable guidance to
courts confronted with NII-related cases. Just as courts have distinguished
between home use of a VCR to make time-shifting tapes of materials broadcast
over the air (fair use) and school systems' attempts to use VCRs to download
broadcast instructional materials for the creation of an educational film
library (not fair use), courts will subject users of copyrighted works
available via the NII to like scrutiny. Educational uses that serve the same
ends and are constrained in the same manner as the copying permitted under the
Classroom Guidelines may be fair, while attempts to supplant the market for
books, films, software and other materials by proliferating them without
permission via the NII will likely be infringing.

Finally, it may be that technological means of tracking transactions and
licensing will lead to reduced application and scope of fair use. Thus, one
sees in American Geophysical Union v. Texaco Inc.,162 a
court establishing liability for the unauthorized photocopying of journal
articles based in part on the court's perception that obtaining a license for
the right to make photocopies via the Copyright Clearance Center was not
unreasonably burdensome.

b. FIRST SALE DOCTRINE

A fundamental tenet of copyright law, and another limitation on the
exclusive rights, is the "first sale doctrine," which prevents an owner of
copyright in a work from controlling subsequent transfers of copies of that
work. Once the copyright owner has transferred ownership of a particular copy
(a material object) embodying the work, the copyright owner's exclusive right
to distribute copies of the work is "extinguished" with respect to that
copy.[163]

Section 109(a) of the Copyright Act provides:

Notwithstanding the provisions of section 106(3) [which grants copyright
owners the exclusive right to distribute copies or phonorecords of a work], the
owner of a particular copy or phonorecord lawfully made under this title, or
any person authorized by such owner, is entitled, without the authority of the
copyright owner, to sell or otherwise dispose of the possession of that copy or
phonorecord.[164]

This limitation on the copyright owner's distribution right allows
wholesalers who buy books to distribute those copies to retailers and retailers
to sell them to consumers and consumers to give them to friends and friends to
sell them in garage sales and so on -- all without the permission of (or
payment to) the copyright owner of the work.[165] The first sale doctrine does not allow
the transmission of a work (through a computer network, for instance), because
a transmission would necessarily also involve a reproduction of the work (which
would not be exempt under Section 109). Moreover, a transmission does not
appear to constitute a distribution of a copy under the current law.[166]

The first sale doctrine allows the owner of a particular copy of a work to
"dispose" of possession of that copy in any way -- for example, by selling it,
leasing it, loaning it or giving it away. However, there is an exception to
this exemption with respect to two types of works -- sound recordings and
computer programs. The owner of a particular copy of a computer program or a
particular phonorecord of a sound recording may not rent, lease or lend that
copy or phonorecord for the purpose of direct or indirect commercial
advantage.[167] These exceptions
were enacted because of the ease with which reproductions of those works can be
made at a lower cost than the original with minimum degradation in
quality.[168] The rationale for
these exceptions may apply to other types of works as more types of works
become available in digital format, and the "nexus" of rental and reproduction
of those works "may directly and adversely affect the ability of copyright
holders to exercise their reproduction and distribution rights under the
Copyright Act."[169]

A copyright owner's exclusive right to publicly display copies of a work
is also limited by Section 109:

Notwithstanding the provisions of section 106(5) [which grants copyright
owners the exclusive right to display publicly copies of a work], the owner of
a particular copy lawfully made under this title, or any person authorized by
such owner, is entitled, without the authority of the copyright owner, to
display that copy publicly, either directly or by the projection of no more
than one image at a time, to viewers present at the place where the copy is
located.[170]

Thus, an art gallery that purchases a painting may publicly display it
without liability. The owner of a particular copy of an electronic audiovisual
game intended for use in coin-operated equipment may also publicly perform or
display that game in that equipment.[171]

This exemption from liability would not apply to the public display of a
copy of a work on a bulletin board system or other computer or communications
network, as more than one image would likely be displayed at a time (to
different viewers) and viewers would not be "present at the place where the
copy is located."

c. LIBRARY EXEMPTIONS

The Copyright Act provides that in certain circumstances and under certain
conditions it is not an infringement of copyright for a library or archives, or
its employees acting within the scope of their employment,[172] to reproduce or distribute one copy or
phonorecord of a work.[173] The
conditions of the library exemption are that (1) the reproduction or
distribution is made without any purpose of direct or indirect commercial
advantage; (2) the collections of the library are open to the public or
available not only to researchers affiliated with the library, but also to
other persons doing research in a specialized field; and (3) the reproduction
or distribution of the work includes a notice of copyright.[174]

The circumstances under which a library may reproduce or distribute a
copyrighted work without infringement liability include:

ARCHIVAL COPIES

A library may reproduce and distribute a copy or phonorecord of an
unpublished work reproduced in facsimile form if the sole purpose is
preservation and security, and if the copy or phonorecord reproduced is
currently in the collection of the library.[175] The House Report notes that this right
"would extend to any type of work, including photographs, motion pictures and
sound recordings." However, the copy or phonorecord made must be in "facsimile
form." A library may "make photocopies of manuscripts by microfilm or
electrostatic process, but [may] not reproduce the work in 'machine-readable'
language for storage in an information system."[176] Thus, this exemption does not appear
to allow for preservation in electronic or digital form, which, arguably, would
not constitute "facsimile form" (unless, perhaps, the original copy in the
collection was fixed in electronic or digital form).

REPLACEMENT COPIES

A library may reproduce a published work duplicated in facsimile form
solely for the purpose of replacing a copy or phonorecord that is damaged,
deteriorated, lost or stolen, if the library has, after reasonable efforts,
determined that an unused replacement cannot be obtained at a fair
price.[177] Again, the copy or
phonorecord made must be in "facsimile form." The exemption does not allow for
replacement of a published work by reproduction in digital form (at least when
the original copy of the published work was not in digital form).

ARTICLES AND SHORT EXCERPTS FOR USERS

A library may make and distribute a copy of one article or other
contribution to a copyrighted collection or periodical issue, or a copy or
phonorecord of a small part of any other copyrighted work at the request of a
user, subject to two conditions.[178]

OUT-OF-PRINT WORKS FOR SCHOLARLY PURPOSES

A library may make and distribute a copy or phonorecord of an entire work
if it has determined that a copy or phonorecord of the copyrighted work cannot
be obtained at a fair price, subject to two conditions.[179]

NEWS PROGRAMS

A library may reproduce and distribute by lending a limited number of
copies of an audiovisual news program.[180]

INTERLIBRARY LOANS

The Copyright Act allows a library to make single copies of copyrighted
works and to enter into interlibrary lending arrangements, but prohibits
copying "in such aggregate quantities as to substitute for a subscription to or
purchase of [a copyrighted] work."[181] CONTU developed guidelines to
interpret the quoted phrase, which were later included in the House Report and
Conference Report on the Copyright Act of 1976.[182] The guidelines provide that a library
may "borrow" not more than five copies per year of articles from the most
recent five years of any journal title.[183]

The exemptions granted under Section 108 extend only to isolated and
unrelated reproduction of a single copy or phonorecord of the same material on
separate occasions,[184] and do not
apply to (1) musical works; (2) pictorial, graphic, or sculptural
works; or (3) motion pictures or other audiovisual works, except news
programs.[185]

Libraries may provide many works in digital format in the future.
However, Section 108 does not permit libraries to convert printed works to a
digital format without the authority of the copyright owners. Such conversion
would constitute "reproduction" of those works,[186] and would require the authorization of
the relevant copyright owners.

d. EDUCATIONAL USE EXEMPTIONS

Section 110(1) exempts from infringement liability the performance or
display of a copyrighted work in the course of face-to-face teaching activities
by a non-profit educational institution in a classroom or similar
setting.[187]

Section 110(2) exempts from liability the transmission of a performance or
display of a copyrighted work if (1) the performance or display is a regular
part of the systematic instructional activities of the non-profit educational
institution; (2) the performance or display is directly related and of material
assistance to the teaching content of the transmission; and (3) the
transmission is made primarily for reception in classrooms or similar places or
by persons to whom the transmission is directed because of their
disabilities.[188]

Like the library exemptions, the educational use exemptions are provided
in addition to the fair use and other general exemptions, which are also
available to educational institutions.

e. OTHER LIMITATIONS

REPRODUCTION OF COMPUTER PROGRAMS

The rights of an owner of a copyright in a computer program are limited
such that the owner of a particular copy of a computer program may make a copy
or adaptation of the program as an "essential step" in using the computer
program in a computer or for archival purposes.[189] This limitation applies only with
respect to "owners" of copies of programs, not licensees, borrowers or mere
possessors.

CERTAIN PERFORMANCES AND DISPLAYS

Certain performances and displays are exempt from infringement liability
under Section 110 of the Copyright Act, including:

. the performance or display of certain works in the course of religious
services;[190]

. the performance of certain works by governmental or non-profit
agricultural or horticultural organizations;[191]

. the performance of certain musical works in retail outlets for the sole
purpose of promoting retail sales;[192]

. the transmission of performances of certain works to disabled
persons;[193] and

. the performance of certain works at non-profit veterans' or fraternal
organizations for charitable purposes.[194]

The "communication of a transmission embodying a performance or display of
a work by the public reception of the transmission on a single receiving
apparatus of a kind commonly used in private homes" is also exempted if there
is no direct charge to see or hear the transmission and the transmission is not
further transmitted to the public.[195] This exemption allows proprietors to
play radios or televisions (i.e., to perform or display
copyrighted works in those transmissions) in public establishments such as
restaurants, beauty shops and bars.[196] The applicability of this exemption is
extremely fact-specific and what qualifies as a type of receiving apparatus
"commonly used in private homes" will certainly change as home equipment merges
(into, for example, radio/television/computer units) and becomes more
sophisticated.[197]

EPHEMERAL RECORDINGS

Section 112 provides that it is not an infringement of copyright for a
"transmitting organization" that has the right to transmit to the public a
performance or display of a work "to make no more than one copy or phonorecord
of a particular transmission program embodying the performance or display"
under certain conditions.[198]

COMPULSORY LICENSES

Section 111 and Section 119 are compulsory licensing provisions that allow
cable systems and satellite operators to retransmit copyrighted programming
without infringement liability if they pay a statutory licensing fee (which is
then distributed among the copyright owners of the programming
retransmitted).[199] These, as well
as other, provisions of the Copyright Act will have to be reviewed as the
merger of creative, communications, and computer entities continues. For
instance, a compulsory license under Section 111 is only available to a "cable
system," which is defined as "a facility . . . that in whole or in part
receives signals transmitted or programs broadcast by one or more television
broadcast stations . . . ." Terms such as "network
station," "independent stations," and "noncommercial educational station" are
also defined and used in Section 111, and may warrant review in the
future.[200]

Compulsory licenses are also available for the public performance of
nondramatic musical works by means of jukeboxes,[201] for the use of certain works in
connection with noncommercial broadcasting,[202] and for the reproduction and
distribution of nondramatic musical works in the course of making and
distributing phonorecords of such works.[203]

6. COPYRIGHT INFRINGEMENT

a. GENERAL

Anyone who, without the authorization of the copyright owner, exercises
any of the exclusive rights of a copyright owner is an infringer of
copyright.[204] Thus, any activity
that falls within the scope of the exclusive rights of the copyright owner is
an infringement.[205]

Copyright infringement is determined without regard to the intent or the
state of mind of the infringer; so-called "innocent" infringement is
infringement nonetheless.[206]
Moreover, although the exclusive rights refer to such rights with respect to
"copies" (plural) of the work,[207]
there is no question that under the Act the making of even a single
unauthorized copy may constitute an infringement.[208]

Courts generally use the term "copying" as shorthand for a violation of
any of the exclusive rights of the copyright owner (not just the reproduction
right). Courts usually require a copyright owner to prove ownership of the
copyrighted work and "copying" by the defendant to prevail in an infringement
action.[209]

Since there is seldom direct evidence of copying (witnesses who actually
saw the defendant copy the work, for instance), a copyright owner may prove
copying through circumstantial evidence establishing that the defendant had
access to the original work and that the two works are substantially similar.
Other indications of copying, such as the existence of common errors, have also
been accepted as evidence of infringement.[210]

The copying of the copyrighted work must be copying of protected
expression and not just ideas;[211]
likewise, the similarity between the two works must be similarity of protected
elements (the expression), not unprotected elements (the facts, ideas, etc.).
The portion taken must also be more than de minimis.

The similarity between the two works need not be literal
(i.e., phrases, sentences or paragraphs need not be copied
verbatim); substantial similarity may be found even if none of the words or
brush strokes or musical notes are identical.[212] Various tests have been developed to
determine whether there has been sufficient non-literal copying to constitute
substantially similarity between a copyrighted work and an allegedly infringing
work.[213] Judge Learned Hand
articulated the well-known "abstractions test," where the expression and the
idea are, in essence, treated as ends of a continuum, with infringement found
if the allegedly infringing work crosses the line delineating the two.[214] Such a line, as Judge Hand recognized,
is not fixed in stone; indeed, as he put it, its location must "inevitably be
ad hoc . . . ."[215] The "pattern" test has also been
suggested, where infringement is found if the "pattern" of the work is taken
(in a play, for instance, the "sequence of events, and the development of the
interplay of characters").[216]

The "subtractive" test -- which dissects the copyrighted work, disregards
the noncopyrightable elements, and compares only the copyrightable elements of
the copyrighted work to the allegedly infringing work -- historically has been
the traditional method for determining substantial similarity.[217] Following the 1970 Ninth Circuit
decision in Roth Greeting Cards v. United Card Co.,[218] however, the "totality" test became
popular for determining substantial similarity. The totality test compares
works using a "total concept and feel" standard to determine whether they are
substantially similar. Although predominantly used by the Ninth Circuit
throughout the 1970s and 1980s,[219]
the test was used by other circuits as well.[220] The Ninth Circuit further defined an
"extrinsic/intrinsic" test in proof of substantial similarity in Sid &
Marty Krofft Television Productions, Inc. v. McDonald's
Corp
.221 The intrinsic portion of the test measures whether an
observer "would find the total concept and feel of the works" to be
substantially similar.[222] The
extrinsic portion of the test, meanwhile, is an objective analysis of
similarity based on "specific criteria that can be listed and analyzed."[223] Thus, this test requires substantial
similarity "not only of the general ideas but of the expressions of those ideas
as well."[224]

More recently, however, both the Ninth and Second Circuits have moved away
from the totality test with respect to computer applications. In Data East
USA, Inc. v. Epyx, Inc
.225 the Ninth Circuit rediscovered
"analytic dissection of similarities" in the substantial similarity
determination of video games. Similarly, the Second Circuit in Computer
Associates International, Inc. v Altai, Inc
.226 fashioned
an "abstraction-filtration-comparison test" for a computer program that
combined Judge Learned Hand's "abstraction" test (to separate ideas from
expression) and "filtration" reminiscent of traditional "subtraction" analysis
in filtering protectible from non-protectible material.

In addition to the shifting tide of substantial similarity tests, there is
dispute as to the appropriate "audience" for determining substantial
similarity. The "ordinary observer test" alluded to in Arnstein v.
Porter
,227 and followed in a number of Second Circuit
decisions[228] considers the question
of substantial similarity from the viewpoint of the "average lay
observer."[229] The Fourth Circuit,
however, set forth a modified test in Dawson v. Hinshaw Music
Inc
.,[230] requiring the ordinary
observer to be the "intended" audience for the particular work. Relying on
decisions by both the Ninth and Seventh Circuits,[231] the court in Dawson
stated:

[i]f the lay public fairly represents the intended audience, the court
should apply the lay observer formulation of the ordinary observer test.
However, if the intended audience is more narrow in that it possesses
specialized expertise, . . . the court's inquiry should focus on whether a
member of the intended audience would find the two works to be substantially
similar.[232]

The challenge of this test, especially in more advanced technologies, is
determining when, if ever, a work is not directed to an audience possessing
specialized expertise.

The ability to manipulate works in digital format raises an issue with
respect to infringement of the reproduction and derivative works rights. A
copyrighted photograph, for instance, can be manipulated in the user's computer
in such a way that the resulting work is not substantially similar to the
copyrighted work (in fact, it may bear little or no resemblance to the
copyrighted work upon which it was based). The initial input of the
copyrighted work into the user's computer may be an infringement of the
copyright owner's reproduction right, but the infringing (or noninfringing)
nature of the resulting work is less clear. Although courts traditionally rely
on a "substantial similarity" test to determine infringement liability, neither
the meaning of "derivative work" nor the statutory standard for infringement
appears to require an infringing derivative work to be substantially
similar.[233]

b. INFRINGING IMPORTATION

The exclusive right to distribute copies or phonorecords includes the
right to limit the importation of copies or phonorecords of a work acquired
outside the United States into the U.S. without the authority of the copyright
owner.[234] Such unauthorized
importation, whether it be of pirated items (i.e., "copies or
phonorecords made without any authorization of the copyright owner")[235] or "gray market" products
(i.e., those copies or phonorecords legally produced overseas for
foreign distribution, but not authorized for the U.S. market), is an
infringement of the distribute right.[236]

The applicability of the importation provisions to the transmission of
works into the United States via the NII (or GII) may be debated.
Nevertheless, the importation right is an outgrowth of the distribution right,
both of which refer to "copies or phonorecords."[237] A data stream can contain a
copyrighted work in the form of electronic impulses, but those impulses do not
fall within the definition of "copies" or "phonorecords." Therefore, the
transmission of copyrighted works via international communication links fails
to constitute an "importation" under the current law because no "copies" or
"phonorecords" are being imported. If an infringing literary work, for
instance, was physically shipped into the U.S. in the form of a paper copy, a
CD-ROM disk or even stored on a memory chip, then it could be an infringing
importation if the above discussed conditions exist, but it would appear that
Section 602, as currently written, could not be used to block the electronic
transmission of such material.[238]

c. CONTRIBUTORY AND VICARIOUS LIABILITY

Direct participation in infringing activity is not a prerequisite for
infringement liability, as the Copyright Act grants to copyright owners not
only the right to exercise the exclusive rights, but also the right "to
authorize" the exercise of those rights. According to the House Report, the
inclusion of the right "to authorize" was "intended to avoid any questions as
to the liability of contributory infringers" -- those who do not directly
exercise the copyright owner's rights, but "authorize" others to do so.[239] Other than the reference to a
copyright owner's right "to authorize" exercise of the exclusive rights,
however, the Copyright Act does not mention or define "contributory
infringement" or "vicarious liability," the standards for which have developed
through case law.[240]

If someone has the "right and ability" to supervise the infringing action
of another, and that right and ability "coalesce with an obvious and direct
financial interest in the exploitation of copyrighted materials -- even in the
absence of actual knowledge" that the infringement is taking place, the
"supervisor" may be held vicariously liable for the infringement.[241] Vicarious liability is based on a
connection to the direct infringer (not necessarily to the infringing
activity).

The best known copyright cases involving vicarious liability are the
"dance hall" cases, where vicarious liability was found when dance hall owners
allowed the unauthorized public performance of musical works by the bands they
hired, even when the owners had no knowledge of the infringements and had even
expressly warned the bands not to perform copyrighted works without a license
from the copyright owners.[242]

"Contributory infringement" may be found when "one who, with knowledge of
the infringing activity, induces, causes or materially contributes to the
infringing conduct of another."[243]
Contributory infringement is based on a connection to the infringing activity
(not necessarily to the direct infringer). A contributory infringer may be
liable based on the provision of services or equipment related to the direct
infringement.[244]

SERVICES

A contributory infringer may be liable based on the provision of services
related to the infringement. Courts have found contributory infringement
liability, for instance, when a defendant chose the infringing material to be
used in the direct infringer's work,[245] and when a defendant was responsible
for the day-to-day activities where the infringement took place.[246]

Copyright owners may allege contributory infringement in NII-related cases
against service providers, such as BBS operators. As noted earlier, the court
in Playboy 247 found the BBS operator
directly liable for the display of the unauthorized copies on the
service, as well as the "distribution" of unauthorized copies to subscribers.
However, another court recently cited the Playboy case in finding that
the plaintiff had established a prima facie case of contributory
infringement by a BBS operator. In Sega Enterprises Ltd. v.
MAPHIA
,248 the court issued a preliminary injunction against the
BBS operator based on the operator's "role in copying [Sega's copyrighted video
games], including provision of facilities, direction, knowledge and
encouragement."[249] The court found
that the BBS operator had knowledge of the uploading and downloading of
unauthorized copies of Sega's copyrighted video games and that it solicited the
copying of the games.[250]

Two recent libel decisions may provide additional guidance.[251] In Auvil v. CBS "60
Minutes"
[252] the court held that
a network affiliate which exercised no editorial control over the network
broadcast (although it had the power to do so) served only as a conduit and was
not liable for republishing defamatory statements.[253] Despite the fact that the affiliate
had some idea of the content and had access to the broadcast hours before it
aired, the court refused to hold it liable for any defamation contained
therein. The court found it unrealistic to force, in effect, the creation of
editorial boards "which possess sufficient knowledge, legal acumen and access
to experts to continually monitor incoming transmissions and exercise
on-the-spot discretionary calls or face . . . million dollar lawsuits at every
turn."[254] The court borrowed
reasoning from book seller cases -- "one who only delivers or transmits
defamatory material published by a third person is subject to liability if,
but only if, he knows or had reason to know of its defamatory
character
"255 -- finding "no logical basis for imposing a duty of
censorship on the visual media which does not likewise attach to the print
chain of distribution."

It should be noted, however, that in the Auvil case, the court
found that the injured parties were not impaired by limiting conduit liability
to those situations where culpability is established; "[t]he generating source,
which in a national broadcast will generally be the deepest of the deep
pockets, may still be called upon to defend."[256] This likely would not be true in BBS
cases, where the generating source -- a BBS subscriber -- may not have as deep
pockets as the BBS operator and, in fact, may be unidentifiable.

A similar result was reached in Cubby, Inc. v. CompuServe
Inc
.257 In that case, the court held that libelous material
uploaded to a bulletin board system by a subscriber did not subject the BBS
operator to damages for libel. The court determined that a BBS was a
"distributor" (akin to a public library or bookstore) rather than a
"republisher," and thus the operator was liable only if it "knew or had reason
to know of the allegedly defamatory . . . statements" that had been
uploaded.[258]

EQUIPMENT

Contributory infringement liability may also be based on the provision of
equipment or other instrumentalities or goods used in or related to the
infringement. The leading case is Sony Corp. v. Universal City
Studios, Inc
.,[259] a 5 to 4
decision by the Supreme Court in which the majority of the Court held that the
manufacturer of videocassette recorders was not a contributory infringer for
providing the equipment used in the unauthorized reproduction of copyrighted
works. Borrowing a patent law principle, the Court reasoned that manufacturers
of staple articles of commerce that are capable of substantial
noninfringing uses should not be held liable as contributory infringers.[260] The Court held:

[T]he sale of copying equipment, like the sale of other articles of
commerce, does not constitute contributory infringement if the product is
widely used for legitimate, unobjectionable purposes. Indeed, it need merely
be capable of substantial noninfringing uses.[261]

The Court determined that the key question was whether the videocassette
recorder was "capable of commercially significant noninfringing uses."[262] The Court also held that in an action
for contributory infringement against a manufacturer of copying devices, "the
copyright holder may not prevail unless the relief that he seeks affects only
his programs, or unless he speaks for virtually all copyright holders with an
interest in the outcome."[263]

The dissent[264] did not agree
that the patent "staple article of commerce" doctrine of contributory
infringement was applicable to copyright law.[265] Recognizing the "concerns underlying
the 'staple article of commerce' doctrine," the dissent concluded that "if a
significant portion of the product's use is noninfringing, the
manufacturers and sellers cannot be held contributorily liable for the
product's infringing uses."[266]

If virtually all of the product's use, however, is to infringe,
contributory liability may be imposed; if no one would buy the product for
noninfringing purposes alone, it is clear that the manufacturer is purposely
profiting from the infringement, and that liability is appropriately imposed.
In such a case, the copyright owner's monopoly would not be extended beyond its
proper bounds; the manufacturer of such a product contributes to the infringing
activities of others and profits directly thereby, while providing no benefit
to the public sufficient to justify the infringement.[267]

Other cases against producers or providers of the instrumentalities of
infringement since Sony generally have not been successful.[268] However, the court in the recent
Sega case[269] issued a
preliminary injunction against a BBS operator who sold special copiers, the
"only substantial use" of which was to copy Sega's copyrighted video
games.[270] The court found that
Sega established a prima facie case of contributory infringement
by the BBS operator based on the operator's "advertising, sale and
distribution" of the video game copiers.[271]

d. CONFLICT OF LAWS

Conflict of laws issues may arise in NII-related copyright infringement
actions. Resolution of these issues determines what law the court should
apply. If the infringer and the infringement are in the United States, the
U.S. Copyright Act would apply. However, different situations may present
themselves which will raise conflict issues. For instance, users in country A,
where certain actions are not considered copyright infringements, may use works
located on servers in country B, where such actions are. Which country's law
controls the resolution of a copyright infringement dispute -- the country from
which a copyrighted work is uploaded or to which it is downloaded, or the
country where the host server is located? In the case of direct transmissions,
which country's law applies -- the country of origin of the transmission or the
transmitter, or the country of the reception? It may be that rights of the
copyright owner are exercised in each country. These issues, however, may be
no more problematic than the current conflict issues that arise due to the use
of telephones, fax machines or modems in international commerce.

7. INTERNATIONAL IMPLICATIONS

a. BACKGROUND

Other countries -- including Finland, Japan and Sweden -- and the
European Union are initiating their own studies of the means to promote the
development of national information infrastructures. For example, on February
7, 1994, Swedish Prime Minister, Carl Bildt, addressed the Swedish Academy of
Engineering Sciences and called for the creation of a national coalition to
spearhead the development of an advanced Swedish information infrastructure.
It is important to note that the task force which the Prime Minister is
assembling will include, among others, representatives of the Ministry of
Justice who will be responsible for the development of rules for the protection
of intellectual property in the system. On March 3, 1994, Commissioner
Bangemann, Vice President of the European Commission met with Secretary of
Commerce Ronald Brown and Assistant Secretaries Bruce Lehman and Larry Irving
to discuss the possibilities for U.S.-EU cooperation in regard to the NII.

Without taking into account, from the outset, rules for the effective
protection of intellectual property, the development of the international
information superhighway will be severely hindered. How disparate domestic
information superhighways will evolve into a Global Information Infrastructure
(GII) will depend on the rules of the road, and one of the most important of
those sets of rules is ensuring protection for the works of intellectual
property that moves through international channels and into the emerging
national information infrastructures. Adequate and effective protection of
intellectual property in international commerce must be ensured.

Development of the GII will make international copyright laws a concern
for every user of the system. When the globe is blanketed with digital
information dissemination systems, a user in one country will be able to
manipulate information resources in another country in ways that may violate
that country's copyright laws. Because copyright laws are territorial, and the
standards of protection embodied in the international conventions leave room
for national legislative determinations, acts that may be an infringement in
one country may not be an infringement in another country. The complexity that
such a system creates will make doing "electronic business" over the
information superhighways difficult unless we move promptly to identify needs
for protection and initiate efforts to work toward a new level of international
copyright harmonization.

U.S. copyright industries are significant contributors to the United
States' current trade accounts, reducing our balance of payments deficit by
some $34 billion in 1990. Inadequacies in the present system of intellectual
property protection for copyrights and neighboring[272] or related rights and the consequent
losses to these industries from piracy and from trade barriers arising from
differences in forms of protection have been estimated to cause losses to these
industries of $12 to 15 billion annually. Improved protection for copyrights
and neighboring rights would contribute to reducing these losses and improving
the balance of payments.[273]

An important aspect of the participation of foreign entities through a GII
in the United States domestic information infrastructure is the provision of
adequate and effective intellectual property protection in the country wishing
to participate. To the extent that participation in the NII can be linked to
the provision of intellectual property protection, it will promote the ability
of U.S. businesses to use the NII and the GII to communicate works to foreign
consumers via other countries' information infrastructures. If we are to
ensure that commercial enterprises will make full use of the capabilities of
the NII to communicate and deliver information and entertainment products,
there must be assurances that their intellectual property rights will be
protected effectively under strong copyright laws in all countries
participating in a GII.

However, in considering such linkages, careful consideration will have to
be given to obligations under international intellectual property treaties and
other international agreements such as the North American Free Trade Agreement
(NAFTA) and the General Agreement on Tariffs and Trade (GATT), especially in
view of the recently completed Uruguay Round with its various intellectual
property and market access provisions.

b. THE INTERNATIONAL FRAMEWORK

In the 1970's, then-U.S. Register of Copyrights Barbara
Ringer observed that if Justice Story considered copyright to be the
metaphysics of the law, then international copyright is its cosmology. That
message is brought home to us in 1994 by the need to evaluate the applicability
of copyright in the context of the complexities of international commerce in
information and entertainment products via advanced information
infrastructures.

First, we must understand that there is no such thing as an international
copyright, but rather a system of international copyright law. There are
several international treaties that link together most of the major trading
nations of the world and provide nations with a means for protecting, under
their own laws, each others copyrighted works and similar materials. This
situation is further complicated because there are two major legal traditions
applicable to the protection of what we in the United States regard as
copyrighted works. To understand the complexities of the international
copyright law system and the international treaties, it is necessary to have a
basic appreciation of these two major legal regimes.[274]

The United States and other countries that follow the Anglo-American legal
tradition have "copyright systems," the principal focus of which is on
protecting the author's economic rights. The theory of our system is that
providing such protection will induce the creation of more works which will
"promote the progress of science" and redound to the public benefit.

Countries that follow the civil law tradition, however, regard authors'
rights as natural human rights, or part of one's right of personality. As a
part of this tradition, the protection of so-called "moral rights" of the
author is an essential part of the system.[275] Moral rights normally include the
right of an author to be named as the author of a work and the right to object
to uses of the work which could bring dishonor or discredit on the author's
reputation. In these civil law systems, moral rights reflect a part of the
author's personality and are non-transferable, and may be not waivable.
Economic rights, in many instances, may be subordinated to moral rights. Under
these systems, only works which are original, in that they reflect the
personality of the author, are entitled to protection. Productions that do not
meet this originality requirement, but still merit some protection, are
protected under a system of "neighboring rights." Needless to say, with such
divergent theoretical bases sometimes the copyright and the authors' rights
systems are in conflict. One of these areas of conflict is in the nature and
level of rights for owners of neighboring rights.

Neighboring rights are similar to the rights protected by copyright or
authors' rights and are applied to protect the rights of producers of
phonograms, performers and broadcasters. Under the copyright system, many of
the rights covered under neighboring rights are actually copyright rights. For
example, under the U.S. copyright law, sound recording producers and performers
are regarded as joint authors of sound recordings. Under droit
d'auteur
(or authors' rights) systems, such producers' and performers'
rights would be protected as neighboring rights. Neighboring rights, while
similar in economic character to authors' rights, are protected generally at a
lower level and are entirely separate and distinct from the higher-level rights
granted to authors.

INTERNATIONAL TREATIES

The World Intellectual Property Organization (WIPO) is responsible
for the administration of, and activities concerning revisions to, the
international intellectual property treaties.[276] The principal WIPO copyright
conventions include the Berne Convention for the Protection of Literary and
Artistic Works (Paris 1971) (hereinafter "Berne Convention"),[277] the International Convention for the
Protection of Performers, Producers of Phonograms and Broadcasting
Organizations (hereinafter "Rome Convention"),[278] and the Geneva Convention for the
Protection of Producers of Phonograms Against the Unauthorized Reproduction of
their Phonograms (Geneva Phonograms Convention).[279] WIPO also administers the Paris
Convention for the Protection of Industrial Property (Stockholm 1967) which is
not discussed in this report. UNESCO[280] and WIPO jointly administer the
Universal Copyright Convention (Paris 1971) (hereinafter "UCC"),[281] which is a lower-level copyright
convention that was negotiated in the years following World War II largely to
bring the United States into the world of international copyright. Virtually
all of the members of the UCC are also members of the Berne Convention, and by
the terms of the conventions the Berne Convention governs relations between
members of both.

The Berne Convention is the principal international copyright convention,
and is the largest and most detailed. The United States joined the Berne
Convention in 1989. While it is generally regarded as providing adequate
international standards of protection, some believe that it should be updated
account for advances in electronic communications and information processing
technology. Its members come from the world's major legal traditions -- the
Anglo-American common law copyright system and the European civil law
droit d'auteur system. However, despite its level of detail, as
previously noted, and in part because it must accommodate differing legal
traditions, in some areas its standards may be insufficient to deal with the
world of digital dissemination of copyrighted works.

The principal treaty for the protection of neighboring rights, the Rome
Convention, was adopted in 1961, and is considered by many to include standards
that are inadequate for dealing with the problems raised by current
technological advances and the level of trade in the products and services
affected by its operation. It provides for the protection of producers of
phonograms against unauthorized reproduction of their phonograms, for
performers to prevent certain reproductions and fixations of their performances
and it provides limited rights for broadcasting organizations. It also
provides for protection against certain "secondary uses" of phonograms, such a
broadcasting, but it contains the ability for members to reserve on this right.
The United States does not belong to the Rome Convention.

The Geneva Phonograms Convention provides for the protection of phonograms
against unauthorized reproduction and distribution for a minimum term of 20
years. It does not provide for a performance right in sound recordings. The
United States belongs to the Geneva Phonograms Convention.

WIPO has convened a Committee of Experts on a Possible Protocol to the
Berne Convention to account for developments since the 1971 revision of the
Convention, and a Committee of Experts on a New Instrument for the Protection
of Performers and Producers of Phonograms to consider how to provide improved
rights for performers and producers of phonograms.

c. COPYRIGHT HARMONIZATION

The performers and the kinds of performances to which
neighboring rights apply are not universally agreed. This has led to divergent
regimes for the protection of economically important rights, both among
industrialized and developing countries. A consequence of this divergence is
that U.S. performers and producers have been denied the ability to share in
remuneration for the use of their products and performances in some countries.
Heretofore, there has not been strong support for the establishment of a system
of statutory performers' rights in the United States. Historically, this has
been because of the opposition of producers who are concerned that the
establishment of performers' rights could upset the balance of power among
producers and performers in contractual negotiations and collective bargaining.
Also, broadcasters have concerns over the possible implications that such a
course of harmonization might have for the establishment of performance rights
in sound recordings.

In addition to the traditional WIPO forum, other international bodies now
have a significant role in intellectual property policy formulation. The
recently-concluded Trade-Related Aspects of Intellectual Property Agreement
(hereinafter "TRIPs Agreement") under the Uruguay round of trade negotiations
in the General Agreement on Tariffs and Trade (hereinafter "GATT") sets
significant standards for the protection of copyright and related rights. And
most importantly, it contains provisions to ensure that parties to the TRIPs
Agreement fully implement its obligations.

d. NATIONAL TREATMENT

The principle of national treatment is the cornerstone of the great
international intellectual property treaties -- Berne and Paris. It is also
the keystone of international trade treaties, including, of course, the GATT.
It is of enormous significance to our copyright industries. Generally, the
principle of national treatment means that under a nation's laws, a foreigner
enjoys no lesser rights and benefits than a citizen of that nation receives,
subject to the specific terms of the relevant international conventions. In
other words, a German work as to which copyright enforcement is sought in the
United States would be treated under the law exactly as if it were a U.S. work
for the purposes of the copyright law.

However, some argue that rights should be granted only on the basis of
reciprocity. This concept, called "material reciprocity," means that we should
grant a right to a foreigner only if his or her country grants our citizens the
same right. Under this scenario, the German citizen would only be able to
obtain protection under the U.S. law to the extent that German law provided the
same, or at least equivalent, rights to a U.S. citizen.

THE BERNE CONVENTION

Article 5(1) and 5(2) of the Berne Convention establish the
principle of national treatment for works protected by copyright.[282] Under Article 5(1), there is an
obligation to grant to nationals of countries of the Berne Union national
treatment in respect of the rights specifically covered by the Convention.
This point is not disputed.[283]
However, with respect to any new rights which may be hereafter granted, some
have taken the position that the national treatment obligation applies only to
the minimum rights in the Convention.[284]

THE ROME CONVENTION

The fundamental problem with the Rome Convention is that, while it
generally imposes a national treatment obligation, it permits a number of
reservations and exceptions that allow a Member to avoid that obligation for
important rights otherwise provided for in the Convention. Article 3.1 of the
TRIPs Agreement provides that "[i]n respect of performers, producers of
phonograms and broadcasting organizations, this obligation [national treatment]
only applies in respect of the rights provided under this Agreement."[285] It also provides that a Member may
avail itself of the "possibilities provided in . . . paragraph 1(b) of Article
16 of the Rome Convention . . ." relating to reciprocity for the
broadcasting right in respect of phonograms.[286]

THE TRIPS AGREEMENT

Additionally, the TRIPs Agreement includes a national treatment
obligation.[287] In respect of
copyright the TRIPs national treatment provision incorporates the standards of
the Berne Convention, but in respect of neighboring rights, it allows members
to impose the exceptions to national treatment permitted by the Rome
Convention.[288] Permitting such
exceptions can lead to problems in the implementation of a GII.

THE NAFTA

The NAFTA includes a very broad national treatment provision that
does not include the possibility of making the broad exceptions provided for
under the TRIPs agreement.[289]

e. PRIVATE COPYING ROYALTY
SYSTEMS

The manner in which portions of the audio and video private copying
royalties that are collected in some European countries are distributed to
claimants may prove to be an impediment to future development of the GII if a
similar approach is adopted in respect of digital information dissemination
systems. As an example, France's Law of July 3, 1985 (1985 Law) establishes a
system of neighboring rights protection for performers, audiovisual
communication enterprises, producers of phonograms and producers of videograms.
The 1985 Law, inter alia, grants specified right holders an
entitlement to equitable remuneration in respect of the private copying of
their works. Some of the 1985 law's provisions are based on reciprocity and
thus discriminate against, for example, foreign motion picture interests.
Consequently, those provisions may be inconsistent with France's obligations
under the Berne Convention and the UCC. If this pattern is followed in
implementing future legislation, serious impediments to the development of the
GII may arise.

f. MORAL RIGHTS

The author's moral rights are provided for under Article
6bis of the Berne Convention.[290] The nature and scope of moral rights
varies considerably from country to country. The fact that these rights are
non-transferable may create difficulties for the commercialization of works in
the NII environment. A current draft report of the multimedia study committee
of the Japanese Institute for Intellectual Property suggests that there may be
a need to either permit the specific waiver of the right of integrity or to
limit its application in the digital world.[291]

B. PATENT

Development of the NII will depend upon, and stimulate innovation
in, many fields of technology, especially computer software, computer hardware
and telecommunications. An effectively functioning patent system that
encourages and protects innovations in these fields of technology is,
therefore, important for the overall success of the NII. The most significant
issues related to the effects of the NII on the patent system include the
impact the NII will have on the quantity and quality of information available
from which to determine the patentability of inventions, as well as to judge
the validity of patents.

The goals of the patent system are to encourage innovation and public
disclosure of advances in technology. To this end, the patent system offers an
incentive to inventors to publicly disclose their inventions in exchange for
the exclusive right to prevent others from making, using or selling the
patented inventions for 17 years.

Patent protection is available in the United States for inventions without
differentiation as to the field of technology:

". . . any new and useful process, machine, manufacture, or composition of
matter . . ." can be patented.[292]
However, unlike copyright protection, an inventor must specifically request
protection by filing a patent application and demonstrating that the invention
meets all of the statutory requirements of patentability. Specifically, an
invention must be new,[293]
useful[294] and
nonobvious.295 In addition, the inventor must fully describe and
disclose the invention in the patent application. 296

Once a patent application has been filed with the Patent and Trademark
Office (PTO), the application is reviewed by an Examiner against the "prior
art" to determine whether the patentability requirements of novelty ("new") and
nonobviousness have been met. While there are instances where non-public
information constitutes prior art, generally speaking, prior art includes
information that is publicly available prior to the filing date of a patent
application.[297] An invention
satisfies the novelty requirement if it has not been publicly disclosed prior
to the filing date of the patent application.[298] Novelty exists unless the prior art
completely discloses the invention that is claimed by the patent
applicant.[299] An invention
satisfies the nonobviousness requirement if a "person of ordinary skill in the
art" would not have viewed the invention as obvious in view of the prior art at
the time the patent application was filed.[300]

The specific categories of prior art that are defined in Section 102 of
the Patent Act can be used to deny the grant of a patent, or to invalidate a
patent, on the grounds that the invention lacks novelty or is obvious.[301] These include, generally speaking,
patents issued by the United States or by other countries; printed publications
distributed in the United States or abroad; evidence of public use or public
disclosure of an invention in the United States; and evidence of a sale or
offer to sell an invention in the United States.[302] The NII will significantly improve the
amount and availability of prior art. This, in turn, will have an impact on
patentability determinations, whether made during the patent examination
process or during challenges to patent validity through litigation in the
Federal courts.

For example, a patent grants the owner the exclusive right to prevent
others from making, using or selling the invention as it is defined in the
patent.[303] A patent owner must
exercise these patent rights against alleged infringers or run the risk of not
being able to do so if found to have waited too long.[304] The patent owner has the burden of
establishing patent infringement. Patent infringement is established by
demonstrating that the accused product or process falls within the scope of the
patent claims.[305] A party accused
of infringement can avoid liability by asserting that the patent does not
cover, either literally or under the doctrine of equivalents, the accused
product or process.[306] The
accused infringer can also assert that the patent is either invalid or
unenforceable, or both.

Parties can challenge the validity of a patent in the Federal district
courts or before the PTO. By statute, a patent is presumed valid.[307] Thus, in district court, the party
challenging patent validity must demonstrate through clear and convincing
evidence that the patent fails to satisfy one or more of the statutory criteria
of patentability (e.g., novelty, utility, obviousness, or
adequate disclosure).[308] This is
most often accomplished by submitting new prior art which was not considered by
the PTO Examiner. The accused infringer then argues that this new prior art
anticipates the claimed invention (i.e. the invention is not new
because someone else had done it before the inventor) or that the claimed
invention would have been obvious to one of ordinary skill in the art based on
this new "prior art."

Likewise, prior art impacts the enforceability of a patent. For example,
parties can preclude the enforcement of a patent, without specifically
addressing the patent's validity. This is accomplished by establishing that
the patent owner either misused its patent rights, or committed a fraud on the
PTO incident to obtaining patent protection. For example, if it can be shown
that the inventor withheld material prior art from the patent office so as to
commit fraud on the PTO, the patent may be found to be unenforceable against
infringers, even if the patent satisfies all patentability requirements.

In each of these scenarios, prior art plays an important role both in
defining the state of the art at the time a patent application is filed and in
justifying conclusions on the patentability of an invention or the validity of
a patent. Because of this, it is imperative that all sources of information
that relate to an invention be integrated into patentability determinations.

Access to these sources of information, particularly patents and printed
publications, has been vastly improved through the use of electronic or on-line
database services. These services document the existence and content of
patents and printed publications, and in some instances, provide access to the
complete text and electronic images of such documents. It is important to
recognize that the information that can be retrieved through these services
invariably exists as an original, paper document disseminated through
traditional publication channels (e.g., technical journals or
publications, domestic and foreign patent documents).

The NII will dramatically change the way information is prepared and
disseminated. It will improve the number, accessibility and quality of
traditional on-line services. It will also foster creation of new forms of
"electronic publications" that are different in character from traditional
paper-based publications. Examples of such electronic publications could
include electronic versions of traditional paper-based publications that
supplement or reorganize presentation of the content of the paper-based
publication; informally prepared information such as postings on electronic
information forums and dissemination of news articles with technical content;
and formally designed and developed electronic publications that are not
printed on paper, but are entirely electronically disseminated.

Electronic publications such as these will supplement the wealth of
publicly accessible information that is used in patentability determinations
and validity challenges to issued patents. However, these new types of
electronically disseminated documents are different in character from
traditionally printed and indexed patents and publications. For example, the
information contained in the disclosure of electronic documents may not be
printed originally on paper, and as such, may have no tangible evidence
regarding the date the information was first publicly disclosed or even as to
its existence. No guidelines or industry standards presently govern the
memorialization of either the contents or the date of public disclosure of
information in such documents. The degree of distribution of, or public
accessibility to electronic documents is not presently measured and may prove
unmeasurable. Yet, these are key factors used to determine whether a document
is in the prior art. In addition, the content of such documents, particularly
informally created documents, may not be subject to any form of peer review or
content screening. This, in turn, could influence the evaluation of
information in electronic documents that could affect patentability. Likewise,
these factors may also have a direct impact on the challenges made to the
validity of an issued patent based on prior art.

C. TRADEMARK

A trademark is quite different from either a copyright or a patent. A
trademark is any word, name, symbol or device, or any combination thereof, that
serves to identify and distinguish the source of one party's goods or services
from those of another party. A service mark is the same as a trademark, except
that it identifies and distinguishes the source of services rather than goods.
In this report, the terms "trademark" and "mark" are intended to refer to all
types of marks.

The purpose of a trademark is twofold -- to identify the source of
products or services and to distinguish the trademark owner's goods and
services from those of others. As long as a trademark fulfills these
functions, it remains valid. Trademark ownership rights in the United States
arise through use of a mark. Continued use of a mark is necessary to maintain
trademark rights. The owner of a trademark is entitled to the exclusive right
to use the mark. This entitlement includes the ability to prevent the use, by
unauthorized third parties, of a confusingly similar mark. Marks used by
unrelated parties are confusingly similar if, by their use on the same,
similar, or related goods or services, the relevant consumer population would
think the goods or services come from the same source.

Unlike patent and copyright law, Federal trademark law coexists with state
and common-law trademark rights. Therefore, registration at either the Federal
or state level is not necessary to create or maintain ownership rights in a
mark. For example, priority of trademark rights between owners of confusingly
similar marks, regardless of whether the marks are Federally registered, is
based upon first use of the mark.[309]

Federal trademark law is embodied in the Lanham Act[310] and is based upon the commerce clause
of the Constitution.[311] Therefore,
to obtain a Federal trademark registration, in most cases[312] the owner of a mark must demonstrate
that the mark is used in a type of commerce that may be regulated by
Congress.[313] Additionally, the
Trademark Law Reform Act of 1988[314]
amended the Lanham Act to establish trademark rights, which vest upon
registration following use of the mark in commerce, as of the filing date of a
trademark application indicating a bona fide intent to use the mark in
commerce.[315]

Remedies against trademark infringement and unfair competition are
available to trademark owners under both state and Federal law.[316] In this regard, the owner of a Federal
trademark registration has certain benefits. In a court proceeding,
registration on the Principal Register constitutes prima facie
evidence of the registrant's ownership of the mark.[317] Registration on the Principal Register
may also be used as a basis to block importation of infringing goods[318] or to obtain remedies against a
counterfeiter.[319] The Lanham Act
provides that under certain conditions the right to use a registered mark may
become incontestable.[320]
Additionally, the Lanham Act provides for cancellation of registrations on
certain grounds.[321]

Existing legal precedent accepts electronic transmission of data as a
service and, thus, as a valid trademark use for the purpose of creating and
maintaining a trademark.[322]
Additionally, existing legal precedent applies the available remedies for
infringement and unfair competition to such acts occurring through the
unauthorized use of trademarks electronically.[323] However, in the future, with
widespread access to and use of the NII, both the legitimate and infringing
electronic uses of trademarks may increase. Further, unfair competition may
increase in the context of the NII to the extent that it may be easier to copy
or remove trademarks from electronically transmitted information than from
labeled products or from services identified in print media.

The first opportunity for a court to define the legal relationship between
trademarks and the registration and use of site names on the Internet is
presented in a recently filed action in Federal district court in the Southern
District of New York. The owners of the MTV cable network ("MTV") have filed
an action seeking injunctive relief and monetary damages from a former employee
who is offering a daily report about the rock music industry on the Internet
using the site name "mtv.com." MTV is alleging, inter alia,
trademark infringement and unfair competition.[324]

D. TRADE SECRET

Unlike many of the other forms of intellectual property protection
previously mentioned, trade secrets are protected solely through state law, not
Federal law. Trade secret protection is very limited. A trade secret holder
is only protected from unauthorized disclosure and use of the trade secret by
others and from another person obtaining the trade secret by some improper
means.[325]

There are several factors used to determine if subject matter qualifies as
a trade secret. Among the factors considered are the extent of measures taken
by the trade secret owner to guard the secrecy of the information and the ease
or difficulty with which the information could be properly acquired or
duplicated by others.[326] Based on
these considerations, the general rule is that subject matter cannot be
successfully protected as a trade secret if it is widely distributed. However,
if adequate security precautions are taken to ensure that access to the subject
matter being distributed is treated as secret, the subject matter may still be
considered a trade secret.

Whether trade secret owners distribute their trade secrets through the NII
will largely depend on the extent that they believe that the secrecy of the
trade secret will not be compromised by such a distribution. Consequently, if
the NII is going to be used as a tool for disseminating trade secret
information the NII must be equipped with adequate security measures to ensure
that trade secrets distributed through the NII will remain secret.[327]

In addition to the concerns regarding security precautions, issues of
jurisdiction may also arise in the context of using the NII as a vehicle to
transmit trade secrets. Because trade secret protection is protected by state
law, not Federal law, which state law controls the resolution of a trade
secrecy issue -- the place where the information is downloaded off the NII or
the place where the trade secret owner first distributes the information via
the NII for distribution -- may become an issue in trade secret disputes.
These jurisdictional issues, however, are no more problematic than present
jurisdictional issues associated with the distribution of trade secrets and can
be adequately resolved by the choice of law rules presently codified in state
law.

To some degree whether trade secret owners distribute their trade secrets
through the NII may also depend on the type of information products and
services being disseminated. For instance, it has been suggested that the most
common way to protect software is through trade secret protection.[328] Unlike most trade secret information,
computer programs can be copied and used without the copier ever understanding
or viewing the information in a comprehensible form. Although the trade
secrecy problems associated with computer programs are not unique to the NII,
the capabilities of the NII may cause these problems to become more
prevalent.

II. TECHNOLOGY

Technology can be used to help protect copyrighted works against
unauthorized access, reproduction, manipulation, distribution, performance or
display. It can also be useful in the authentication of the integrity of
copyrighted works and in the management and licensing of the rights in such
works. Protection and management schemes based strictly on specific
technologies may have limited usefulness due to the rapidly evolving nature of
these technologies. Furthermore, if the systems developed are too cumbersome
or complicated, consumers may reject works protected under such systems.
However, to the extent that the marketplace will tolerate such measures, they
can be useful in protecting copyrighted works.[329]

Technology-based protection of digital works can be implemented through
hardware, software or a combination thereof. It can be implemented at the
level of the copyrighted work or at other, more distant levels. It can be used
to prevent or restrict access to a work, as well as reproduction, adaptation,
distribution, performance or display of the work.

A. CONTROLLING ACCESS TO PROTECTED
WORKS

Unauthorized access to copyrighted works can be denied in two general
ways: by restricting access to the source of the work, and by restricting
manipulation of the electronic file containing the work.

1. CONTROLLING ACCESS AT THE SERVER LEVEL

Distribution of digital works can be controlled by controlling access to
the source of the works -- information or data servers. Access to these
servers can vary from completely uncontrolled access (e.g., the
full contents of the server are accessible without restriction) to partially
controlled access (e.g., unrestricted access is granted to only
certain data on the server) to completely controlled access
(e.g., no uncontrolled access in any form is permitted). Access
control is affected through user identification and authentication procedures
(e.g., log-in name and password) that deny access to unauthorized
users to a server or to particular information on a server.[330]

Nearly all information providers, including commercial on-line services
such as Compuserve and America Online and dial-up private bulletin boards, not
only control access to their systems but also vary the nature of that access
depending on the information a user wishes to access (e.g.,
access to certain data is conditioned on paying a higher fee, having greater
access rights, etc.). On the Internet, users can connect to public servers
through protocols such as gopher, file transfer protocol (ftp), telnet or the
world wide web (www). Some information providers on the Internet grant full
unrestricted access to all the information contained on their servers. This
means that anyone can access any data stored on the servers. Other information
providers restrict access to users with accounts or grant only limited access
to unregistered users. For example, using ftp a user can often log on as an
"anonymous" user (e.g., a user for which no account has been
created in advance), but access through anonymous ftp is limited to certain
data. Of course, an information provider can elect not to provide uncontrolled
access (e.g., permit only those with accounts to access the
server), provided appropriate security measures are implemented.

Thus, control over access to a server may be used as one of the first
levels of protection for the works found on it.

2. CONTROLLING ACCESS AT THE FILE LEVEL

A second level of control over protected works can be exerted through
control measures tied to the electronic file containing the work. One type of
restriction can be implemented through "rendering" or "viewing" software. Such
systems require (1) a proprietary or unique file format that can only be read
by certain software and that is developed or controlled by the information
provider and (2) software that incorporates both a "control" measure to prevent
viewing or use of a work without authorization from the information provider
and "manipulation" functions to permit the user to view or use the work.
Rendering or viewing software can be written to deny access if the user enters
unauthorized identification or an improper password. Rendering software can
also be written to deny access if the work is not an authorized copy (provided
that sufficient information regarding authorized use is included in header
information and it is sealed with a digital signature).[331]

Another type of restriction is encryption. In its most basic form,
encryption amounts to a "scrambling" of data using mathematical principles that
can be followed in reverse to "unscramble" the data. Encryption technologies
can be used to deny access to the work in a usable form. File encryption
simply converts a file from a manipulatable file format (e.g., a
word processor document or a picture file that can be opened or viewed by
appropriate general purpose software packages) to a scrambled format.[332] Authorization in the form of
possession of an appropriate password or "key" is required to "decrypt" the
file and restore it to its manipulatable format.

Encryption techniques use "keys" to control access to data that has been
"encrypted." Encryption keys are actually numbers that are plugged into a
mathematical algorithm and used to scramble data using that algorithm.
Scrambling simply means that the original sequence of binary digits
(i.e., the 1s and 0s that make up a digital file) is transformed
using a mathematical algorithm into a new sequence of binary digits
(i.e., a new string of 1s and 0s). The result is a new sequence
of digital data that represents the "encrypted" work.[333] Anyone with the key
(i.e., the number used to scramble the data according to the
specified mathematical algorithm) can decrypt the work by plugging the number
into a program that applies the mathematical algorithm in reverse to yield the
original sequence of digital signals.[334] Although perhaps most commonly thought
of as a tool for works transmitted via computer networks, encryption can be and
is used with virtually all information delivery technologies, including
telephone, satellite and cable communications. Of course, once the work is
decrypted by someone with the key, there may be no technological protection for
the work if it is stored and subsequently distributed in its "decrypted" or
original format.

Requests for the export of cryptographic technologies are reviewed by the
U.S. State Department. Although some cryptographic technologies used to
encrypt communications are restricted from export, technologies used to
identify and authenticate users and files are generally not restricted. There
is an ongoing review of policies governing the export of computer and
networking technologies, and there has been some relaxation of prior controls.

B. CONTROLLING USE OF THE WORK

Hardware and/or software can provide protection against unauthorized uses
of copyrighted works. For instance, the Audio Home Recording Act requires
circuitry in digital audio recording devices and digital audio interface
devices that controls serial copying.[335] The circuitry in the hardware is
programmed to read certain coding information contained in the "digital subcode
channel" of digital sound recordings and broadcasts. Based on the information
it reads, the hardware circuitry will either permit unrestricted copying,
permit copying but label the copies it makes with codes to restrict further
copying, or disallow copying. The serial copy management system implemented by
this circuitry allows unlimited first generation copying -- digital
reproduction of originals (such as CDs distributed by record companies), but
prevents further digital copying using those reproductions.[336]

Systems such as these can be implemented through hardware, software or
both, using the concepts discussed above (e.g., rendering
software and encryption technology). For example, files containing works can
include instructions used solely to govern or control distribution of the work.
This information might be placed in the "header" section of a file[337] or another part of the file. In
conjunction with receiving hardware or software, the information, whether in
the header or elsewhere, can be used to limit what can be done with the
original or a copy of the file containing the work. It can limit the use of
the file to read-, view-, or listen-only. It can also limit the number of
times the work can be retrieved, opened, duplicated or printed.

C. AUTHENTICATING THE WORK

Mathematical algorithms can be used to create digital signatures that, in
effect, place a "seal" on a digitally represented work. These algorithms can
be implemented through software or hardware, or both. Digital signatures can
play an important role in ensuring data integrity.

A digital signature is a unique sequence of digits that is computed based
on (1) the work being protected, (2) the digital signature algorithm being
used, and (3) the key used in digital signature generation.[338] Generating a digital signature uses
cryptographic techniques, but is not encryption of the work; the work may
remain unencrypted so it can be accessed and used without decryption. In fact,
digital signatures and encryption can be used simultaneously to protect works.
Generally, a signature is computed for a copyrighted work first and then the
work (including the seal) is encrypted. When the work is to be used, the work
is decrypted, then the signature (i.e., the seal) is verified to
be sure the work has not been modified (either in its original or encrypted
form). If the work is never changed, the seal need never be removed or
changed. If the work is changed, a new seal must be computed on the revised
information.

Generating a digital signature is called "signing" the work. Both the
digital signature and the public key are often appended to signed copyrighted
works (or they may be stored in a header). The signature serves as a "seal"
for the work because the seal enables the information to be independently
checked for unauthorized modification.[339] If the seal is verified (independently
computed signature matches the original signature), then the copyrighted work
is a bona fide copy of the original work -- i.e., nothing has
been changed in either the header or the work itself.

D. MANAGING RIGHTS IN THE WORK

Software-based systems for tracking and monitoring uses of copyrighted
works are contemplated in the development of the NII. Software-based systems
may also be used to implement licensing of rights and metering of use. A
combination of access controls, encryption technologies and digital signatures
can be used by copyright owners to protect, license and authenticate their
works on the NII. These security measures must be carefully designed and
implemented to ensure that they protect the copyrighted works and are not
defeated.

Information included in files can be used to inform the user about
ownership of rights in a work and authorized uses of it. For instance,
information can be stored in the header of a file regarding authorship,
copyright ownership, date of creation or last modification, and terms and
conditions of authorized uses. It can also support search and retrieval based
on bibliographic records.

Electronic licenses may be used in connection with works offered via the
NII. Electronic contracts may be analogous to the "shrink wrapped" licenses
used for prepackaged software.[340]
Providers may inform the user that a certain action -- the entering of a
password, for instance, to gain access to the service or a particular work, or
merely the use of the service -- will be considered acceptance of the specified
terms and conditions of the electronic license. Payments for such licenses
also may be made via the NII.[341]

The Library of Congress' Electronic Copyright Management System may be
instrumental in rights management. The proposed system, which is under
development, has three distinct components: (1) a registration and recordation
system, (2) a digital library system with affiliated repositories of
copyrighted works, and (3) a rights management system.[342] The system will serve as a testbed to
gain experience with the technology, identify issues, prototype appropriate
standards, and serve as a working prototype if full deployment is pursued
later.

E. DEVELOPMENT OF STANDARDS

Some level of interconnection, interoperability and standardization of
telecommunications, computer, wireless, satellite, broadcast and cable TV
technologies and networks may be essential to achieve the Administration's
vision of the NII. Government, industry or the marketplace may desire or
require certain technological standards related to the NII. There has been
much discussion of standardization of encryption technology, protocols,
interfaces, headers and electronic licenses for purposes such as
interoperability, interconnectivity and ease of information management or use.

III. EDUCATION

Effective education of the public about intellectual property rights is
crucial to the successful development of the NII. There seems to be an
attitude by some on the Internet, for instance, that you check your copyrights
at the door when you enter that domain. There is a general lack of awareness
by the public about intellectual property rights in their own works, as well as
in the works of others. The task of education, however, is not without
difficulty.

Perhaps the best places to start will be the schools, where millions of
children will be connected to the NII. There is, however, no "national
curriculum" to which a special section on NII-related intellectual property
rights could be added. However, a development and distribution process for
wide-spread intellectual property education can be established, by working
with, among others, those responsible for defining the role the advanced
information infrastructure will play in schools, as well as the state and
national educational organizations involved in setting the educational
principles and standards utilized in the curricula of more than 17,000 school
districts throughout the United States.

A brief review of the major organizations involved in education technology
for schools is set forth below. This list is not intended to be exhaustive.
Efforts to effectively distribute an intellectual property education program
will involve national, state and local organizations.

In addition to local school district officials, there are numerous
educational organizations actively involved in devising plans and
recommendations on how services available via the NII should be delivered and
used by schools. The school audience to be reached includes students of all
ages, as well as administrators, teachers and professors. Both public and
private school systems must be involved.

The kindergarten to twelfth-grade (K-12) school audience to be
educated about intellectual property and the NII can be broadly classified into
three segments: learners, pre-service, and in-service or professional
development. The "learners" segment consists of children who are in the school
system. The "pre-service" segment includes students currently in the school
system who will go on to become teachers. The "in-service" or "professional
development" segment consists of those professionals who are currently teachers
or education administrators. Each group must be reached. The teachers who are
educated about intellectual property rights today will be replaced in the
future by the children moving through the school systems now. A similar
approach can be taken in defining the audience to be reached on the university
and graduate school level.

An intellectual property education program could be developed by
individual state school officials, or distributed to them for their
consideration. The Council of the Chief State School Officers (CCSSO) could be
helpful in that regard.

Other educational organizations could also be useful in the promotion of
intellectual property education. These organizations include the National
Education Association, the American Federation of Teachers, the National Board
for Professional Teaching Standards, the National Association of Teachers
Colleges, the American Association of Community Colleges, the National School
Board Association, the National Association of Elementary School Principals,
the National Association of Secondary School Principals, the National
Association of Independent Schools , the National Council of Teachers of
Mathematics, the National Council of Teachers of English, and the National
Science Teachers Association. Contact with the National Parent Teachers
Association may also prove useful in reaching the parents of school-age
children.

Intellectual property education can also be incorporated into the plans
and recommendations that are currently being developed by educational
organizations on how educators can best utilize the NII. The National
Education Goals Panel and the recently created National Educational Standards
and Improvement Council ("NESIC") are both involved in the mission of promoting
national education goals, including educational standards. As part of this
effort, for example, the National Education Goals Panel is working on a set of
principles for technology and how technology can be used in promoting
education. Intellectual property education materials could be included as part
of the Panel's principles under development in the area of staff and child
development. Educational technology specialists in the Department of Education
and other educational organizations, who share the objective of bringing the
NII to schools, are also great resources.

The public library is another ideal place for intellectual property
education. National library organizations, such as the American Library
Association, the American Association of Law Libraries and the Special
Libraries Association, could provide invaluable assistance. The nationwide
network of 78 Patent and Trademark Depository Libraries could also be
instrumental in the dissemination of intellectual property information to the
public. Many of these depository libraries are affiliated with universities
and colleges throughout the country.

Additional means of education, particularly those that use the NII itself,
will also be explored and developed.

IV. PRELIMINARY FINDINGS AND RECOMMENDATIONS

These findings and recommendations represent the result of the Working
Group's examination and analysis to date. While the findings and
recommendations are preliminary, specific language is offered with any
proposals for legislative change to elicit and facilitate more detailed public
comment.

A. LAW

It is difficult for intellectual property laws to keep pace with
technology. When technological advances cause ambiguity in the law, courts
rely on the law's purposes to resolve that ambiguity. However, when technology
gets too far ahead of the law, and it becomes difficult and awkward to apply
the old principles, it is time for reevaluation and change. "Even though the
1976 Copyright Act was carefully drafted to be flexible enough to be applied to
future innovations, technology has a habit of outstripping even the most
flexible statutes."[343]

The coat is getting a little tight.[344] There is no need for a new one, but
the old one needs a few alterations.

1. DISTRIBUTION BY TRANSMISSION

a. THE DISTRIBUTION RIGHT

The Copyright Act gives a copyright owner the exclusive right "to
distribute copies or phonorecords of the copyrighted work" to the
public. A copy or phonorecord is a material object in which a
copyrighted work is fixed, such as a compact disc, a videocassette or a
paperback book. It is not clear under the current law that a transmission can
constitute a distribution of copies or phonorecords of a work. Yet, in the
world of high-speed, communications systems, it is possible to transmit a copy
of a work from one location to another. This may be the case, for instance,
when a computer program is transmitted from one computer to ten other
computers. When the transmission is complete, the original copy remains in the
transmitting computer and a copy resides in the memory of, or in storage
devices associated with, each of the other computers.[345] The transmission results essentially
in the distribution of ten copies of the work. Therefore, the Working Group
recommends that the Copyright Act be amended to reflect that copies of works
can be distributed to the public by transmission, and such transmissions fall
within the exclusive distribution right of the copyright owner.

The Working Group recommends that the Copyright Act be amended to
recognize 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. The Working Group recommends that
Section 106(3) be amended to read as follows:[346]

(3) to distribute copies or phonorecords of the copyrighted work to the
public by sale or other transfer of ownership, or by rental, lease, or
lending, or by transmission.

The Working Group also recommends other related amendments to the
definition of "transmit" and the importation prohibitions.

A transmission is not necessarily a transmission of a performance
or display of a work.[347] A
transmission may be a transmission of a reproduction of a work.
Therefore, the Working Group recommends that the definition of "transmit" in
Section 101 of the Copyright Act be amended to clarify that reproductions, as
well as performances and displays, can be transmitted, and to delineate between
those transmissions that are communications of performances or displays and
those that are distributions of reproductions.

How to delineate between these types of transmissions is a difficult, but
necessary, issue to resolve. The transmissions themselves hold no clues; one
type often looks the same as the other during the transmission. To delineate
between those transmissions that are communications of performances or displays
and those that are distributions of reproductions, then, one must look at both
ends of the transmission. Did the transmitter intend to communicate a
performance or display of the work or, rather, to distribute a reproduction of
the work? Did the receiver simply hear or see the work or, rather, receive a
copy of it? If the transmitter intends to both communicate a performance or
display and distribute a reproduction -- or if the receiver hears or sees a
performance or display of the work and receives a copy of it, what is the
transmission? The resolution of these issues should rest upon a "primary
purpose or effect" analysis of the transmission.

The Working Group, therefore, recommends that the definition of "transmit"
be amended to read as follows:

To "transmit" a performance or display is to communicate it by any device
or process whereby images or sounds are received beyond the place from which
they are sent. To "transmit" a reproduction is to distribute it by any
device or process whereby a copy or phonorecord of the work is fixed beyond the
place from which it was sent. In the case when a transmission may constitute
both a communication of a performance or display and a distribution of a
reproduction, such transmission shall be considered a distribution of a
reproduction if the primary purpose or effect of the transmission is to
distribute a copy or phonorecord of the work to the recipient of the
transmission.

The Working Group also recommends that the prohibitions on importation be
amended to reflect the fact that, just as copies of copyrighted works can be
distributed by transmission in the United States, they can also be imported
into the United States by transmission. Although we recognize that the U.S.
Customs Service cannot, for all practical purposes, enforce a prohibition on
importation by transmission, given the global dimensions of the information
infrastructure of the future, it is important that copyright owners have the
other remedies for infringements of this type available to them. Therefore,
the Working Group recommends that Section 602 of the Copyright Act be amended
to read as follows:

(a) Importation into the United States, whether by carriage of tangible
goods or by transmission,
without the authority of the owner of copyright
under this title, of copies or phonorecords of a work that have been acquired
outside the United States is an infringement of the exclusive right to
distribute copies or phonorecords under section 106, actionable under section
501.

b. PUBLICATION

The legislative history to the Copyright Act makes clear that "any form of
dissemination in which a material object does not change hands .
. . is not a publication no matter how many people are exposed to the
work."[348] Thus, a transmission of
a performance or display via the NII would not constitute publication, because,
technically, a material object does not change hands.[349] However, in the case of a transmission
of a reproduction, the recipient of the transmission ends up with a copy of the
work. Therefore, the Working Group recommends that the definition of
"publication" in Section 101 of the Copyright Act be amended to include the
concept of distribution by transmission:

"Publication" is the distribution of copies or phonorecords of a work to
the public by sale or other transfer of ownership, or by rental, lease,
lending, or by transmission. The offering to distribute copies or
phonorecords to a group of persons for purposes of further distribution, public
performance, or public display, constitutes publication. A public performance
or display of a work does not of itself constitute publication.[350]

c. FIRST SALE DOCTRINE

The first sale doctrine allows the owner of a particular, lawfully-made
copy of a work to dispose of it in any manner, with certain exceptions,[351] without infringing the copyright
owner's exclusive right of distribution. It seems clear that the first sale
model -- in which the copyright owner parts company with a tangible copy --
should not apply with respect to distribution by transmission, because under
current applications of technology, a transmission involves both the
reproduction of the work and the distribution of the reproduction. In the case
of transmissions, the owner of a particular copy of a work does not "dispose of
the possession of that copy or phonorecord." A copy of the work remains
with the first owner and the recipient of the transmission receives a
reproduction of the work. Therefore, to make clear that the first sale
doctrine does not apply to transmissions, the Working Group recommends that
Section 109 of the Copyright Act be amended to read as follows:

(a) (1) Notwithstanding the provisions of section 106(3), the owner
of a particular copy or phonorecord lawfully made under this title, or any
person authorized by such owner, is entitled, without the authority of the
copyright owner, to sell or otherwise dispose of the possession of that copy or
phonorecord.

(2) This subsection does not apply to the sale or other disposal of the
possession of that copy or phonorecord by transmission.

d. OTHER RELATED AMENDMENTS

The legislative changes outlined above give rise to some difficult issues.
The term "distribute" (or a variant form of the term), which is not defined, is
used more than 90 times in the Copyright Act.[352] Moreover, the term is used in the
definition of "publication," which, in its variant forms, is used more than 100
times. Therefore, care must be taken to identify and analyze all of the
ramifications of a change in the Section 106 right to distribute.

The Working Group is in the process of completing that process and
welcomes public comment in this regard. The Working Group is analyzing whether
each of the limitations of the copyright owner's distribution right should
apply with respect to distribution by transmission.[353]

2. TECHNOLOGICAL PROTECTION

The ease of infringement and the difficulty of detection and enforcement
will cause copyright owners to look to technology, as well as the law, for
protection of their works. However, it is clear that technology can be used to
defeat any protection technology provides. The Working Group finds that legal
protection alone may not be adequate to provide incentive to authors to create
and to disseminate works to the public, unless the law also provides some
protection for the technological processes and systems used to prevent
unauthorized uses of copyrighted works.

Sufficient protection cannot be gained through suits for contributory
infringement. Under the Sony decision, a manufacturer is not liable for
contributory infringement if the device is capable of a "substantial
noninfringing use," even if the device is rarely or never put to
those uses, and even if the use to which it is primarily put is
infringing.

The Working Group finds that prohibition of devices, products, components
and services that defeat technological methods of preventing unauthorized use
is in the public interest. Consumers of copyrighted works pay for the acts of
infringers. The price of copyrighted works for legitimate users is higher due
to infringement losses suffered by copyright owners. The public will also have
access to more works via the NII if copyright owners can more effectively
protect their works from infringement.

Therefore, the Working Group recommends that the Copyright Act be amended
to prohibit the importation, manufacture and distribution of devices, as well
as the provision of services, that defeat anti-copying systems.

Legislation of this type is not unprecedented. The Copyright Act already
protects sound recordings and musical works by prohibiting the circumvention of
any program or circuit that implements a serial copy management system or
similar system included in digital audio recording devices and digital audio
interface devices. Section 1002 provides:

No person shall import, manufacture, or distribute any device, or offer or
perform any service, the primary purpose or effect of which is to avoid,
bypass, remove, deactivate, or otherwise circumvent any program or circuit
which implements, in whole or in part, a [serial copy management system or
similar system].[354]

The Communications Act includes a similar provision:

Any person who manufactures, assembles, modifies, imports, exports, sells,
or distributes any electronic, mechanical, or other device or equipment,
knowing or having reason to know that the device or equipment is primarily of
assistance in the unauthorized decryption of satellite cable programming, or is
intended for any other activity prohibited by [Section 605(a)] shall be fined
not more than $500,000 for each violation, or imprisoned for not more than 5
years for each violation, or both. For purposes of all penalties and remedies
established for violations of this paragraph, the prohibited activity
established herein as it applies to each such device shall be deemed a separate
violation.[355]

Precedent for this type of legislation is also found in the international
arena. The North American Free Trade Agreement requires each party to make it
a criminal offense to "manufacture, import, sell, lease or otherwise make
available a device or system that is primarily of assistance in decoding an
encrypted program-carrying satellite signal without the authorization of the
lawful distributor of such signal . . . ."[356] In 1988, the United Kingdom enacted
legislation prohibiting the manufacture, distribution or sale of a device
designed or adapted to circumvent copy-protection systems.[357]

The Working Group recommends that Chapter 5 of the Copyright Act be
amended to include the following new section 512:

No person shall import, manufacture or distribute any device, product,
or component incorporated into a device or product, or offer or perform any
service, the primary purpose or effect of which is to avoid, bypass, remove,
deactivate, or otherwise circumvent, without authority of the copyright owner
or the law, any process, treatment, mechanism or system which prevents or
inhibits the exercise of any of the exclusive rights under Section
106.

The Working Group recommends other related amendments to provide civil
causes of action and remedies for violations of the proposed prohibition. The
Working Group recommends that Section 501 of the Copyright Act be amended to
read as follows:

(a) Anyone who violates any of the exclusive rights of the copyright owner
as provided by sections 106 through 118 or of the author as provided in section
106A(a), or who imports copies or phonorecords into the United States in
violation of section 602, is an infringer of the copyright or right of the
author, as the case may be. Anyone who violates section 512 is an infringer
of the copyright in a work that utilizes the process, treatment, mechanism or
system which the violator's device, product, component or service
circumvents.

The Working Group recommends that Section 503 of the Copyright Act be
amended to read as follows:

(a) At any time while an action under this title is pending, the court may
order the impounding, on such terms as it may deem reasonable, of all copies or
phonorecords claimed to have been made or used in violation of the copyright
owner's exclusive rights, and of all plates, molds, matrices, masters, tapes,
film negatives, or other articles by means of which such copies or phonorecords
may be reproduced, and of all devices, products or components claimed to
have been imported, manufactured or distributed in violation of section
512
.

(b) As part of a final judgment or decree, the court may order the
destruction or other reasonable disposition of all copies or phonorecords found
to have been made or used in violation of the copyright owner's exclusive
rights, and of all plates, molds, matrices, masters, tapes, film negatives, or
other articles by means of which such copies or phonorecords may be
reproduced, and of all devices, products or components found to have been
imported, manufactured or distributed in violation of section 512.

The Working Group also recommends that Section 506 of the Copyright be
amended to read as follows:

(a) Criminal Infringement. -- Any person who infringes a copyright
willfully and for purposes of commercial advantage or private financial gain
shall be punished as provided in section 2319 of title 18.

(b) Forfeiture and Destruction. -- When any person is convicted of any
violation of subsection (a), the court in its judgment of conviction shall, in
addition to the penalty therein prescribed, order the forfeiture and
destruction or other disposition of all infringing copies or phonorecords and
all implements, devices, products, components or equipment used in the
manufacture of such infringing copies or phonorecords
infringement.

The proposed prohibition on the importation, manufacture and distribution
of devices, products and components, and the provision of services, that
circumvent anti-copying systems is intended to assist copyright owners in the
protection of their works.[358]
Copyright owners who use anti-copying systems to protect their works may bring
actions for infringement against persons who, inter alia,
manufacture or distribute devices whose primary purpose or effect is
circumvention of those systems. The Working Group recognizes, however, that
copyright owners may wish to use such systems to prevent the unauthorized
reproduction, for instance, of their works, but may also wish to allow some
users to deactivate the systems. Therefore, the proposed legislation prohibits
only those devices or products, the primary purpose or effect of which is to
circumvent such systems without authority. That authority may be
granted by the copyright owner or by limitations on the copyright owner's
rights under the Copyright Act.

Standing to bring actions for violations of the proposed legislation is
granted only to copyright owners whose works are protected by the system that
the violator's device, product, component or service circumvents; the
manufacturers of anti-copying systems defeated by violators may not bring
actions for the defeat of such systems.

The Working Group is not without some concerns regarding this proposal,
particularly with regard to works whose term of copyright protection expires
but are still protected by anti-copying systems, and works in the public
domain. However, the Working Group believes the "primary purpose or effect"
standard will allow for the distribution of devices that deactivate the
anti-copying systems used in such works, and that the benefits of the proposed
legislation outweigh the possible problems.

3. COPYRIGHT MANAGEMENT INFORMATION

In the future, the copyright management information associated with a work
-- such as the name of the copyright owner and the terms and conditions for
uses of the work -- may be critical to the efficient operation and success of
the NII. The public should be protected from fraud in the creation or
alteration of such information. Therefore, the Working Group recommends that
the Copyright Act be amended to prohibit fraudulent inclusion of copyright
management information and fraudulent removal or alteration of such
information. The Working Group recommends that Section 101 of the Copyright
Act be amended to include the following definition:

"Copyright management information" means information associated with a
copyrighted work, including, but not limited to, the name and other identifying
information of the copyright owner, the terms and conditions for uses of the
work, and identification codes such as an ISBN number.

The Working Group also recommends that Section 506 of the Copyright Act,
which contains the prohibitions against fraudulent copyright notices and
fraudulent removal of copyright notices, be amended to include the following
new subsections (g) and (h):

(g) Fraudulent Copyright Management Information. -- Any person who, with
fraudulent intent, digitally links with a copy of a copyrighted work copyright
management information that such person knows to be false, or who, with
fraudulent intent, publicly distributes or imports for public distribution any
work with which copyright management information that such person knows to be
false is linked, shall be fined not more than $2,500.

(h) Fraudulent Removal of Copyright Management Information. -- Any
person who, with fraudulent intent, removes or alters any copyright management
information digitally linked with a copy of a copyrighted work shall be fined
not more than $2,500.

4. PUBLIC PERFORMANCE RIGHT

Transmissions of sound recordings may eventually replace the current forms
of distribution of phonorecords. In the very near future, consumers will be
able to receive digital transmissions of sound recordings on demand -- for
performance in the home or for downloading -- from the so-called celestial
jukebox. The legal nature of such transmissions -- whether they are
performances or distributions -- has been widely debated. As discussed above,
the Working Group recommends that Section 106 of the Copyright Act be amended
to make clear that copies or phonorecords can be distributed by transmission.
The Working Group also recommends that a "primary purpose or effect" test be
used to determine whether a transmission is a performance (or display) or a
distribution. However, many of these transmissions will clearly constitute
exercise of the public performance right -- a right which the Copyright Act
fails to grant to copyright owners of sound recordings.[359]

The lack of a public performance right in sound recordings under U.S. law
is an historical anomaly that does not have a strong policy justification --
and certainly not a legal one. Sound recordings are the only copyrighted works
that are capable of being performed that are not granted that right.
Therefore, to play a record on the radio without infringement liability, a
radio station must get a license from, and pay a royalty to, the copyright
owner of the underlying musical work (i.e., the person or entity
who owns the rights in the notes and the lyrics), but it does not have to
obtain permission from, or pay a license fee to, the copyright owner of the
sound recording or the performer on the record. The Working Group believes
that it is time to rectify this inequity.

The Working Group notes that the Administration supports two bills
introduced in Congress that would grant a limited performance right to sound
recordings. The bills, H.R. 2576 and S. 1421, would add to the
exclusive rights of a copyright owner in a sound recording the right to perform
or authorize the performance of the sound recording by "digital transmission."
The right granted in the bill is not the full performance right granted to
other copyrighted works. For instance, the legislation would not change the
law with respect to live public performances. It would also not touch analog
transmissions -- the transmissions currently received over the radio. It would
only grant a right with respect to transmissions in a digital format -- those
that pose the greatest threat to the copyright owners of sound recordings.

5. FAIR USE

The Working Group has significant concerns regarding the ability of the
limitations on copyright owners' exclusive rights -- particularly those
limitations found in Sections 107 (fair use), 108 (library exemptions) and
110(1) and (2) (educational uses) -- to provide the public with adequate access
to copyrighted works transmitted via the NII. As more and more works are
available primarily or exclusively on-line, it is critical that researchers,
students and other members of the public have opportunities on-line
equivalent to their current opportunities off-line to browse through
copyrighted works in their schools and public libraries.

The Copyright Act exists for the benefit of the public. To fulfill its
constitutional purpose, the law should strive to make the information contained
in protected works of authorship freely available to the public. "Freely
available," of course, does not necessarily mean "available free." The Working
Group does not believe that authors should be required to donate access time to
their works on-line, but some reasonable approach must be adopted to ensure
that the economically disadvantaged in this country are not further
disadvantaged or disenfranchised by the information revolution. Public
libraries and schools, and the access to information that they provide, have
been important safeguards against this nation becoming a nation of information
"haves" and "have nots." We must ensure that they continue to be able to
assume that role.

Guidelines for library and educational use of printed matter and music
were voluntarily adopted by diverse parties and set out in the House and
Conference reports accompanying the 1976 revisions to the Copyright Act.[360] While the principles should still be
applicable, it is difficult and, perhaps, inappropriate, to apply the specific
language of some of those guidelines in the context of digital works and
on-line services.

Therefore, the Working Group will sponsor a conference to bring together
copyright owner and user interests to develop guidelines for fair uses of
copyrighted works by and in public libraries and schools. To increase the
productivity of the conference, the number of participants will be
limited. However, attendance at the conference will be open to the public.
Those wishing to participate in the conference should send a one-page request
to Terri A. Southwick, Attorney-Advisor, Office of Legislative and
International Affairs, U.S. Patent and Trademark Office, Box 4, Washington,
D.C. 20231. Requests must be received by July 25, 1994, and should
include a brief description of the interests that would be represented at the
conference by the requestor.

The location and date of the conference will be announced in the press, on
the IITF Bulletin Board, and in the Federal Register.

6. LICENSING

With limited exceptions, intellectual property law leaves the licensing of
rights to the marketplace. In certain circumstances, particularly where
transaction costs are believed to dwarf per-transaction royalties, Congress has
found it necessary to provide for compulsory licenses.[361] The Working Group finds that under
current conditions, additional compulsory licensing of intellectual property
rights is neither necessary nor desirable. Transaction costs -- and the
attendant savings from compulsory licensing -- can be minimized in a digital
environment. The marketplace should be allowed to develop whatever legal
licensing systems may be appropriate for the NII.

7. INTERNATIONAL

There is little dispute that worldwide high-speed digital communications
networks will have an enormous effect on the way in which works of authorship
will be created, stored, communicated to the public, distributed and paid for.
This communication revolution is now bringing new opportunities and new
challenges to creators and users of intellectual property. The full
implementation of the NII and the GII will have an immense effect on our
economy, and implementation of such systems internationally will have an
equally broad impact on world-wide commerce. We must be committed to finding
the means to preserve the integrity of intellectual property rights in the
materials that will flow in the commerce created in this environment. This is
a daunting challenge in the context of the U.S. domestic market. Today we are
faced with an even greater challenge, to lay the groundwork for an
international basis which ensures that the digital revolution will not
disadvantage those whom we seek to protect.

As we move toward a world where dissemination of entertainment and
information products through on-demand delivery services operating through
interactive digital information communications networks is the norm, it may be
necessary to harmonize levels of protection under disparate systems of
copyright, authors' rights and neighboring rights, and consideration should be
given to ways to bridge the gaps among these systems.

If the GII as well as national NIIs are to flourish, then
the intellectual property rights that will undergird the economic structure
supporting these infrastructures must unequivocally be granted in national
legislation fully on the basis of national treatment for all
rights and benefits. However, there is some controversy over the scope of the
national treatment obligation under the Berne Convention and its application to
what some may regard as newly created rights and subject matter. Similar
questions arise under other international copyright and neighboring rights
conventions as will be later discussed.

U.S. copyright legislation has granted rights that some may regard as new
rights -- rental rights in computer programs, sound recordings, and musical
works embodied in sound recordings -- exclusively on the basis of national
treatment. The United States has instituted a system of royalties on blank
digital audio recording media and digital audio recorders. Benefits from these
rights have all been granted on the basis of full national treatment. We
believe that this is consistent with our obligations under the Berne Convention
and other international intellectual property and trade treaties and
agreements.

The author or rights holder should be able to realize fully the economic
benefits flowing from the free exercise of his or her rights in any country
participating in a GII. This is required by Article 5 of the Berne Convention.
To do otherwise in either a Berne Protocol or another agreement on copyright
protection would be contrary to Article 20 because it would be a derogation of
rights existing under Berne and not be an Agreement to "grant to authors more
extensive rights than those granted by the Convention, or contain other
provisions not contrary to this Convention" as provided for under Article
20.[362] To protect new works or to
grant new rights in respect of those or presently protected works on the basis
of reciprocity, would be contrary to the letter and the spirit of the
Convention.

As the GII continues to develop through the international
interconnection of NIIs, rules must be formulated to protect the economic
rights of providers of entertainment and information products. Such rules
should be based on principles of national treatment along the lines of the
following:

1. Each country participating in the GII shall accord to nationals of
another country participating in the GII no less favorable treatment than it
accords to its own nationals with regard to all rights and benefits now, or
hereafter, granted under its domestic laws in respect of literary and artistic
works or fixations[363] embodying
such works.

2. Benefits shall include the same possibility to exploit and enjoy rights
in the national territory of a country participating in the GII as the
respective country grants to its own nationals.

3. No country participating in the GII shall, as a condition of according
national treatment, require rights holders to comply with any formalities in
order to acquire rights in respect of literary and artistic works or fixations
embodying such works.

One of the most important issues will be what is the nature
of a dissemination of a work or a fixation of a work in digital format? Is it
a public performance of the work or fixation, an act of reproduction, or a
distribution? How do rules concerning the right of importation apply in a
digital environment? Just as these questions are critical in the domestic
context, they are equally acute in the context of international treaties and
harmonization of laws.

Additionally, the issue of multimedia works will take on an important
international dimension. If these are regarded at the international level as
works in a new, separate category, the issue of their coverage under the
existing conventions and the rule of national treatment will be open to debate.
If, however, they are subsumed into the existing categories of works,
establishing meaningful rules internationally will be simplified.

Further study to determine what other rights may need to be adapted to the
emerging digital environment are underway both in domestic and international
fora. However some issues merit identification here, and one of those is the
level of protection to be accorded to sound recordings.

Many believe that the time has come to bring protection for performers and
producers of sound recordings into line with the protection afforded to the
creators of other works protected under the Berne Convention. This includes
providing high-level standards for rights and benefits granted on the basis of
national treatment. This is necessary for a number of reasons. First, there
is no just reason to accord a lower level of protection to one special class of
creative artists. Second, the extent of international trade in sound
recordings makes it imperative that standards of protection be harmonized at a
high level. Third, and perhaps most importantly, the digital communications
revolution -- the creation of advanced information infrastructures -- is
erasing the distinctions among different categories of protected works and
sound recordings and the uses made of them.

Concerns have been raised over the extent and scope of moral rights in the
world of digital communications. Some believe that the ability to modify and
restructure existing works make moral rights more important than ever before.
Others take the view that moral rights must be rethought in the digital world.
We agree with this view. New thought must be given to the scope, extent and
waivability of moral rights in digitized information.

The harmonization issues most relevant to the NII arise in the
context of WIPO efforts to establish a Possible Protocol to the Berne
Convention (Berne Protocol) and a Possible New Instrument for the Protection of
Performers and Producers of Phonograms (New Instrument). In the Berne
Protocol, the relevant activities concern the protection of computer programs
as literary works, protection for databases as compilations of information
other than works, the possible elimination of compulsory licensing for
broadcasting, and special provisions for the use of materials in digital
distribution systems. In the New Instrument, the most relevant issues are the
possible establishment of a public performance right for sound recordings
(possibly limited to digital broadcasting) and the possibility of a digital
distribution or dissemination right for sound recordings.

To attain the needed level of protection internationally, we must find
ways to span the differences between the continental droit d'auteur and neighboring rights systems and the Anglo-American copyright
systems. An essential element of this effort will be to harmonize levels of
protection by establishing standards that can be implemented through either
system.

B. TECHNOLOGY

Interoperability and interconnectivity of networks, systems,
services and products operating within the NII will enhance its development and
success. Standardization of copyright management (standardized header
information and format, for instance) as well as technological protection
methods (such as encryption) may also be useful. The question of whether any
standards should be established, either through government regulation or
industry consensus, however, is not within the purview of this Working Group.
The issue of what those standards should be, if established, is similarly
outside the scope of the area of inquiry of the Working Group.[364] If a standard is established, however,
protection of intellectual property rights used in that standard is of concern
to this Group.

The intellectual property rights implications of the standards-setting
process are not new with the development of the NII. The Federal
Communications Commission, for instance, has established standards in related
areas without interfering with the legitimate rights of intellectual property
rights owners.[365]

The Working Group finds that in the case of standards to be established,
by the government or the private sector, the owner of any intellectual property
rights involved must be able to decline to have its property used in the
standard, if such use would result in the unauthorized exercise of those
rights. If the rights holder wishes to have its intellectual property as part
of the standard, an agreement to license the necessary rights on a
nondiscriminatory basis and on reasonable terms may be required. In the case
of de facto standards, arising out of market domination by an
intellectual property rights holder, unfair licensing practices can be dealt
with through the antitrust laws.

C. EDUCATION

Effective education of the public about intellectual property
rights is crucial to the successful development of the NII. Therefore, the
principles of intellectual property law must be taught in our schools and
libraries. Educational efforts to increase the public's awareness of their own
intellectual property rights, as well as those of others, will increase respect
for those rights. Clearer guidelines with respect to the exclusive rights of
copyright and other intellectual property rights holders, as well as the
limitations on those rights, will make compliance with the law easier.

Following its conference on fair use, the Working Group will sponsor a
second conference on intellectual property education. The purpose of that
conference will be to develop curricula that may be used in schools and
libraries. Additional means of education, particularly those that use the NII
itself, will also be explored and developed. To increase the productivity of
the conference, the number of participants will be limited. However,
attendance at the conference will be open to the public. Those wishing to
participate in the conference should send a one-page request to Terri A.
Southwick, Attorney-Advisor, Office of Legislative and International Affairs,
U.S. Patent and Trademark Office, Box 4, Washington, D.C. 20231. Requests
must be received by July 25, 1994, and should include a brief description
of the interests that would be represented at the intellectual property
education conference by the requestor.

The location and date of the conference will be announced in the press, on
the IITF Bulletin Board, and in the Federal Register.