RE-DEFINING THE RIGHTS AND RESPONSIBILITIES OF DATABASE OWNERS UNDER COMPETITION LAW

Published date01 December 2006
Date01 December 2006

Singapore protects databases under copyright law. While copyright may be conceptually malleable enough to protect databases, stretching copyright over these factual compilations may be a rough and incomplete solution to regulating access. The EU Database Directive makes a clearer delineation between banal and expressive works, but suffers similar shortcomings while adding new ones with its sui generis right. This article reviews key developments affecting databases in the EU, US and Singapore, and suggests that competition law, with an inbuilt economic framework for determining compulsory access, offers an alternative that may better reflect the commercial expectations of database owners. However, for competition law to properly regulate databases, it is important that stakeholders are aware of analytical pitfalls in order to avoid penalising legitimate exercise of IPRs in databases.

I. Introduction

1 Regulating access to databases may well be one of the most important and pressing issues confronting scientists, businesses and policy makers today.1 Vast and sweeping developments in the fields of computing, telecommunications and information technology have created a new global market for informational goods and services.

Databases are present in every modern society. They are the stores of information that drive our societies and make them hum. Medical professionals use them to understand drug interactions and determine effective medical procedures. Farmers use them to get crop, weather and soil information. Urbanites use them to search for news, street directions, jobs or to find the right house. Even the most anachronistic of them all — legal professionals rely on databases, whether for legal precedents or client information management.2 As markets become increasingly dependent on well-structured, accurate and readily available sources of information, this increases the ability of undertakings,3 owning intellectual property rights (“IPRs”) over databases, to affect the use and dissemination of that information.4 This, in turn, may affect the growth of these repositories of knowledge and eventually a country’s socio-economic progress.

2 We use databases all the time, but like light switches, we seldom pause to consider the issues underlying their existence. It is obvious enough that databases do not come about by themselves. They are the

products of much skill, talent and hard work. Substantial investment of money and professional expertise are needed to ensure that database content is comprehensive and accurate. These investments continue throughout the database’s useful life, since database content needs constant verification and updating. And undertakings who have so contributed expect to be rewarded.

3 Yet, where information is valuable, there would be those who would desire to be supplied without cost. Without legal or technological restraints, free riders would be able to access and sell competing database products at substantially lower prices and in greater quantities than an undertaking saddled with massive developmental and marketing costs. The IPR owner cannot match lower prices for any sustained period. Thus, by offering the same content at prices lower than those of the original compilers, “parasitical” second comers could drive the former out of business and thus depress the market for innovative future compilations.5

4 Electronic or digital databases are increasingly popular ways to store data.6 Along with the benefits of digitisation, anyone who obtains a copy of a digital database can quickly reproduce its contents. The copyist can undercut the original compiler’s price more than with traditional databases.7 Left to fend for themselves, the natural lead time undertakings

need to make their databases commercially viable might shrink dramatically. This discourages companies from compiling databases, and denies the public the benefit of useful products, leading to suboptimal production of information goods, to the public’s detriment.8

5 To the extent that the law protecting intellectual effort and investment in databases increases their production, database protection serves to enhance society’s problem-solving abilities through a comprehensive compilation of information. They also increase productivity, advance education and training and facilitate the creation of

a better-informed citizenry through the ease of informational access.9 In this sense, database rights are not a response to allocative distortions resulting from scarcity, as real property law is. Rather, they are conscious decisions to create scarcity in a type of good in which it is ordinarily absent in order to artificially boost the economic returns to creativity or investment. It is therefore axiomatic that access to databases be protected from interlopers and thieves.10 The law does this by providing the owner with legal sanctions which it may invoke through granting licences and initiating infringement suits. These measures give the owner an amount of commercial certainty in which to induce the owner, and others to continue to farm their information for our benefit.

6 But that is only half the equation. Our laws have also determined that rights in the information should not merely be used as a remunerative end in itself. Instead, it should spur a plethora of diverse and improved works.11 Human progress has always turned in large measure upon the borrowing of ideas. Like seeds that need to be split

open and exposed to the environment in order to grow and reproduce, kernels of protected information require a level of access to protected content to disperse the knowledge for the wider benefit of society. IPRs in databases should not be allowed to become a blocking mechanism lurking in every crevice of endeavour.12 Yet, commercially successful databases are often those with few or single sources.13 Much valuable data is synthetic, and is created by the database owner and cannot be reproduced through independent research. This creates barriers to entry that are rarely overcome, since entrants would have to duplicate the database owner’s initial effort by collecting data independently. Sunk costs are relatively high, and the prospects for market sharing are seldom realised. Even if the entrant could produce a successful alternative, the reduced expected profits from a duopoly or oligopoly might not justify market entry with the burden of such a high sunk cost in the first place.

7 But sole source databases are only one source of access woes. In some instances, even if a true alternative is possible through independently creating another database, it may still be near impossible to persuade the market to switch from the existing database to a new database, even if it may contain features that seem to make it more attractive and valuable.14 Database industries may be subject to network effects, so that a more widely used product yields greater consumer gains. Beyond a certain number of users, the market “tips” in favour of a database, causing it to become the industry standard. Users could find that it takes too much time and effort to re-adjust to a new database. In such cases, consumers are said to be “locked into” the owner’s database.15 This is especially troubling as a matter of policy when the database is

more expensive, or less efficient or comprehensive than what a new entrant could offer.

8 In both cases, there is a common danger that important information may fall into the hands of a database owner who has found it more beneficial to restrict access than license, even for a reasonable amount of royalty. Exclusive rights conferred by IPRs in the database may place them in a position that enables them to successfully prevent market entry. This could result in a near absolute monopoly in the primary database market as well as a corresponding downstream monopoly in derivative information products or services.16 Faced with a captive market, database owners may enrich themselves by engaging in excessive access pricing and threatening users and competitors with infringement suits, if left unchecked.17

9 To balance the rights of owners against users, competitors and potential licensees, the law has therefore attempted to develop rules to ensure that database owners are able to appropriate a fair return while allowing public access to information or third parties to offer new products derived from the owners’ database content. This article attempts to highlight issues that may be useful for stakeholders in Singapore to consider, and the analysis broadly proceeds in two parts.

10 The first part examines endogenous means of regulating access to databases through IP Law. It evaluates the efficacy of copyright, the EU sui generis database right, and more briefly — misappropriation, contract, anti-circumvention and rights management initiatives. It concludes that while these go some way to addressing access concerns, they also suffer from shortcomings that warrant external intervention. The second part examines competition law as a complementary instrument to regulate access.18 The modest aim of this paper does not go to the extent of suggesting that competition law provides a panacea for the access ills of

database access. However, when used in conjunction with existing checks within the IP regime, chances of reaching a clear and sustainable balance would be more likely. Key developments in the EU and Singapore, and to a smaller extent, the US, are discussed. The discussion then highlights some limitations courts and regulators need to be aware of when applying competition law to IPRs in databases.

II. Internal regulation

11 With the enactment of competition law in Singapore, an additional layer of analysis has been added to the debate on access and incentives in the exploitation of databases.19 It is clear that if database owners were found to have acted anti-competitively under...

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