Copyright Law Constraints on the Transfer of Certain Federal Computer Software With Commercial Applications

Published by the Government Accountability Office on 1990-03-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

--                  United   States General Accounting        Office


For Release          Copyright         Law Constraints         on the     Transfer        of
on Delivery          Certain         Federal    Computer      Software     With      Commercial
Expected    at
9:30 a.m.    EST     Applications
March 7, 1990

                      Statement        of
                      Keith     0.    Fultz,  Director,        Planning      & Reporting
                      Resources,         Community,     and    Economic      Development

                      Before    the
                      Subcommittee     on Courts,    Intellectual                 Property
                         and the Administration        of Justice
                      Committee     on the Judiciary
                      House of Representatives

                         cL+nw                 llfog.20
                                                                                  GAO Form 160 (12/W)
Mr. Chairman and Members of the Subcommittee:

       I am pleased to present our views on the copyright         law's
prohibition    on copyrighting    the federal government's computer
software.     My statement today is based on our ongoing work for this
Subcommittee.      At your request, we are examining (1) federal
agencies' efforts     to comply with the prohibition      on copyrighting
works of the government, (2) the extent to which copyright             law has
constrained    the transfer    of federal software,    and (3) the pros and
cons of amending copyright       law to allow federal agencies to
copyright    computer software.      This review follows up on our March
1988 report,     in which we identified    copyright   law as a constraint
to the transfer     of federal computer software to U.S. businesses.1

        I would like to summarize the results       of our most recent work,
which we will include in a report to this Subcommittee soon. We
found no evidence that federal agencies are copyrighting             works of
the federal government.       However, at five federal agencies,2          senior
officials    believe their efforts     to transfer   certain    computer
software with potential      commercial applications       to U.S. businesses
have been significantly      constrained    because the government cannot
copyright    and exclusively   license federal software.         They estimate
that this software could represent as much as 10 percent of all the
software developed at their laboratories.           In particular,     federal
laboratories     are having only limited     success in encouraging U.S.
businesses to collaborate      on developing computer software,         through
cooperative    R&D agreements, because of uncertainties          over the

lTechnolouv Transfer:       Constraints Perceived bv Federal        Laboratorv
and Asencv Officials      (GAO/RCED-88-116BR, Mar. 4, 1988).
lThese agencies-- the Department of Agriculture,        the Department of
Commerce,   the Department of Defense, the National Aeronautics           and
Space Administration,     and the National   Institutes    of Health--funded
about 88 percent of the research and development performed at all
government-operated    laboratories   in fiscal    year 1989.

extent of protection       they can offer      businesses    for   jointly
developed works.

       According to agency officials        and executives        from businesses
that have considered commercializing            federal software,        having the
authority    to copyright      and grant exclusive      licenses would stimulate
the transfer     of federal software with commercial applications                by
providing    businesses with protection         for their investments.
Royalty-sharing      authority    would also, in their view, provide
federal researchers       with an incentive       to further     develop and
document the software.          However, officials      of the Information
Industry    Association,     which represents       the business information
community, expressed concern that providing               copyright     and licensing
authority    for software could, among other things,              limit   public
access to federal scientific          and demographic databases that
software provides.


       Copyrights    protect    literary     and artistic  expression by giving
the author, for a limited           period of time, the exclusive      right,
among other things,       to reproduce and sell copies of the copyrighted
work and prepare derivative           works.     But under 17 U.S.C. 105, the
U.S. government is prohibited            from copyrighting   any of its works,
including    technical    publications,       computer software,    and databases.
The law's legislative        history     states that this prohibition       is
intended to place all works of the federal government in the public
domain.     Most federal computer software is generated by federal
agencies'    laboratories     as part of their research mission.           This
software is primarily        distributed      through the National    Technical
Information     Service (NTIS) and other software distribution             centers
operated by the Department of Energy (DOE) and the National
Aeronautics     and Space Administration          (NASA).

        With the rising     concern about the U.S. trade deficit           and the
ability     of U.S. businesses to compete in world markets, the
Congress and the administration          have acted to strengthen        the links
between U.S. industry         and the nation's     research and technology
base. These actions include stimulating               the transfer   of technology
from federal government-operated           laboratories,     which funded about
$14.7 billion      in research and development (R&D) in fiscal             year
1989, to U.S. businesses.           To support this goal, legislation          over
the past 10 years has authorized           federal agencies to (1) grant
exclusive     patent licenses,      (2) negotiate     rights to intellectual
property under a cooperative           R&D agreement,3 and (3) give federal
inventors     a share of any royalties        from a licensed invention.         This
legislation     has facilitated      the commercialization       of federal
inventions;     it has not addressed federal computer software--
computer programs and supporting           documentation--which      currently
cannot be copyrighted.


       We found no evidence that federal agencies have improperly
copyrighted    computer software developed by federal workers.           In a
few limited    cases, however, federal software distribution         centers
have used nonexclusive      license agreements to restrict     either     (1)
foreign access to the software or (2) customers' rights to further
disseminate    software unless customers obtain the center's         prior
permission.     In general,    these license agreements have been used
for software that involved a large investment of federal resources
and that may have had the greatest         commercial utility.

       With recent emphasis on transferring    technology to the private
sector,    some federal laboratories  have attempted to encourage U.S.

31ntellectual     property    rights result    from the physical
manifestation     of original     thought.
businesses to collaborate    with them, through cooperative       R&D
agreements, to further    develop and commercialize    certain    software.
But these initiatives    are limited    and scattered among agencies
because of uncertainty    about the extent of protection      federal
agencies can offer for jointly       developed works and because of
businesses*   concern about whether this protection     is sufficient       for
their investment in developing and marketing the software.

      The prohibition      on copyrighting    government works does not, on
its face, apply to works developed under federal contracts,                grants,
or cooperative     agreements because the copyright           law defines a "work
of the U.S. government" as one prepared by an officer                or employee
of the federal government.         The legislative      history    of the Act for
the General Revision of the Copyright Law (P.L. 94-553) indicates
that the decision on whether to allow copyrights                in works produced
under contracts,      grants, or cooperative       agreements should be left
to the discretion      of the contracting     or granting       agency.


       According to officials       we talked with from seven federal
agencies, making software generally           available  allows for the
adequate dissemination      of most of their agencies'         software.   They
noted that their agencies primarily           develop research-related
software for specific      scientific     applications   related to their
missions.     This software typically        has little  commercial
application.      According to officials        at DOE and the Environmental
Protection    Agency, most of their research-related           software is
developed by contractors,       who can request authority         from the
agencies to copyright      commercially      useful software.

      However, senior officials     from some agencies told us that
their inability  to copyright    and exclusively  license computer
software has constrained     the transfer  and use of a certain  portion
of software that has broader commercial applications.                 These
agencies are the Department of Agriculture:              the Department of
Commerce; the Department of Defense, including              Air Force, Army, and
Navy; NASA: and the National        Institutes     of Health (NIH).      software
constrained     by the copyright    prohibition     includes,   for example,
artificial    intelligence    software that could assist doctors in
diagnosing diseases or farmers in making decisions              about
irrigating,     fertilizing,   or spraying their crops.         While these
officials    did not know exactly how much of their agencies'              software
was affected     by the copyright     prohibition,     they indicated    that it
may be on the order of 10 percent.

       As with commercializing          inventions,    businesses are generally
unwilling    to invest in documenting and developing             commercial
applications     for federal software without having copyright
protection.      Two executives       from businesses that have considered
commercializing       federal software noted that a business'           return on
investment is time-sensitive.              To prevent competitors    from
marketing alternative         software packages that are potentially          less
developed and less expensive, their companies would require
copyright    protection      and exclusive      rights to federal software.

       According to officials          at the five agencies concerned about
copyright     law, they cannot precisely           determine the extent to which
the government's       inability     to copyright        has constrained      their
laboratories'     efforts      to transfer     software because cases often do
not come to their attention            in the first       place.     For example, when
a business knows that it cannot copyright                   government work, it does
not seek to license the software or enter into a cooperative                        R&D
agreement to further         develop it.       In other cases, senior laboratory
administrators,      technology      transfer     officials,      and patent attorneys
never   learn of opportunities           to transfer      laboratory     software.    This
occurs because preliminary           negotiations        between private      and
government representatives,            which occur at lower levels within the

laboratory,     fall apart early on because of the government's
inability     to protect  intellectual property.

        The transfer    of software was constrained     in several specific
instances because a business could not protect            it by a copyright.
According to an NIH research manager, for example, the government's
inability     to copyright    has constrained   efforts   to commercialize   a
computer program that would assist dermatologists            in prescribing
medications     and other treatments      for medical problems, such as
acne. Because the software needed to be tested among larger groups
of dermatologists       before it could be marketed, NIH sought a
business that would assume this responsibility.

       An executive   for a small business stated that his company was
interested   in the software,     but it clearly     was an early version
that would have to be further       developed before it could be
marketed.    His company decided not to try to commercialize          the
software in part because the company could not obtain copyright
protection.     The inability    to copyright    led to uncertainty   over
whether the business could sufficiently          protect  its investment from
a competitor    who could obtain the same software from NIH or NTIS.
NIH has not further      developed the software and has yet to attract       a
business partner to commercialize        it.

      Although NIH has signed about 130 cooperative            R&D agreements,
it is negotiating      its first   software agreement.       Similarly,    of the
140 agreements that the Agricultural         Research Service has signed or
is negotiating,      none focus on software.       The government's     limited
success in developing      and commercializing       software through
cooperative     R&D agreements is generally       believed to be the result
of copyright     law's prohibition     on copyrighting.


       According to senior officials    at the five agencies concerned
about the copyright   law, to improve the transfer      and use of federal
software with commercial applications,       the government should be
allowed to copyright    and exclusively   license computer software,     and
federal researchers   should be able to share in any royalties       from
licensed software.    With such changes, businesses could protect
their investment in developing and marketing the software,        and
federal researchers   would have an incentive     to work with businesses
in developing and documenting the software.

        These officials      also noted that the authority            to copyright     and
share royalties       would provide federal computer programmers with
opportunities      for career, financial,         and intellectual       recognition
similar    to federal researchers         whose inventions       are patented.       In
addition,     these authorities      could improve public access to federal
software because the software might not otherwise be sufficiently
developed and documented for the laboratory                to send it to NTIS for
dissemination.        Several agency and laboratory           officials     also noted
that copyright       authority    would further     their agencies' missions to
improve public health and safety because they could better control
the software's       quality    and distribution.

       Some federal     laboratory    managers and researchers,            however,
oppose amending the copyright           law.     In their view, copyrighting          and
licensing    federal computer software would (1) distract                  researchers
from the laboratory's        basic research mission,          (2) interfere      with
informal    exchanges among federal and university               scientists,     and (3)
interfere    with the government's         existing    policy of publicly
disseminating     technical     information.        In addition,     Information
Industry    Association     representatives        oppose allowing      federal
agencies to copyright        computer software because agencies might use
this authority      to either restrict        access or give favored access to
federal scientific and demographic databases, such as those at
NIH's Library of Medicine or the U.S. Census Bureau.

        In summary, we found no evidence that federal agencies are
improperly    copyrighting  software developed by federal employees.
Furthermore,    federal software is generally       available  to the public.
However, perhaps up to 10 percent of the software that federal
agencies develop may not be effectively         transferred   and used
because of the copyright      prohibition.     This software may have
significant    commercial applications     with potentially    important
technological     and economic benefits    to our nation.

       Effective   transfer   of this software is an appropriate    goal
that could be achieved by amending the copyright         law to provide
copyright     and exclusive   licensing   authority. Such a fundamental
change, however, must be balanced against the concern that it
might reduce the public's        access to federal databases and shift the
federal laboratories'       basic research mission.

          To accommodate these concerns and still             achieve effective
transfer,    it may be appropriate         to extend copyright      authority   only
to software that has potential            commercial applications.         This could
be accomplished through various options.              One might be to amend
copyright    law (17 U.S.C. 105) to allow federal agencies to
copyright    and exclusively       license computer software case-by-case
if such protection        would both (1) stimulate       the software's
effective    transfer     and use and (2) facilitate        public access to the
software.      Alternatively,      the Federal Technology Transfer Act could
be amended to authorize         federal agencies to copyright         and
exclusively     license federal computer software under a cooperative
R&D agreement (15 U.S.C. 3710a).              In this case, the software could
only be copyrighted         if a collaborator     was willing     to further
develop and commercialize          the software.
        Under either option,   consideration     should be given to
instituting     procedures to ensure fairness       in granting  an exclusive
license to a nonfederal      entity.    For example, if 17 U.S.C. 105 were
amended, it would be appropriate        to include procedures similar         to
those required for granting patent licenses            (35 U.S.C. 209).     In
addition,     consideration  should also be given to amending the
royalty-sharing      section of the Federal Technology Transfer Act
 (15 U.S.C. 3710~) to allow federal employees who develop computer
software that is subsequently        commercialized     to share in royalties.

      Mr. Chairman, this concludes my remarks. I would be happy to
respond to any questions you or other Members of the Subcommittee
may have.