Net Loss: Internet Profits, Private Profits and the Costs to Community
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by Nathan Newman
April 01, 1999
How many angels can dance on the head of a pin?
Or rather, if an angel were a piece of information, itself unprotected by copyright, how many such fact angels would have to dance on a pin for the pin itself to be protected by copyright.
That is the theological level of debate around intellectual property rights for database compilations - a debate that has raged from the European Union tot he World Information Property Organization (WIPO) to a still burning legislative struggle in the United States Congress.
While the tension between the free flow of information and the protections sought by compilers of information has existed for a long time, the ignition point for the recent firestorm began with the Supreme Court's decision in Feist Publications, Inc. v. Rural Tel. Service Co., 499 U.S. 340 (1991). In a remarkable 9-0 decision that dismayed the database industry and pleased consumer advocates and librarians, the Court ruled that mere compilations of facts lacked both statutory and constitutional protection. Only originality in the arrangement of such facts would warrant protection under Article I, 8, cl. 8, of the Constitution.
In Feist, Rural Telephone Service, a small Kansas phone monopoly, sued Feist Publications for creating a multi-town phone book partially using facts listed in Rural's own phonebook. Both the District Court and the 10th Circuit ruled in Rural's favor under a "sweat of the brow" theory of protection for the effort involved in compiling such telephone listings. Under those lower court rulings, Feist was ordered to do its own research for its phonebook, rather than relying on that of Rural. These lower court rulings were based on old disputed precedents, including, Leon v. Pacific Telephone & Telegraph Co., 91 F.2d 484 (CA9 1937) and Jeweler's Circular Publishing Co. v. Keystone Publishing Co., 281 F. 83 (CA2 1922).
It was these precedents that the Supreme Court unanimously dismissed; not only did compilations require creativity for copyright protection, but even if such compilations themselves received copyright protection, "the facts contained in existing works may be freely copied, because copyright protects only the elements that owe their origin to the compiler - the selection, coordination, and arrangement of facts." [499 U.S. 340, 361]
To those who complained that this hurt compilers of information, the Court was blunt and tough. It may seem unfair that others can profit from sweat of compilation, the Court noted, but it cited a string of other precedents upholding fair use:
• "The primary objective of copyright is not to reward the labor of authors, but '[t]o promote the Progress of Science and useful Arts." Art. I, 8, cl. 8. '" Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975).
• "To this end, copyright assures authors the right to their original expression, but encourages others to build freely upon the ideas and information conveyed by a work." Harper & Row, 471 U.S., at 589
• "The very object of publishing a book on science or the useful arts is to communicate to the world the useful knowledge which it contains. But this object would be frustrated if the knowledge could not be used without incurring the guilt of piracy of the book." Baker v. Selden, 101 U.S. 99, 103 (1880).
One issue the Court also highlighted was the fear that those with the economic power to collect certain kinds of information, such as telephone companies' special access to subscriber information, would end up with information monopolies. Since the supporters of database copyright protection would argue that such monopolies were needed to encourage the effort required for a strong database industry - especially as electronic access was making copying so much easier - the Court had dropped a legal bomb on the database industry.
And the database industry began furiously organizing a global response.
The European Directive and the WIPO Conflict
The database industry made little initial progress in the United States, although a Clinton Administration white paper on intellectual property matters begun in 1995 emphasized, without mentioning databases directly, the importance of protecting information-ownership rights as the Internet developed. This was the first alarm for fair-use advocates in the United States.
More alarming was the passage in the European Union (EU) of a 1996 directive that required member states to provide sui generis protection of databases - i.e. sweat-of-the-brow copyright protection for compiled information. Most significantly for US policy, the directive would simultaneously revoke such coverage for databases made in countries that lack comparable laws to protect European products - the United States database industry being the number one target.
The directive was both a new threat and a new opportunity for the US database industry. They could now move the database issue from a fight between corporations and librarians, a losing position for the industry, into a economic "competitiveness" issue where the United States needed to act to prevent foreign database companies from gaining an advantage on domestic industry. Essentially, instead of arguing that Feist itself threatened the database industry - a hard argument to maintain given the industry's profits - the industry could now argue that whatever the legal merits of "fair use" copying, it was a dead letter globally. The US had to conform to international standards or lose out economically.
In fall of 1996, attention was focused on a December World Intellectual Property Organization (WIPO) meeting where the United States, under pressure from the database industry, proposed a draft for a global treaty granting sui generis database protection. Fair use advocates launched an all-out lobbying effort, including opposition letters from the National Academy of Sciences, the Institute of Medicine and the Academy of Engineering, despite rules barring them from lobbying. Under this grassroots onslaught, the US delegation reversed course and dropped all reference to database protection and no treaty emerged from the WIPO meeting.
For more information on the WIPO debate, see the Digital Futures Coalition page on WIPO developments.
H.R.2652 and the Debate over Misappropriation
Still, the WIPO debate had captured the attention of US lawmakers. When legislation was introduced to Congress on behalf of the database industry, the Collections of Information Antipiracy Act, H.R.2652>, the Subcommittee report framed the need for the legislation directly in terms of the new European sui generis protection:
"This new protection will not be extended to U.S.-originated databases unless the U.S. is found to offer `comparable' protection to European databases. When fully implemented, the European Directive could place U.S. firms at an enormous competitive disadvantage throughout the entire European Union market. This Act is intended to remedy that problem by providing protection comparable to that outlined in the Directive without regard to a database producer's country of origin."["Background and the Need for Legislation." Collections of Information Antipiracy Act, H.R.2652]
In the 105th Congress, Congressman Howard Coble would promote the bill in the House, while Senator Orrin Hatch would be the database industry's leading defender in the Senate. Major testimony was taken on H.R.2552 on October 23, 1997 and on February 12, 1998 where industry and fair use advocates clashed on both the need and the dangers involved in the legislation.
Speaking for the Information Industry Association, a 550-company association involved in distributing content and information online, NASDAQ's General Counsel Robert Ader, highlighted the economic danger to the US database industry from the European threat: "the onerous reciprocity provision in the EU Directive, may soon be interpreted as a virtual 'license to steal' by unscrupulous overseas competitors." Defenders of the bill noted that the bill's protection was focused specifically on economic protection of the labor involved in creating databases, not on a general copyright for any amalgam of information regardless of the effort involved. Speaking on behalf of the bill, Professor Jane Ginsberg of the Columbia University School of Law argued: " Because this bill is intended to restore incentives to invest in information-gathering by reestablishing 'sweat rights,' it is important to ensure that protection attaches only to the 'sweat' expended, and not to material 'gathered, organized, or maintained' without substantial expenditure of labor or money."
For those less convinced of the economic threat from data piracy, Former White House Counsel of Economic Advisors Chair Laura D'Andrea Tyson, now a consultant to Reed-Elsevier Inc. and The Thomson Corporation (owner of West Publishing), argued that if databases were not protected legally, database companies would be forced to use technological means to protect their data in ways that would hurt consumers: "Without statutory protection, database producers can be expected to underprovide their products in easily-copyable formats (such as CD-ROM). This has two effects: consumers are made worse off because they are deprived of database format choices; and industry growth is slowed by the resources spent on self-help means to prevent copying."
Those opposing the bill largely discounted the need for extra protection for the database industry. Jerome A. Reichman, law professor and Senior Advisor to the National Research Council, noted somewhat sarcastically, "we do not believe that the 65 to 75% U.S. share of the world market for databases reflects a failure of incentives." Others argued that long-standing state misappropriation laws prevented competing companies from many forms of database infringement but that the danger of the present bill was the expansion of sanctions to individual users in new, undefined ways. James G. Neal, Director of the Milton S. Eisenhower Library at Johns Hopkins, spoke on behalf of five library associations:
Traditional misappropriation doctrine deals only with injuries resulting from unfair conduct among commercial competitors. In contrast, H.R. 2652 would penalize any "substantial" use of extraction of data that affected the actual or potential market for a product or service. Thus, the prohibitions in this bill would go beyond the sphere of competition, to reach the activities of individual consumers and not-for-profit institutions such as libraries. This casts a wide net, has potentially serious consequences to libraries as providers of information services, and could conceivably chill the legitimate use of databases and related collections… no term limit on protection is proposed, protection would be perpetual, thus information would not move into the public domain.
Worse, many saw the bill as undermining the traditional commitment of the country to public funding and support of public domain databases that had been at the core of scientific advancement in the country. Dr. William Wulf, President of the National Academy of Engineering, argued that this past availability had made the United States "a leader in the collection and dissemination of scientific and technical data…A necessary component of these past and continuing achievements has been the wide availability of scientific and technical data and information, ranging from raw or minimally processed data to cutting-edge research articles in newly developing fields. This information has been assembled as a matter of public responsibility by the individuals and institutions of the scientific and engineering communities, largely with the support of public funding."
For more information on the legislative debate, see
Databases and the Debate on Open Source Innovation
This last argument highlights a much deeper, more broad-ranging debate over whether intellectual property in fact facilitates or actively undermines innovation. The traditional view is that intellectual property is needed as an incentive for innovation, while the public would reap the fruits of that innovation through protections of "fair use." Thus, the only debate was over balancing the utilities of creation and consumption of innovation.
More recently, however, a broad array of innovators have questioned whether intellectual property itself discourages and distorts innovation at the moment of creation as well. Policy activists like Ralph Nader and Jamie Love at the Consumer Project on Technology have linked the debate on protecting fair use access to databases with the promotion of so-called "open source" computer software such as the freely available Linux operating system.
Where the database and commercial software industry argues that intellectual property is required to promote the quality control and centralized investment needed for innovation, the open source movement has argued that a model of decentralized, collaborative incrementalism creates much more robust innovation over the long-term. An article called "The Cathedral and the Bazaar" by Eric Raymond, a computer programmer who manages the OpenSource.org site promoting the movement, has become a bible for the movement in elaborating the argument that innovative information-based "bazaars" unprotected by intellectual property are more innovative than private centrally-controlled "cathedrals."
In fact, where database companies use the new ease of data copying allowed by the Internet to justify stronger intellectual property protection, the open source movement argues that it is exactly such flows that have made attempts to centralize private control of data and software an innovative dead horse in the new era as the Internet has increased the ease of collaboration. A colleague of Raymond's, Clay Shirky, has argued in an article called In Praise of Evolvable Systems, that while proprietarily-owned software or databases may justify themselves because of an apparent completeness in their initial form, they are ultimately less powerful than public systems over time. "In a sense, the Internet is a public database of goods which is infuriatingly incomplete and clumsy sometimes - the argument for private goods or databases - but gains robustness from its very nature."
While some open source advocates have a serene confidence in the ultimate triumph of open systems and databases over proprietary alternatives, others like Richard Stallman of the Free Software Foundation see intellectual property as fundamentally undermining innovation by discouraging public-interested collaboration. In his view, the very existence of copyrighted databases, software, and operating manuals discourage the creation of free alternatives - neatly turning on its head the argument of those who argue that lack of copyright discourages the creation of commercial databases and software.
Databases and Monopoly Control
The debate over innovation poses a conflict over how to promote a rich system of information production and consumption. But fanning the flames of alarm by public interest advocates is not just the thought of lost innovation but fears over the monopoly power that could be created by ownership over the databases crucial to civic and economic exchange.
In Feist, the Supreme Court had nodded to the worry that Rural Telephone would have monopoly access to information about its subscribers if ownership of its phonebook database was recognized. With companies like the New York Stock Exchange and West Publishing fighting for database legislation that would give them property rights over key information about the securities markets and legal system respectively, the small worries in Feist blossomed into debate about how such changes could fundamentally alter power relations in our economy.
The alarm bells on Wall Street were relatively late coming. The discount brokerage Charles Schwab & Co. had a long history of tussling with the exchanges over access to market information. Schwab had come out against the database legislation which was backed by the NYSE and the NASDAQ exchanges, but that fight was relatively lonely and low key. But in mid-1998, the NYSE doubled its fees for real-time stock information to brokerages- a special burden for low-margin brokerages like Schwab and other Internet-based trading companies but a large enough increase to focus the attention even of the full-service brokerages like PaineWebber and Merril Lynch.
For the larger firms, the specific increase in fees was less the issue than the reminder that if the stock exchanges were able to assert property rights over their market information, brokerage firms could be facing not only higher fees but a whole range of civil and criminal penalties for distributing information that had long been a normal part of their business practices. Economic power would shift decisively towards the exchanges controlling information. The 1934 Securities and Exchange Act had long recognized the right of the Exchanges to charge for real-time market information, but the fees were regulated to ensure dissemination to the greatest amount of people and with fees purely to compensate for the costs of collection and distribution. While the Exchanges have argued publicly that the database legislation would merely ratify the status quo, even they have privately acknowledged that their property rights and economic power would be significantly expanded by the proposed legislation.
In the case of West Publishing, the company has battled for over a decade for ownership of their databases of legal opinions and of their system of page numbering - an odd yet crucial right in a legal world where competing publishers need to cite such page numbers used by judges citing West's past publications of cases. West had initial successes in the 1980s in cases like West Publishing v. Mead Data Central, 799 F.2d 1219 (8th Cir. 1986), where West won a preliminary injunction against Lexis using its page numbers. Before case went to court, Lexis settled and paid an undisclosed license fee for use of the page numbers.
With Feist, the tide began to turn and public interest advocates began clamouring for government action to make access to legal research cheaper and more broadly available than under the West monopoly. CPT's Page on Public Access to Legal Information and the Hyperlaw page on Database Protection Issue documents the broad arguments made against the West monopoly, but the upshot was an antitrust lawsuit against West and its new owner Thomson Corporation, leading to a consent decree in U.S. v. Thompson Corporation 1997 WL 226233 (D.D.C.) where West agreed to a compulsory license for use of its page numbering system, followed the next year by the 2nd Circuit Court of Appeals definatively rejecting in two separate opinions West's legal rights to prevent competing companies from copying its court opinions (158 F.3d 674) or using its pagination system for citations (158 F.3d 693).
As shown by West-Thomson's enlistment of Laura Tyson, Clinton's former Chair of the Council of Economic Advisors, the company has seen the new database legislation as a way to regroup after its legal losses suffered in recent years. Its opponents see it as one more chance for West to leverage its control over critical legal information into massive profits at the public's expense. As Jamie Love and other public advocates have argued, "Is not the law the most public of all public documents? Isn't it unseemly for the court to operate as a profit center for a commercial entity?"
The worries over monopoly control just highlight the basic first amendment concerns that always hover around intellectual property. If private companies are given control over such vital legal and economic information, the cost is not merely the fees paid in monopoly rents but a loss of fundamental information needed for democratic society to operate. That is the conflict that lies at the heart of the national and global debate over database protections.