THE PROPOSED DAT ASE DIRF AMENDED PROPOSAL FOR A COUNCIL DIRECTIVE ON THE LEGAL PROTECTION OF

DATABASES (93/C 308/01) COM (93) 464 FINAL - SYN 393

(Submitted by the Commission on 4 October 1993)

TABLE OF CONTENTS I INTRODUCTION II EXISTING MEMBER STATE LEGISLATION III THE ECONOMIC AND POLITICAL BACKGROUND IV THE PROVISIONS OF THE DRAFT DIRECTIVE

A. Copyright Protection

1. Authorship 2. Eligibility for Protection 3. Exclusive Rights

B. The Unauthorized E~raction:Right 1. ~ e Scope of Protection

2. Reciprocity 3. ~ e Term of Protection

C. Common Pro~sions

1. Remedies 2. Intera~ion with other legal provisions 3. Timing of the legislation

V CONCLUSION

THE DRAFT DATABASE DIRECTIVE

I INTRODUCTION On 15 April 1992, the Commission submitted to the Council its draft Database Directive. The Commission was clearly in a hurry. In the draft text, the date by which Member States had to implement the provisions of the Directive was set for some eight months later - 1 January 1993. As expected, this deadline was missed. Indeed, the Directive only passed through its First Reading in the European Parliament on 23 June 1993. In light of the Parliament's proposed amendments, the Commission produced a revised draft on 4 October 1993. Its amended proposal contains just one substantive change - the extension of the term of protection under the unauthorized extraction right from 10 to 15 years. The remaining changes are aimed at giving the text greater clarity. With this first significant hurdle vaulted, the Commission will now be keen to ensure the adoption of a common position in the Council as soon as possible. The Commission's haste no doubt stems from its perception of the urgent need for (i) reinforced legal copyright protection across the Community for the structure and arrangement of databases and (ii) specific sui generis legislation to protect their otherwise uncopyrightable contents (the so-called 'two-tier approach') The Commission asserts that present legal

uncertainty discourages investment and places Community database producers at a competitive disadvantage on the global market. This is questionable. The US database industry - the most buoyant worldwide - does not seem to have unduly suffered from the absence of specific database legislation. The relative weakness of the European electronics information market is as much due to linguistically fragmented markets and structural deficiencies (low installed base of CD- ROM drives and prohibitively expensive telecommunications services in particular) as to any legislative inadequacy. More- over, arguably, the Directive creates as much legal uncertainty as that which it is attempting to rectify. That said, if adopted, the Directive will: • confirm copyright protection for the structure or arrange-

ment of databases;

• dilute the high originality test currently existing in some Member States, notably Germany; and

• introduce uniform substantive rules across the Community.

II EXISTING MEMBER STATE LEGISLATION No Member State legislation specifically extends copyright protection to databases. Instead, databases are generally protected as compilations or collections by copyright, in line with Article 2(5) of the Berne Convention. However, there are marked differences in the eligibility criteria. In the UK, Netherlands, and Eire, for example, there is currently an acceptance of a 'sweat of the brow' doctrine in respect of compilations; in Germany on the other hand, there is a high originality test, which means relatively few databases are protected by copyright. Fundamentally, it is this divergence which the Commission wants to iron out.

III THE ECONOMIC AND POLITICAL BACKGROUND The electronic information services industry delivers data to customers in the form of a database via four different media: • Online ASCII database services, such as Reuters real-time

foreign exchange data (the FXFX screens) or the Commis- sion's CELEX system.

• Videotext services, such as Minitel in France (France enjoys considerable success in this market; in 1990, France accounted for 87. I% of the EC videotext market in terms of the number of users; its closest rival was Germany with 4.3%).

• CD-ROM databases, e.g. the Justice database. This is a rapidly growing segment of the market: PC-based systems offer an increasingly wide range of multimedia products on CD-ROM.

• New delivery media, such as broadcasting and audiotext (databases accessible by phone, e.g. press I to continue, press 2 to quit, etc.)

The market is large: in 1990, the industry generated turnover

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of some ECU 3150 million within the Community and employed 22 000 people. Europe boasts several key players in the global information market, notably, Reuters, Reed- Elsevier, and Pearson-Financial Times, which have developed expertise in sectors such as chemicals, pharmaceutical and financial services. However, set against the North American market, Europe underperforms, especially with regard to CD- ROM services: the EC has just 10% of the world's installed base of CD-Rom drives, compared with 55% in North America. The Commission's panacea for this emerging trade deficit is the creation of a pan-European market. According to the Commission (Panorama 93, p. 25-11), this will only be achieved by: • the elimination of legal and administrative barriers; the

convergence of national telematic infrastructures (especially with respect to videotext and audiotex networks)

• the harmonization of government-owned primary data collections; and

• greater investment. One of the significant reasons for lack of investment in the European database industry, according to the Commission, is the absence of a stable and uniform legal protection regime, protecting the rights of authors and repressing acts of piracy and unfair competition (see, paragraph 1.4 of the Explanatory Memorandum). The draft Database Directive aims to fill the gap.

IV THE PROVISIONS OF THE DRAFT DIRECTIVE

WHAT DOES IT COVER? For the purposes of the Directive, a 'database' is defined as:

"a collection of data, works or other materials arranged, stored and accessed by electronic means, and the materials necessary for the operation of the database such as its thesaurus, index or system for obtaining or presenting information ..... ~/

It does not include: • computer programs used in the making or operation of the

database (these are already covered by the Software Directive [Council Directive 91/250/EEC "The legal protec- tion of computer programs" OJ 1991 No L 12/42]); or

• non-electronic databases The definition of a database is intentionally broad. In its Explanatory Memorandum, the Commission states:

"It is intended by this Directive to regulate the specific problems which arose as a result of the use of electronic data processing equipment for the storage, processing and retrieval of 'nformation', in the widest sense of the term."

Thus, Recital 16 of the draft Directive provides that the term database shall be understood to include: • collections of works, whether literary, artistic, musical or

other, or

• collections of other materials, such as texts, sounds, images, numbers, facts, data or combination of any of these.

The promised 'fusion' of the telecommunications, computing, electronics and media software industries promises consumers an exciting range of interactive multimedia products. However, as soon as the consumer 'accesses' data by electronic means, whether it be music or video, then the provisions of the

Directive may apply. One wonders whether the provisions of the Directive will be well adapted for this new age. Perhaps in light of this concern the amended proposal now includes a provision to review the operation of the Directive within five years of its adoption. Besides multimedia products, it has been suggested that something as mundane as an insurance contract, if "arranged, stored and accessed by electronic means ~', may amount to a database. Thus, the definition of what constitutes a database is potentially elastic. Similar difficulties arise in respect of the Software Directive where no definition of the object of protection was offered. The problem is that these two Directives will eventually dove-tail, but it may be difficult to determine precisely where.

A. COPYRIGHT PROTECTION The amended proposal re-grouped all the Articles in the original proposal .which related to the copyright subsisting in databases into one chapter (Chapter II) and those relating to the unauthorized extraction right into another (Chapter III). The Commission's aim was to thereby simplify the text.

1. AUTHORSHIP The draft Directive's provisions on authorship have been directly cannibalized from the Software Directive. Thus, the author of the database will be its creator unless Member States designate another legal person. Where a database is created by an employee in the course of his employment, the employer will be entitled to exercise all economic rights in the database. However, the Directive is without prejudice to any moral rights which may subsist in the database. 1 The Directive is silent on commissioned works. Thus, the general rule is that the authorship of the database, along with the ensuing bundle of exclusive rights, will subsist in the natural or legal person commissioned to create the database, unless otherwise provided by national copyright law, equity or contract. 2 Regrettably, the Directive is also silent on the issue of computer-generated works. This issue will no doubt be addressed when the Directive is reviewed.

2, ELIGIBILITY To be eligible for copyright protection, (as opposed to protection under the sui generis right) databases must be 'original'. A database will be considered original if it is a:

~'collection of works or materials which, by reason of its selection or arrangement, constitutes the author's own intellectual creation. No other criteria shall be applied to determine the eligibility of a database for this protection." (Article 2(3)).

Thus the originality of the contents of the database (or lack of it) is irrelevant for this test; the only criterion is that the selection or arrangement must be the 'author's own intellectual creation', thereby mirroring the eligibility require- ment contained in the Software Directive. This simple one-step test is designed to harmonize the divergent originality tests currently applicable to compilations across the Community and to make clear that no aesthetic or qualitative criteria should be applied 3. The amended proposal makes clear that protection under

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copyright shall be granted to all owners of rights -- whether natural or legal persons - who fulfil the requirements laid down in national or international law. Thus, for the copyright aspect of the Directive, reciprocity is not an issue, since national treatment is guaranteed by virtue of Article 3 of the Berne Convention.

3. EXCLUSIVE RIGHTS Under the draft Directive, the rightholder is granted the exclusive right over the database's: • reproduction (temporary or permanent, by any means, in

any form, in whole or in part);

• translation, adaptation, arrangement or alteration;

• the reproduction of the results of any of the above-listed acts;

• distribution (including rental)4; and

• communication, display or public performance.

4. EXCEPTIONS As with the Software Directive, the draft Database Directive grants an extensive bundle of exclusive rights, and then carves out exceptions to permit use by a lawful acquirer. The Commission notes in its Explanatory Memorandum:

"Technically speaking an infringement of the selection or arrangement would take place every time the database was accessed if no specific derogation were provided since accessing the database of necessity, involves performance of some of the restricted acts, notably the act of reproduction." (Part II; paragraph 6.1)

Thus, Article 7 provides two exceptions. The first provides that once the rightholder has chosen to make available a copy of the database to a user, the user must be able to access and use the database for the purposes and the way set out in the agreement, even if such access and use necessitates performance of otherwise restricted acts. However, it would appear that this provision may be overridden by contract, always provides that the contractual provision is compatible with the EC competition rules. The second exception governs cases where the user and the rightholder have not concluded an agreement regulating the use of the database (a highly unlikely scenario). The lawfut acquirer is allowed to perform any of the restricted acts necessary for the use of the database or necessary to gain access to the contents of the database. These two exceptions are without prejudice to any IP rights which may subsist in the contents of the database. The draft Directive also provides in Article 8, that where Member States provide exceptions under the general copyright regime in respect of brief quotations and illustrations for the purposes of teaching, then nprovided that such utilization is compatible with fair practice, in accordance with Article 10(3) of the Berne Convention" these exceptions must also be extended to copyrightable contents of databases. The necessity for this provision is far from clear. The Commission provides:

"It is ....... necessary to ensure that merely because a work is made available via a database, the freedom currently enjoyed by certain users, notably by educational establish- ments, to use brief extracts from works, is not removed. Therefore, to the extent that Member States have made

provision for such exceptions, these should continue to apply, regardless of the fact that the work has now been incorporated into a database." (Part II; paragraph 7.1)

The Commission does not give examples of practical problems. So one suspects this clause is largely cosmetic, designed to reassure those quarters which fear that reinforced protection over the structure or arrangement of the database may indirectly lead to increased protection over the database's contents. However, the fact is: the two aspects are not linked. This is confirmed by Article 8(2), where the converse applies. Exceptions to the exclusive rights to the works contained in the database - either by operation of contract or by law . - do not prejudice the protection granted to the structure or arrange- ment under the Directive. The duration of the period of protection for the database will be the same as that provided for literary works. In other words, protection will run for the life of the author plus 70 years, now that the Term of Protection Directive has been adopted Council Directive 93/98/EEC harmonizing the term of protection of copyright and certain related rights, OJ 1993, No. L290/9. Article 9(2) of the amended proposal restates basic copyright law that substantial changes to the database will give rise to the creation of a new database. Copyright in the new database will not prejudice rights in the original database. Substantial changes are defined as:

"additions, deletions or alterations, which involve sub- stantial modifications to the selection or arrangement of the contents of a database, resulting in a new edition of the database." (Article 9 (2) (b))

B. THE UNAUTHORIZED EXTRACTION RIGHT

1. SCOPE OF PROTECTION In the Commission's 1988 Green Paper, which set out its IP priorities, it was envisaged that copyright would be the sole mechanism for protecting databases. This view was revised in light of the US Supreme Court's ruling in Feist (Feist Publications Inc. v Rural Telephone Service Co. Inc., (1991) 113 L. Ed. 2d 358). In Feist, the Supreme Court rejected a claim for breach of copyright against the alleged plagiariser of a telephone directory. The Court held that copyright only protected compilations in which there had been some originality in the selection or arrangement of the materials contained therein. After Feist, the 'originality test' is only satisfied where a compilation is (i) independently created and (ii) "possesses at least some minimal degree of creativity". The Commission feared that the Feist doctrine might spread. Thus, copyright, by itself, might not be sufficient to give the contents databases the high level of protection which the Commission believed they merited. Given the ease with which the contents of databases can be copied, the Commission decided to top-up copyright, so as to protect the contents of databases which may not otherwise be eligible for copyright protection. It formulated the sui generis unfair extraction right (subsequently re-named the unauthorized extraction right in the amended proposal), which has proven to be a rich source of controversy. The Commission expresses its economic justification for a new breed of right as follows:

"... even the mere accumulation of facts, statistics, bibliographical information, names and addresses involves

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considerable commercial activity. Time, labour and organi- zational skills are brought to bear, to collect and verify the accuracy of the required volume of data and to create from it a marketable product or service. The data in this instance is similar to a raw material. If others misappropriate that raw material they will be able to market similar or identical products or services at greatly reduced cost. In other industries, it would be considered as an act of unfair competition for the raw material procured for processing at one company's expense to be freely appropriated by another company to make a similar product or service. On the other hand, no one manufacturer should have a monopoly over the source of the raw material such that he excludes others from the market for the finished product or service. Therefore, in addition to the protection given to the database as a collection if it fulfils the criteria of originality required for such protection, the present Directive gives a limited protection to the contents of the database where such contents are not already protected themselves by copyright. This protection against parasitic behaviour by competitors, which would already be available under unfair competition law in some Member States but not in others, is intended to create a climate in which investment in data processing can be stimulated and protected against misappropriation. It does not prevent the flow of information, nor does it create any rights in the information as such." (Part I; paragraphs 3.2.7 & 3,2.8)

However, if the Commission's aim is to provide legislative safeguards against misappropriation, then arguably, the most appropriate mechanism is to introduce a harmonized unfair competition law in respect of databases, and not the creation of a novel intellectual property right. Effectively, the unauthorized extraction right enshrines the 'sweat of the brow' doctrine, rejected by the Supreme Court in Feist. The unauthorized extraction right subsists in the contents of the database regardless of whether the selection of arrangement of the database is copyrightable or not. However, where the contents of the database are otherwise

How the protection of databases will function under the proposal.

DATABASE CONTENTS

Cases Covered DOriginal by the proposal DOriginal

Non-Original

°Original WNon-Original mNon-Original

Cases not covered by the proposal

Non-Original ©Original

[ ] Copyright over Selection or Arrangement under the Directive

0 National Copyright Protection • Unauthorised Extraction Right 5

protectable by copyright or neighbouring rights, the right shall not apply (see the table for an illustration of the interaction between the sui generis right and copyright).

The unauthorized extraction right is fettered by certain safeguards, so as to limit potential inequities which may arise as a result of the creation of the right (in much the same way as the reverse analysis right contained in Articles 5 and 6 of the Software Directive introduced similar safeguards. Article 11(1) provides that where the (uncopyrightable) contents of the database cannot be independently created, collected or obtained from any other source, the right to extract and re-utilize all or part of the contents for commercial purposes shall be licensed on "fair and non-discriminatory terms". The Commission gives the example of Stock Market information as falling into the category of information incapable of independent collection. The stock market is the sole originator of the data. Moreover, there is an additional element of dependence. Stock Market data, like TV programme listings or airline timetables cannot be indepen- dently created or obtained. This must not be confused with mere difficulty in obtaining data, which does not give potential users the right to rely on the compulsory licensing provisions. Recital 33 provides that licences should not be requested for reasons of commercial expediency such as economy of time, effort or financial investment. The Commission gives the example of data collected by a powerful telescope this would not trigger the compulsory licence, because potential licensees could invest in similar telescopes and undertake the data collection themselves. The requirement to make data available upon "fair and non- discriminatory terms" provision is likely to give rise to disputes over, among other things, the level of royalty payable. Licensors will, no doubt, argue that the level of the royalty should be what the market can bear; whereas the licensee is likely to propose a nominal fee. To resolve such issues, Member States are required to provide appropriate measures for arbitration between the parties in respect of such licences. In the UK, these type of issues have already been confronted by the Copyright Tribunal 6. A second 'compulsory licence' arises in respect of databases produced by public bodies where the database is 'publicly available' that is, it can freely interrogated by the public. Article 11 (5) allows the lawful user of the database the right to extract and re-utilize insubstantial parts of the database for commercial purposes, provided that acknowledgement is made of the source. At first glace, this appears to amount to a generous exception. However, since copying insubstantial parts of a literary work protected by copyright does not amount to an infringement in most Member States 7, the effect of this provision is to extend the protection of the unauthorized extraction right beyond that of copyright, by imposing a burdensome acknowledgement requirement. The amended proposal provides clarification on the two conditions necessary to benefit from this exception. First, commercial purpose is defined as "any use, which is not private, personal and for non-profit making purposes". This does not greatly assist in pinning down the application of the exception. It is still unclear whether, for example, a reference to data in internal company correspondence would be caught by

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the unauthorized extraction right. The second condition is that the data taken must be insubstantial. 'Insubstantial parts' are defined in Article 11(8) as:

"... parts of a database made available to the public whose reproduction, evaluated quantitatively and qualitatively in relation to the database from which they are copied, can be considered not to prejudice the exclusive rights of the maker of that database to exploit the database." (emphasis added)

The burden of proof lies with the user to demonstrate that the rightholder's rights would not be prejudiced by the extraction and re-utilization of insubstantial parts. Finally, the exceptions to the unauthorized extraction right only apply in so far as they do not conflict with other prior rights and obligations, notably, the legislation or international obligations of the Member States or of the Community "in respect of matters such as personal data protection, privacy, security or confidentiality". (Article 11(9)).

2. THE TERM OF PROTECTION The period of protection against unauthorized extraction will be 15 years from the beginning of the year following which the database is first lawfully made available. So, protection for a database placed on the market on 6 June t994 will expire on 31 December 2009. Database producers - especially those based in the UK who currently receive copyright protection for the contents of their databases - successfully argued that the 10 year period proposed in the Commission's initial proposal was too short. They observed that databases often do not become profitable until well after this period. In the previous draft, the concept of a substantial change was somewhat nebulous. So by making substantial changes to the contents of the database at least every 15 years, arguably, perpetual protection could be attained. To combat this possibility, the amended proposal defines insubstantial and substantial changes. Although it is not clear that these definitions will outfox database producers wishing to extend protection in this way.

3. RECIPROCITY Contrary to the principle of National Treatment contained in the Berne Convention and in the draft GATT/TRIPS provisions (Article 3 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, Article 13 extends the unauthor- ized extraction right only to authors who are either nationals of EC Member States or who have their 'habitual residence' in the EC. If neither of these apply then it will be necessary to check whether the author is resident in a country with which the Community has concluded a bilateral agreement. The Commission was able to abandon the principle of National Treatment, because the unauthorized extraction right does not form part of a copyright-based regime. This decision has drawn considerable criticism, notably from US database producers who are concerned that they might not be able to take advantage of the unauthorized extraction right. The Community will only conclude an agreement with third countries where they "offer comparable protection to databases". Because there is no general right against misappropriation of facts under US federal law, and the

contents of databases are only protected by copyright (not a specific sui generis unauthorized extraction right), US produ- cers fear that post Feist they will not benefit from the sui genens right. The Commission has not sought to reassure them.

C. C O M M O N PROVISIONS

1. REMEDIES Unlike Article 8 of the Software Directive, which required Member States to introduce special protection measures such as seizure for infringing copies, the Database Directive leaves the provision of appropriate remedies to the Member States•

2. INTERACTION WITH OTHER LEGAL REGIMES Article 15 of the Directive closely mirrors Article 9 of the Software Directive. In other words, the Directive is without prejudice to the following non-exhaustive list of legal provisions: • copyright or any other right subsisting in the works or

materials incorporated into the database

• patent rights

• trade marks

• design rights

• unfair competition

• trade secrets

• confidentiality

• data protection and privacy; and

• the law of contract applicable to the database itself or its contents.

The Directive will apply to pre-existing databases without prejudice to any contracts concluded and rights acquired before that date. The amended proposal specifies - at the behest of the European Parliament - that existing databases will become available for protection upon the entry into force of the Directive. So, for the unauthorized extraction right, the 15-year clock will start ticking in respect of existing databases, t January following the year of adoption - most probably on 1 January 1995. The Software Directive provided that contractual provisions contrary to the users right to carry out certain acts necessary for use are void. There is a noteworthy absence of a similar provision in the Database Directive. Thus, upon a textual analysis, provisions which attempt to contract out of the exceptions to copyright or to the unauthorized restriction right would presumably be legitimate. Thus, database suppliers could, presumably, by contract exclude the exception granting the lawful user the right to extract and re-utilize insubstantial parts of the database. However, the Explanatory Memorandum (part II; paragraph 2.1) seems to suggest otherwise, that is, that the "insubstantial parts" exception contained in Article 5(2) overrides pre-existing rights including contractual rights. In any event, while the body of the Directive is silent on the validity of clauses which purport to exclude the exceptions, it is clear that such provisions may be caught by the EEC competition rules where they are unnecessarily restrictive.

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Current Development in European Information Technology Law

3. TIMING OF THE LEGISLATION As mentioned at the outset, the initial deadline for implementing the Directive was set for 1 January 1993. This was feverishly optimistic. The European Parliament on 23 June 1993 voted on a number of amendments to the Directive. On 4 October 1993 the Commission issued its Amended Proposal in light of the Parliament's amendments (See Appendix). The new deadline is 1 January 1995. The Directive is based on Article 57(2), 66 and 100a of the EEC Treaty. Consequently, following the entry into force of the Maastricht Treaty on 1 November 1993, the applicable procedures changed, from the cooperation procedure to the co-decision procedure. In short, this procedure gives the Parliament greater leverage after a common position has been adopted by the Council: Parliamentary amendments proposed at the Second Reading have an increased chance of success.

V C O N C L U S I O N In its present form, the Directive goes some way towards its objective of clarifying and reinforcing the legal protection of databases in the EC, notably by: • removing any uncertainty over whether copyright protects

the structure or arrangement of databases;

• harmonizing the substantive (if not the procedural) 3rovisions across the EC;

• diluting the 'originality test', (particularly, in Germany). That said, a number of problem areas remain, namely: • The somewhat elastic notion of a 'database'.

• The reciprocity provisions, which appear to be unnecessarily provocative given their incompatibility with the prevailing trend towards National Treatment contained in current and proposed IP Treaties and Conventions. One suspects it may well be jettisoned during the course of negotiations.

• The extent to which a contract may override the pro-user exceptions set forth in the Directive perhaps merits clarification.

It is worth recalling that if the Directive is adopted, its impact will not be confined to the 12 Member States. Provided there are no objections raised in the EEA Joint Committee, it will be adopted into national law by the EFTA States (barring Switzerland) under the EEA Agreement which came into force on 1 January 1994. Commission negotiators will also be encouraging central and eastern European countries to adopt similar measures in line with the general obligations upon these countries to adopt comparable IP legislation under the various Association Agreements. It is also likely to shape discussions on the protection of databases within WlPO. Thus, once adopted, the Directive's influence will undoubtedly spread. Mark Powell Forrester Norall & Sutton

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