What Every Database Owner Should Know - How to Legally Protect Data

This article, originally published on 4/30/04 on Mondaq.com, is reprinted in full with the express permission of Piper Rudnick LLP. Author: Mark Feldman, Piper Rudnick LLP

Is there a gap in United States intellectual property law that should be filled by new legislation? The controversial issue of protecting factual databases is once again before Congress. Many owners of commercial databases have sought federal protection for compilations of information since 1991, when the Supreme Court ruled that copyright law protects only the selection and arrangement of factual information in a compilation, not the underlying facts themselves.

Proponents of database protection argue that a new law, protecting the contents of databases from unauthorized copying, is necessary to provide an incentive to invest in the creation of databases and to bar what they characterize as piracy. A powerful opposition group, which includes scientists, librarians, large database users, and the United States Chamber of Commerce, rejects this view, contending either that existing laws adequately protect databases or that only minor changes in law are needed.

 These forces have battled to a standstill. The most recent attempt to enact legislation, the proposed Database and Collections of Information Misappropriation Act, H.R. 3261, was approved by the House Subcommittee on Courts, the Internet, and Intellectual Property in January 2004, but was rejected in favor of a weaker alternative by the House Subcommittee on Commerce, Trade, and Consumer Protection on February 25, 2004.1 The likelihood that Congress will not enact database legislation soon suggests that database owners should explore alternatives to provide themselves with maximum protection under existing law.

Databases Under United States Copyright Law

Copyright law protects expression, not underlying factual information. In Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 349 (1991), the Supreme Court held that with respect to compilations of factual information, "only the compiler’s selection and arrangement may be protected; the raw facts may be copied at will." Feist rejected the "sweat of the brow" theory under which the effort involved in compiling facts justified extending copyright protection to the contents of a database. However, protection of "selection and arrangement" does little for commercial databases that provide all data relevant to a universe of facts but do not arrange the data in a creative fashion (for example, a telephone directory that lists all subscribers in a region in alphabetical order). Under Feist, the compilers of these databases cannot use copyright to stop the appropriation, repackaging, and redistribution of their database information. The Feist decision left the multibillion-dollar United States database industry scrambling for another source of protection.

European Sui Generis Database Protection

Meanwhile, protection for databases increased dramatically across the Atlantic Ocean. Observing that existing legislation failed to adequately protect databases in all of its member states, the European Union issued a directive in 1996 to establish a new uniform protection for databases in all EU countries.2 The directive required member states to enact legislation that created a new "sui generis" right in a database, protecting the "substantial investment in either the obtaining, verification, or presentation of the contents" by preventing the extraction or re-utilization of the whole or of "a substantial part" of the database.

Most significantly for American companies, the EU directive extended protection only to databases created by residents of EU member states and those created by nationals of countries that extend reciprocal protection to EU nationals.3 United States database owners contend that unless Congress adopts a similar sui generis database protection law, their databases will have no protection in Europe, and Europeans will gain dominance in the global database industry.

Misappropriation As an Alternative Form of Protection For Databases

Those who oppose sui generis database protection in the United States have nonetheless conceded that a database may deserve protection from wholesale misappropriation that directly competes with the original database. They have proposed protecting databases along the lines of the "hot news" misappropriation doctrine. This doctrine derives from the Supreme Court’s decision in International News Service v. Associated Press (INS), which held that under "federal common law," a wire service could prevent a direct competitor from copying and distributing its news content if the competitor did not incur costs in gathering the news and if the competitor’s activity "would render publication profitless... as in effect to cut off the service by rendering the cost prohibitive in comparison with the return."4 The Supreme Court emphasized that it was not creating a property right in news but was merely requiring the competitor to postpone its reproduction of news until the gatherer of the news had an opportunity to reap the fruits of its expenditure.5 The doctrine was adopted into the case law of several states, notably New York.

The INS holding was modernized in 1997 in a Second Circuit decision, National Basketball Association v. Motorola, Inc. (NBA).6 NBA held that a sports data service did not commit hot news misappropriation by having its workers watch NBA basketball games on television and extract the scores and other statistical information for transmission to pagers and computers. The Second Circuit set forth five factors necessary for a successful hot news claim: (1) plaintiff generates or gathers information at a cost; (2) information is time sensitive; (3) defendant’s use of the information constitutes free riding on the plaintiff’s efforts; (4) defendant is in direct competition with a product or service offered by plaintiff; and (5) the ability of other parties to free ride on the efforts of the plaintiff or others would reduce the incentive to produce the product or service such that its existence or quality would be substantially threatened.7 The NBA failed this test because the defendants had engaged in data capture from public broadcasts at their own expense, rather than free riding on the NBA’s statistical system. NBA’s definition of misappropriation has nonetheless become the defining precedent in the battle over database legislation.

History of Database Protection Legislation Attempts

In the realm of copyright law, the motion picture and record industries have obtained new laws protecting their works without facing substantial opposition. The situation surrounding database legislation, however, is very different: The pro- and anti-database protection camps are of equal lobbying strength. Proponents of database protection legislation consist mostly of companies that compile and distribute databases. They have found support within the Subcommittee on Courts, the Internet, and Intellectual Property of the House Committee on the Judiciary. Forces opposing the proposed law include academic and research interests and certain database companies that make heavy use of others’ data. The opponents have found support in the Subcommittee on Commerce, Trade, and Consumer Protection of the House Commerce Committee.8

The history of failed legislation demonstrates the deadlock. H.R. 3531, a bill proposing a sui generis right in databases, died without a vote in 1996. In 1998, H.R. 2652, which would have enacted an unfair competition approach to protecting databases, passed the House but not the Senate. The following term saw competing bills from the two subcommittees, H.R. 354 and H.R. 1858, neither of which were passed by the House.

For strategic reasons, the pro-protection forces ultimately abandoned the sui generis approach to support a bill that would give a right of action resembling a strengthened NBA misappropriation claim. This change initially appeared to break the stalemate. In 2003, the chairs of the interested House subcommittees, Representatives Billy Tauzin for Commerce and James Sensenbrenner for the Judiciary, co-sponsored H.R. 3261. This bill would provide database owners with a new federal cause of action for damages and injunction, upon proof that largely tracked NBA’s hot news criteria. This bill was approved by the Subcommittee on Courts, the Internet, and Intellectual Property in January 2004, and referred to the House Subcommittee on Commerce, Trade, and Consumer Protection. However, by that time, Representative Tauzin had left the subcommittee and had announced his intention to retire from Congress. In his absence, the anti-protection forces in the subcommittee regained control. They declined to consider H.R. 3261 and instead reported a narrower "committee print" bill. This proposed legislation, the Consumer Access to Information Act of 2004, would not give database owners any private right of action. Instead, it would leave enforcement of hot-news-type misappropriation claims to the FTC as an unfair trade practice.9 This maneuver appears to have effectively blocked database legislation for the rest of the current Congress: if the conflicting Commerce Committee and Judiciary Committee bills are both reported, the House leadership is unlikely to send either bill to the House floor for a vote.10

Protecting Databases Under Current Law

Given the continuing inability of Congress to enact any database protection, do owners of databases have any means under current law to protect their products against commercial misappropriation? There are indeed methods and laws which, although not ideal, provide some measure of protection against database misappropriation.

The first is contract. Parties may, by contract, extend greater protection to data than copyright law provides, and an action for breach of such contracts is not preempted by the Copyright Act.11 Many databases maintain their value only when they are frequently updated. Database owners can include in their subscription contracts terms that allow cancellation of subscribers who are suspected of allowing unauthorized copying of the databases and that impose liability (perhaps in the form of liquidated damages) on subscribers who are proven to have engaged in, or allowed, improper copying.

The Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (CFAA), may also provide a deterrent against misappropriation of on-line databases. The CFAA punishes as a crime access to a computer or computer files without authorization from the computer owner, where the damage from access exceeds $5,000, and creates a private right of action for compensatory damages and injunctive relief. The courts have yet to definitively determine whether access that diminishes the economic value of data stored on a computer meets the definition of damage under the CFAA.12 To trigger the CFAA’s protections, a database owner should include a conspicuous and explicit statement on its web site that users are not authorized to copy or extract data from the database.13

Finally, state law may provide causes of action to database owners. Proprietors of time-sensitive databases may be able to sue under the hot news misappropriation doctrine.14 Although the California Supreme Court rejected a claim that unauthorized access to computers constitutes trespass to chattels,15 other courts have upheld trespass claims where data has been copied from web sites without permission.16

Conclusion

The likely demise of H.R. 3261 signals that tenacious resistance to the enactment of federal protection for databases still persists. Proponents of database protection have failed to garner sufficient support by moving from a sui generis right to a modified NBA v. Motorola approach. Opponents continue to argue that there is no evidence that databases are inadequately protected under current law. Whether the congressional stalemate is eventually broken may now depend on whether proponents can offer empirical proof that the absence of legislation is actually undermining the ability of United States database companies to compete at home and abroad. In the meantime, database owners who are concerned about commercial misappropriation should use available remedies to protect their interests.

Endnotes:

1 See, e.g., Legislation Database Protection: Commerce Subcommittee Declines to Move Judiciary Panel’s Database Bill, Offers Its Own, 67 PATENT TRADEMARK & COPYRIGHT JOURNAL 361 (February 27, 2004).
2 Directive 96/9/EC of the European Parliament and of the Council of March 11, 1996 on the Legal Protection of Databases, 1996 O.J. (L 77) 20.
3 See, e.g., U.S. Copyright Office Report On Legal Protection For Databases (August 1997), available at http://www.copyright.gov/reports/dbase.html.
4 International News Service v. Associated Press, 248 U.S. 215, 241 (1918).
5 Id.
6 105 F.3d 841 (2d Cir. 1997).
7 Id. at 845.
8 For a review of attempts at federal database legislation, see House Judiciary Committee Approves Database Protection Bill, TECH LAW JOURNAL at http://www.techlawjournal.com/topstories/2004/20040121.asp
9 For the text of this "committee print," see http://pub.bna.com/ptcj/abill.pdf.
10 House Commerce Committee Approves Alternate Database Bill, TECH LAW JOURNAL at http://www.techlawjournal.com/topstories/2004/20040225.asp (interview with H.R. 3261 opponent Rep. Rick Boucher (D-VA)).
11 See, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996).
12 Such a theory was recognized in the recent decision in.I.M.S. Inquiry Management Systems, Ltd. v. Berkshire Information Systems, Inc, 2004 U.S. Dist. LEXIS 2673 (S.D.N.Y. Feb. 20, 2004) (denying motion to dismiss CFAA claim based on unauthorized copying of a database by plaintiff’s competitor).
13 See, e.g., EF Cultural Travel BV v. Zefer Corp., 318 F.3d 58 (1st Cir. 2003).
14 See, e.g. Pollstar v. Gigmania Ltd., No. CIV-F-00-5671-REC-SMS (E.D. Cal. Oct. 17, 2000).
15 Intel v. Hamidi, 71 P.2d 296 (Cal. 2003).
16 See, e.g., Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004)

This post is for educational and information purposes only. It is not legal advice on any particular case, and merely a general opinion of one California lawyer. You should not rely on it without consulting a competent attorney in your area about your specific case and facts. It is not intended to, and shall not, create an attorney-client relationship. So, be happy you got some free info and use your grey matter!

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