[Senate Hearing 107-866]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 107-866
 
     SOVEREIGN IMMUNITY AND THE PROTECTION OF INTELLECTUAL PROPERTY
=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 27, 2002

                               __________

                          Serial No. J-107-62

                               __________

         Printed for the use of the Committee on the Judiciary









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                       COMMITTEE ON THE JUDICIARY



                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware       STROM THURMOND, South Carolina
HERBERT KOHL, Wisconsin              CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin       JON KYL, Arizona
CHARLES E. SCHUMER, New York         MIKE DeWINE, Ohio
RICHARD J. DURBIN, Illinois          JEFF SESSIONS, Alabama
MARIA CANTWELL, Washington           SAM BROWNBACK, Kansas
JOHN EDWARDS, North Carolina         MITCH McCONNELL, Kentucky
       Bruce A. Cohen, Majority Chief Counsel and Staff Director
                  Sharon Prost, Minority Chief Counsel
                Makan Delrahim, Minority Staff Director







                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas.....    38
Cantwell, Hon. Maria, a U.S. Senator from the State of Washington    80
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......    85
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1

                               WITNESSES

Bender, Paul, Professor, Arizona State University College of Law 
  and Counsel to Meyer & Klipper, PLLC, Washington, D.C..........    40
Kirk, Michael K., Executive Director, American Intellectual 
  Property Law Association, Arlington, Virginia..................    22
Peters, Marybeth, Register of Copyrights, U.S. Copyright Office, 
  Washington, D.C................................................    10
Rogan, James E., Under Secretary of Commerce for Intellectual 
  Property and Director, U.S. Patent and Trademark Office, 
  Washington, D.C................................................     5
Schraad, Keith, Western Regional Director, National Information 
  Consortium, Lawrence, Kansas; accompanied by William Patrie, 
  Legal Counsel for the National Information Consortium, 
  Lawrence, Kansas...............................................    27
Thro, William E., General Counsel, Christopher Newport 
  University, Newport News, Virginia.............................    31

                         QUESTIONS AND ANSWERS

Responses of Paul Bender to questions submitted by Senator Leahy.    64
Responses of Paul Bender to questions submitted by Senator Hatch.    65
Responses of Marybeth Peters to questions submitted by Senator 
  Hatch..........................................................    68
Responses of William E. Thro to questions submitted by Senator 
  Leahy..........................................................    70
Responses of William E. Thro to questions submitted by Senator 
  Hatch..........................................................    75

                       SUBMISSIONS FOR THE RECORD

American Bar Association, Charles P. Baker, Chair, Section of 
  Intellectual Property Law, Chicago, Illinois, letter...........    77
Biosource, Inc., Marc Andelman, President, Worcester, 
  Massachusetts, letter..........................................    78
Business Software Alliance, Robert Holleyman, II, President and 
  CEO, Washington, D.C., letter..................................    79
Chamber of Commerce of the United States of America, R. Bruce 
  Josten, Executive Vice President, Government Affairs, 
  Washington, D.C., letter and attachment........................    81
Dry, Carolyn, February 19, 2002, letter..........................    83
Gray Matter LLC, Lorin Brennan, Manager, Newport Beach, 
  California, letter.............................................    84
Intellectual Property Owners Association, Herbert C. Wamsley, 
  Executive Director, Washington, D.C., letter...................    86
International Trademark Association, Niles Victor Montan, 
  President, Washington, D.C., letter............................    86
Mittel, Robert E., Mittel Asen LLC, Portland, Maine, letter......    88
Motion Picture Association, Jack Valenti, Chairman and Chief 
  Executive Officer, Washington, D.C., letter....................    89
Professional Photographers of America, David P. Trust, Chief 
  Executive Officer, Atlanta, Georgia:
    February 25, 2002, letter....................................    89
    April 2, 2002, letter........................................    90
Software & Information Industry Association, Ken Wasch, 
  President, Washington, D.C., letter............................    91


     SOVEREIGN IMMUNITY AND THE PROTECTION OF INTELLECTUAL PROPERTY

                              ----------                              


                      WEDNESDAY, FEBRUARY 27, 2002

                              United States Senate,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:28 a.m., in 
Room SD-226, Dirksen Senate Office Building, Hon. Patrick J. 
Leahy, Chairman of the Committee, presiding.
    Present: Senators Leahy and Brownback.

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Chairman Leahy. The committee will come to order. And I 
thank everybody for being here. The delay, as Under Secretary 
Rogan understands, when the lights go on, we have votes on, and 
in typical precision our 10 o'clock vote began at about quarter 
after, so I apologize for that.
    It is good to have you all here, because we are going to 
focus on a pair of Supreme Court cases from 1999, what they 
mean for our national system of intellectual property, 
referring of course to Florida Prepaid v. College Savings Bank 
and its companion case College Savings Bank v. Florida Prepaid. 
The Supreme Court ruled in these cases that States and their 
institutions cannot be held liable for damages for patent 
infringement and other violations of the Federal intellectual 
property laws, even though those same States can and do enjoy 
the full protection of the laws for themselves.
    The Florida Prepaid cases were both decided by the same 5 
to 4 majority of the justices. The slim majority of the Court 
threw out three Federal statutes that Congress passed 
unanimously in the early 1990s, to reaffirm that the Federal 
patent, copyright and trademark laws apply to everyone, 
including the States. I should note that Senator Hatch was one 
of the two principal sponsors of these statutes in the Senate, 
along with former Senator DeConcini.
    About four months after what I believe was a very activist 
Court ruling in the Florida Prepaid cases, I introduced a bill 
that responded to the Court's decisions. The Intellectual 
Property Protection Restoration Act of 1999 was designed to 
restore Federal remedies for infringements of intellectual 
property rights by the States.
    It has been nearly three years since the Court issued its 
decisions, and this hearing is actually overdue. I believe 
there is an urgent need for the Congress to address this issue, 
for two reasons.
    First, the decisions open up a huge loophole in our Federal 
intellectual property laws. The Supreme Court actually created 
significant new law. If we truly believe in fairness, we cannot 
tolerate a situation in which some participants in the 
intellectual property system get legal protection, but are told 
they do not have to adhere to the law themselves. They can get 
the benefits with none of the obligations. If we truly believe 
in the free market, we cannot tolerate a situation where one 
class of market participants have to play by the rules and 
others do not. As the Senator from Pennsylvania said in August 
1999 in a floor statement that was highly critical of these 
decisions, he said, they ``leave us with an absurd and 
untenable state of affairs,'' where ``States will enjoy an 
enormous advantage over their private sector competitors.''
    This concern is not just abstract. Consider this. In one 
recent copyright case the University of Houston was able to 
avoid any liability by invoking sovereign immunity. The 
plaintiff in that case, a woman named Denise Chavez, was unable 
to collect a nickel in connection with the University's 
unauthorized publication of her short stories. Just a short 
time later, another public university funded by the State of 
Texas is suing Xerox for copyright infringement.
    There are other reasons why we should respond. Over the 
past decade in a series of 5 to 4 decisions that might be 
called examples of judicial activism, the current Supreme Court 
majority has overturned Federal legislation with a frequency 
unprecedented in American constitutional history. In doing so, 
the Court has more often than not relied on notions of State 
sovereign immunity that have little if anything to do with the 
text of the Constitution.
    Some of us have liked some of the results, some have liked 
others, but that is not the point. You have an activist Court 
that is whittling away at the legitimate constitutional 
authority of the Federal Government. We are faced with a 
choice. We can respond in a careful measured way by reinstating 
our democratic policy choices in legislation crafted to meet 
what the Court currently claims are its objections. Or we can 
run away, abdicate our democratic policy-making duties to the 
unelected Court and go down in history as the incredibly 
shrinking Congress. I pose what the alternatives are. You can 
probably guess which way I feel.
    Just last week the Court decided to intervene in another 
copyright dispute to decide whether Congress went too far in 
1998 when we extended the period of copyright protection for an 
additional 20 years. Many of us on the committee cosponsored 
that legislation, and it passed unanimously in both the House 
and the Senate. A decision that the legislation is 
unconstitutional could place further limits on congressional 
power. Some would say that the Supreme Court has decided that 
it can ignore Congress, can ignore the electorate, and really 
set itself up as an amazingly activist Court, certainly the 
most activist in my lifetime.
    In November of last year I introduced the Intellectual 
Property Protection Restoration Act of 2001, S. 1611. It builds 
on my earlier proposal. I am proud to have the House leaders on 
intellectual property issues, Representatives Coble and Berman, 
as the principal sponsors of the House bill. And we have 
support from such organizations as the American Bar 
Association, the American Intellectual Property Law 
Association, the Intellectual Property Owners Association, the 
International Trademark Association, the Professional 
Photographers of America Association, and the Chamber of 
Commerce.
    I have a lot more on here, but to save time I will put my 
full statement in the record, and a statement from Senator 
Hatch will also be placed in the record.
    And I would emphasize we are having this hearing to assure 
American inventors and investors and our foreign trading 
partners that as State involvement in intellectual property 
becomes ever greater in the new information economy, U.S. 
intellectual property rights are backed by legal remedies. I 
want to emphasize the international ramifications here. 
American trading interests have been well served by our strong 
and consistent advocacy of effective intellectual property 
protections in treaty negotiations. These efforts can be 
jeopardized by the loophole in U.S. intellectual property 
enforcement the Supreme Court has created, and I want to get us 
back to a case where we have not arbitrary fiats from across 
the street, but rather well thought-out and well-crafted 
legislation that follows not only the Constitution, but 
constitutional history.
    [The prepared statement of Senator Leahy follows:]

 Statement of Hon. Patrick J. Leahy, a U.S. Senator from the State of 
                                Vermont

    I want to welcome everyone to today's hearing on sovereign immunity 
and the protection of intellectual property. Thank you all for coming.
    Today's hearing will focus on a pair of Supreme Court cases from 
1999 and what they mean for our national system of intellectual 
property protection. I am referring to Florida Prepaid v. College 
Savings Bank and its companion case, College Savings Bank v. Florida 
Prepaid. The Court ruled in these cases that States and their 
institutions cannot be held liable for damages for patent infringement 
and other violations of the federal intellectual property laws, even 
though they can and do enjoy the full protection of those laws for 
themselves.
    The Florida Prepaid cases were both decided by the same five-to-
four majority of the justices. This slim majority of the Court threw 
out three federal statutes that Congress passed, unanimously, in the 
early 1990s, to reaffirm that the federal patent, copyright, and 
trademark laws apply to everyone, including the States. I should note 
that Senator Hatch was one the two principal sponsors of these statutes 
in the Senate, along with former Senator DeConcini.
    About four months after the Court ruled in the Florida Prepaid 
cases, I introduced a bill that responded to the Court's decisions. The 
Intellectual Property Protection Restoration Act of 1999 was designed 
to restore federal remedies for infringements of intellectual property 
rights by States.
    Today's hearing is overdue; it has been nearly three years since 
the Court issued its decisions in the Florida Prepaid cases. I believe 
that there is an urgent need for Congress to respond to those 
decisions, for two reasons.
    First, the decisions opened up a huge loophole in our federal 
intellectual property laws. If we truly believe in fairness, we cannot 
tolerate a situation in which some participants in the intellectual 
property system get legal protection but need not adhere to the law 
themselves. If we truly believe in the free market, we cannot tolerate 
a situation where one class of market participants have to play by the 
rules and others do not. As Senator Specter said in August 1999, in a 
floor statement that was highly critical of the Florida Prepaid 
decisions, they ``leave us with an absurd and untenable state of 
affairs,'' where ``States will enjoy an enormous advantage over their 
private sector competitors.''
    This concern is not just abstract. Consider this. In one recent 
copyright case, the University of Houston was able to avoid any 
liability by invoking sovereign immunity. The plaintiff in that case, a 
woman named Denise Chavez, was unable to collect a nickle in connection 
with the University's alleged unauthorized publication of her short 
stories. Now, just a short time later, another public university funded 
by the State of Texas is suing Xerox for copyright infringement.
    The second reason why Congress should respond to the Florida 
Prepaid decisions is that they raise broader concerns about the roles 
of Congress and the Court. Over the past decade, in a series of five-
to-four decisions that might be called examples of ``judicial 
activism,'' the current Supreme Court majority has overturned federal 
legislation with a frequency unprecedented in American constitutional 
history. In doing so, the Court has more often than not relied on 
notions of State sovereign immunity that have little if anything to do 
with the text of the Constitution.
    Some of us have liked some of the results; others have liked 
others; but that is not the point. This activist Court has been 
whittling away at the legitimate constitutional authority of the 
federal government. At the risk of sounding alarmist, this is the fact 
of the matter: We are faced with a choice. We can respond--in a careful 
and measured way--by reinstating our democratic policy choices in 
legislation that is crafted to meet the Court's stated objections. Or 
we can run away, abdicate our democratic policy-making duties to the 
unelected Court, and go down in history as the incredible shrinking 
Congress.
    Just last week, the Court decided to intervene in another copyright 
dispute, to decide whether Congress went too far in 1998, when we 
extended the period of copyright protection for an additional twenty 
years. Many of us on the Committee cosponsored that legislation, and it 
passed unanimously in both Houses. A decision that the legislation is 
unconstitutional could place further limits on congressional power.
    In November of last year, I introduced the Intellectual Property 
Protection Restoration Act of 2001, S.1611, which builds on my earlier 
proposal. I am proud to have the House leaders on intellectual property 
issues, Representatives Coble and Berman, as the principal sponsors of 
the House companion bill, H.R. 3204. Our approach has garnered broad 
support from such organizations as the American Bar Association, the 
American Intellectual Property Law Association, the Intellectual 
Property Owners Association, the International Trademark Association, 
the Professional Photographers of America Association, and the Chamber 
of Commerce.
    This bill has the same common-sense goal as the three statutes that 
Senator Hatch championed a decade ago and the Supreme Court overturned: 
To protect intellectual property rights fully and fairly. But the 
legislation has been re-engineered, after extensive consultation with 
constitutional and intellectual property experts, to ensure full 
compliance with the Court's new jurisprudential requirements.
    Most importantly, our bill presents States with a choice. It 
creates reasonable incentives for States to waive their immunity in 
intellectual property cases, but it does not oblige them to do so. 
States that choose not to waive their immunity within two years after 
enactment of the bill would continue to enjoy many of the benefits of 
the federal intellectual property system; however, like private parties 
that sue States for infringement, States that sue private parties for 
infringement could not recover any money damages unless they had waived 
their immunity from liability in intellectual property cases.
    This arrangement is clearly constitutional. Congress may attach 
conditions to a State's receipt of federal intellectual property 
protection under its Article I intellectual property power just as 
Congress may attach conditions on a State's receipt of federal funds 
under its Article I spending power. Either way, the power to attach 
conditions to the federal benefit is part of the greater power to deny 
the benefit altogether. And no condition could be more reasonable or 
proportionate than the condition that in order to obtain full 
protection for your federal intellectual property rights, you must 
respect those of others.
    I hope we can all agree on the need for corrective legislation. A 
recent GAO study confirmed that, as the law now stands, owners of 
intellectual property have few or no alternatives or remedies available 
against State infringers--just a series of dead ends. I commend Senator 
Hatch for initiating that GAO study when he was Chairman of the 
Committee.
    We need to assure American inventors and investors, and our foreign 
trading partners, that as State involvement in intellectual property 
becomes ever greater in the new information economy, U.S. intellectual 
property rights are backed by legal remedies. I want to emphasize the 
international ramifications here. American trading interests have been 
well served by our strong and consistent advocacy of effective 
intellectual property protections in treaty negotiations and other 
international fora. Those efforts could be jeopardized by the loophole 
in U.S. intellectual property enforcement that the Supreme Court has 
created.
    I look forward to hearing from our witnesses, and again thank you 
all for coming.

    Mr. James Rogan is the Under Secretary of Commerce of 
Intellectual Property and Director of the U.S. Patent and 
Trademark Office, formerly in the House of Representatives, 
where among other things he was a member of the Judiciary 
Committee, Subcommittee on Courts and Intellectual Property. He 
has the distinction of having served in every branch of State 
Government, as a prosecutor, a judge and a legislator. Being a 
prosecutor is the best job anybody could have, and Under 
Secretary Rogan, please come forward.
    And Marybeth Peters is the Register of Copyrights. She has 
held that position since 1994, has been with the Copyright 
Office since 1966, has taught copyright as an adjunct at the 
University of Miami and at Georgetown, has written and spoken 
extensively on copyright matters, and is probably one of the 
best-known people before this committee. And, Ms. Peters, 
please come forward.
    And why do we not start with you, Secretary Rogan?

 STATEMENT OF JAMES E. ROGAN, UNDER SECRETARY OF COMMERCE FOR 
INTELLECTUAL PROPERTY AND DIRECTOR OF THE UNITED STATES PATENT 
             AND TRADEMARK OFFICE, WASHINGTON, D.C.

    Mr. Rogan. Mr. Chairman, thank you. In fact, in listening 
to your repetition of my biography, I noted to Marybeth that I 
am now on my second go-round in an Executive Branch job. So 
hopefully I will have merited the confidence of this committee, 
and especially you, Mr. Chairman, for the courtesies that you 
extended me last year. I appreciate your support, and before I 
begin I wanted to thank you once again.
    Chairman Leahy. Well, I am pleased that you were willing to 
take the position you have. I think the President made a wise 
choice, and I am glad to have you here.
    Mr. Rogan. Thank you, Mr. Chairman. After 9 months in the 
private sector, I only wish my wife would join you with that 
delight.
    [Laughter.]
    Mr. Rogan. Anyway, turning to the issue at hand, Mr. 
Chairman, I also want to congratulate you and Senator Hatch for 
the leadership both of you have shown on this rather complex 
issue concerning State sovereign immunity. The Supreme Court's 
Florida Prepaid decisions pose critically important issues for 
our Nation's intellectual property system, and it is gratifying 
to see that Congress is concerned about the situation and 
looking to bipartisan solutions.
    In the time since I was confirmed as Under Secretary for 
Intellectual Property, I have surveyed many in the IP community 
about the State sovereign immunity problem. These conversations 
have made clear that the inequitable impacts resulting from 
Florida Prepaid decisions need to be addressed. State and State 
institutions are active and invaluable participants in the 
Federal intellectual property system. University hospitals and 
research centers patent their latest innovations. State public 
television and radio stations produce copyrighted programming. 
And State universities have valuable merchandising rights in 
the marks associated with their sport teams. As State entities 
become increasingly involved in commerce, particularly through 
the educational and research sectors, they naturally desire to 
protect and enforce their own intellectual property rights.
    Presently, however, under the Florida Prepaid decisions, 
they are shielded from real accountability if they infringe on 
the intellectual property rights of others. This inequity skews 
our system of IP protection. The Florida Prepaid decisions also 
had implications for enforcing America's intellectual property 
abroad. IP protection is critical for U.S. exports with about 
one-half now dependent on some form of protection.
    As we advocate stronger enforcement abroad to secure these 
assets, we must also demonstrate our respect for intellectual 
property rights here at home. That means providing robust means 
of enforcement against any infringer.
    Mr. Chairman, our reading of the Supreme Court's Florida 
Prepaid decisions suggests that a legislative remedy is 
appropriate. While the administration is not yet prepared to 
endorse any particular bill, we very much appreciate your 
introduction of S. 1611 as a basis for discussion of these 
issues.
    The administration trusts that the hearings involving 
representatives of private and State holders of intellectual 
property, legal experts in IP and State immunity, and the 
administration, will enable this committee to fashion 
appropriate legislative remedies. To that end the U.S. PTO and 
the administration look forward to continuing to work with you 
and the members of this distinguished committee to ensure that 
the rights of all IP owners are protected through equitable and 
robust enforcement.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Rogan follows:]

     Statement of James E. Rogan, Under Secretary of Commerce for 
   Intellectual Property, Director of the U.S. Patent and Trademark 
                        Office, Washington, D.C.

    Chairman Leahy and Members of the Committee, it is a pleasure to 
join your discussion of State sovereign immunity and its impact on the 
enforcement of intellectual property rights. I want to thank you and 
Senator Hatch for the leadership you have shown on this very complex 
issue. Like both of you, I recognize that the Supreme Court's decisions 
in 1999 on State sovereign immunity pose a critically important issue 
for intellectual property policy.
    Intellectual property owners view the current situation as 
inequitable. In their view, State institutions profit from federally 
protected intellectual property and are permitted to bring suit to 
protect their own intellectual property, but are shielded from monetary 
damages as defendants. This inequity skews our system of intellectual 
property protection, because the penalties in place to discourage 
infringement do not apply to State entities. The Administration shares 
some of these concerns.
    However, the subject of today's hearing rests at a critical 
intersection of two fundamental Constitutional principles. On the one 
hand, the Eleventh Amendment recognizes that each State is a sovereign 
entity in our federal system. On the other hand, Article 1, Section 8 
of the Constitution creates the foundation for our intellectual 
property system by granting Congress ``the power to promote the 
progress of science and useful arts, by securing for limited times to 
authors and inventors the exclusive right to their respective writings 
and discoveries.''
    The Commerce Department supports the objective of ensuring that 
owners of intellectual property rights have a proper remedy when a 
State infringes upon those intellectual property rights. As such, we 
believe that a legislative answer to the questions raised by the 
Florida Prepaid cases is appropriate. At the same time, however, we 
respect the Supreme Court's decisions on federalism. We support this 
committee's efforts to strike a balance between these competing 
interests in carefully crafting responsive legislation.
                       The Florida Prepaid Cases
    In the 1980's and 1990's, however, the Supreme Court ruled that 
Congress must make explicit its intent to abrogate sovereign immunity. 
Under this test, the language of many statutes that had been assumed to 
abrogate sovereign immunity (such as the Patent Act, the Lanham Act, 
and the Copyright Act) failed to achieve that purpose. Intellectual 
property owners then feared that States might be immune to suits for 
damages under federal intellectual property laws.
    In order to make explicit its intent to abrogate State sovereign 
immunity in such infringement suits, Congress enacted the Patent and 
Plant Variety Remedy Clarification Act (1992), the Trademark Remedy 
Clarification Act (1992), and the Copyright Remedy Clarification Act 
(1990). However, in a 1996 decision, Seminole Tribe v. Florida, 517 
U.S. 44 (1996), the Supreme Court ruled that Congress may authorize 
suits against States in Federal court only pursuant to its authority 
under section 5 of the Fourteenth Amendment and not pursuant to any 
power under Article I of the Constitution.
    In 1999, the U.S. Supreme Court applied this same reasoning in two 
opinions addressing the right of States to assert sovereign immunity in 
suits concerning federally protected intellectual property. In Florida 
Prepaid Postsecondary Education Expense Board v. College Savings Bank, 
527 U.S. 627, the Court held that States could assert sovereign 
immunity to shield themselves from suits under the Patent Act. The 
Court recognized that Congress has the power to abrogate sovereign 
immunity under section 5 of the Fourteenth Amendment. However, the 
Court reasoned that Congress' passage of the Patent and Plant Variety 
Protection Remedy Clarification Act in 1992 did not validly abrogate 
State sovereign immunity. The Court cited two reasons for this 
conclusion. First, Congress had failed to sufficiently identify State 
infringements of patents that constituted conduct transgressing the 
Fourteenth Amendment's substantive provisions.
    Second, Congress had failed to tailor its legislative abrogation of 
State sovereign immunity to remedy or prevent such Constitutional 
violations.
    In a companion case, College Savings Bank v. Florida Prepaid 
Postsecondary Education Expense Board, 527 U.S. 666, the Court 
considered whether States can be sued for unfair competition under 
Sec.  43(a) of the Lanham Act (15 U.S.C. 1125(a)) where the Trademark 
Remedy Clarification Act had: (1) amended Sec.  43(a) by defining ``any 
person'' to include State and State instrumentalities; and (2) 
expressly abrogated State sovereign immunity for Sec.  43(a) suits. 
Again, the Court held that Trademark Remedy Clarification Act had not 
validly abrogated the State sovereign immunity and concluded that 
Florida had not voluntarily waived its sovereign immunity through its 
activities in interstate commerce. While the Court has not directly 
considered whether States enjoy sovereign immunity against claims of 
either trademark or copyright infringement, the Florida Prepaid cases 
have been interpreted by both courts and commentators as leading to 
that conclusion.
    In my conversations with intellectual property owners, I have 
learned that they find the current situation post-Florida Prepaid to be 
unfair. States and State institutions are active participants in the 
federal intellectual property system, with extensive patent and 
trademark holdings. Yet, while they enjoy all the rights of an 
intellectual property plaintiff, they are shielded from significant 
accountability as infringers of the intellectual property of others.
    In light of this potential problem, Senator Hatch asked the General 
Accounting Office (GAO) last year to research and prepare a report to: 
determine the extent to which States have been accused of intellectual 
property infringement; identify the alternatives or remedies available 
to protect intellectual property owners against State infringement 
after the Florida Prepaid ruling; and obtain the views of the 
intellectual property community on what States could and should do, if 
anything, to protect intellectual property owners against infringement.
    The GAO discovered fifty-eight lawsuits brought against States for 
intellectual property infringement since 1985. Although the GAO labeled 
this number as ``few,'' this finding provides some evidence of the 
extent to which States have been accused of violating the intellectual 
property laws. Until 1999, the States were thought to be liable for 
damages for infringing another's intellectual property. Because of this 
potential liability, State entities had every reason to avoid 
infringement, to negotiate settlements or to enter into licensing 
arrangements.
    Furthermore, based on self-reporting by State attorneys general and 
State universities, the GAO found that most State entities handle 
accusations of intellectual property infringement through 
administrative processes. If the majority of such accusations are 
handled through such processes, then the fifty-eight cases filed in 
court represent only a small number of the total accusations against 
States.
    In reality, too little time has elapsed since the 1999 Florida 
Prepaid decisions for the GAO to statistically gauge whether immunity 
from suits for damages has led to States relaxing their standards for 
the use of intellectual property. Given all of these considerations, 58 
cases naming States as defendants may be evidence of a much larger 
problem.
    In addition to the fifty-eight allegations of infringement by 
States, the GAO report revealed an absence of any viable alternative 
remedy against State infringement. The GAO lists a number of legal 
theories under which an intellectual property owner might be able to 
seek monetary damages in State courts. But the potential usefulness of 
any of these theories is largely unknown. The intellectual property 
laws of the United States have been carefully crafted to provide 
appropriate incentives to authors and inventors. Requiring an 
intellectual property owner to resort to untested legal theories in 
State courts in order to remedy an infringement damages the integrity 
of the U.S. intellectual property system.
    Furthermore, 28 U.S.C. section 1338 gives federal courts exclusive 
jurisdiction over any civil action arising under any Act of Congress 
relating to patents, plant variety protection, copyrights, mask works, 
and designs. The federal courts have original jurisdiction over 
trademark infringement suits and over unfair competition claims when 
joined with a substantial and related claim under the copyright, 
patent, plant variety protection or trademark laws. The Copyright Act 
preempts all State legal rights that are equivalent to any of the 
exclusive rights in the Copyright Act after January 1, 1978. Thus, it 
is difficult to imagine any sufficient and practical alternative State 
remedy for State infringement of a copyright. All actions relating to 
patent and trademark applications are heard either through an 
administrative body in the USPTO or a federal court and are appealable 
only to a federal court. Finally, many States will have sovereign 
immunity in their own courts as well as in federal courts. 
Consequently, the alternatives to bringing an infringement suit against 
a State in federal court are, at best, uncertain.
    The Florida Prepaid decisions may also have implications for 
enforcing America's intellectual property rights abroad. As the 
Committee is well aware, intellectual property protection is critical 
for U.S. exports, with about one-half of all of our exports dependent 
on some form of intellectual property protection. In fact, America 
loses more than $11 billion a year just from international software 
piracy alone. To combat this problem, we are reaching out to our 
foreign trading partners to encourage their support for strong 
intellectual property laws and enforcement systems. However, as we 
advocate strong enforcement abroad, we must also demonstrate our 
respect for intellectual property rights here at home and provide 
robust means of enforcement against any infringer.
                          Legislative Options
    Because the Florida Prepaid decisions raised a critical issue of 
intellectual property policy, the U.S. Patent and Trademark Office 
(USPTO) has been closely examining this matter since the decisions were 
issued in 1999. This includes participating in an informal discussion 
group on the cases with private industry, the Copyright Office, and 
House and Senate staff as well as hosting an all-day conference in 
March 2000 in cooperation with American Intellectual Property Law 
Association (AIPLA) and the Intellectual Property Section of the 
American Bar Association (ABA). The conference studied various 
legislative options and constitutional issues that face the 
intellectual property community in the wake of the Florida Prepaid 
decisions. At the conference, scholars, State representatives, and 
intellectual property owners focused their attention on three basic 
routes for State liability in intellectual property cases: the 
abrogation approach, injunctive relief under the Ex Parte Young 
doctrine, and waiver of State immunity in exchange for participation in 
some federal program.
                        The Abrogation Approach
    Mr. Chairman, Section 5 of your Bill, S. 1611, would abrogate State 
sovereign immunity in cases where a State's infringement rises to the 
level of a constitutional violation under the Due Process Clause or the 
Takings Clause, and where the State cannot demonstrate that its own 
procedures are adequate to remedy such violations. While this limited 
abrogation would appear to be constitutional under Florida Prepaid, it 
is unclear to what extent Section 5 of the bill would address the full 
range of State infringements of intellectual property. As Florida 
Prepaid indicates, however, a broader abrogation statute would raise 
quite serious constitutional questions: it would, at a minimum, need to 
be crafted as a remedy or disincentive that is proportional and 
congruent to those instances of State infringement that are, in fact, 
unconstitutional.
                     The Injunctive Relief Approach
    In light of the constitutional problems inherent in crafting an 
abrogation statute that would reach all instances of State 
infringement, legal scholars have suggested two other approaches to 
balancing State sovereign immunity against the concerns of intellectual 
property owners: (1) injunctive relief under the Ex Parte Young 
doctrine and (2) requiring a waiver of sovereign immunity as a 
condition of receiving some federal benefit.
    Based on the GAO's findings, it appears that members of the 
intellectual property community believe it is possible to go to federal 
court to get an injunction against a State preventing future 
infringement. In Ex Parte Young, the Supreme Court ruled that Eleventh 
Amendment immunity does not bar certain suits seeking declaratory and 
injunctive relief against State officers in their official capacities. 
209 U.S. 123 (1908). Supreme Court decisions have clarified that the Ex 
Parte Young exception to State sovereign immunity must be interpreted 
narrowly and cannot be applied so as to allow all federal court actions 
against State officers in their official capacities to proceed. See 
e.g., Edelman v. Jordan, 415 U.S. 651 (1974). Therefore, under Ex Parte 
Young, it may be possible to bring suit against a State official for 
injunctive relief to stop continuing intellectual property 
infringement. It may not be possible, however, to obtain monetary 
damages. (Although a suit for money damages may be prosecuted against a 
State official in his individual capacity for unlawful conduct fairly 
attributable to the officer himself, such relief must come from the 
officer personally rather than from the State treasury, and therefore 
is not often an adequate or appropriate remedy for State infringement.) 
Based on our discussions with the intellectual property community, we 
believe that intellectual property owners would prefer a remedy that 
would allow them to collect monetary damages from the State for 
infringement. Intellectual property owners feel that the availability 
of monetary damages would provide a stronger disincentive to 
infringement.
                          The Waiver Approach
    The third possible approach is to seek a waiver of State sovereign 
immunity. State officials are unlikely to voluntarily waive sovereign 
immunity because doing so is not in the State's interest. Therefore, 
much attention has been given to whether Congress can craft legislation 
that will, in a constitutionally sound manner, prompt States to waive 
their sovereign immunity in intellectual property suits. Congress may 
want to look carefully at the possibility of eliciting waivers of 
sovereign immunity in exchange for the States' ability to benefit from 
the federal intellectual property system. To avoid Constitutional 
difficulties, we believe that there must be clear notice to the States 
of how participation triggers waiver. There may be other complexities 
and Constitutional questions that need further examination as well.
    Mr. Chairman, your bill offers one model for addressing these 
issues - a carefully crafted model that deserves close attention as we 
move forward in this discussion. As noted above, section 5 of S. 1611 
would abrogate State sovereign immunity in cases where a State's 
infringement constituted a constitutional violation under the Due 
Process Clause or the Takings Clause, and where the State cannot 
demonstrate that its own procedures are adequate to remedy such 
violations. Section 4 of the bill would clarify that actions, including 
Ex Parte Young suits, can be brought against State officials. And under 
section 3 of S. 1611, a State could not obtain damages in federal 
courts for infringements of its patents, trademarks or copyrights 
unless the State had waived its immunity in federal court in any action 
for ``infringement of intellectual property protected under Federal 
law.'' The Commerce Department supports the objective of ensuring that 
owners of intellectual property rights have a proper remedy when a 
State infringes upon those intellectual property rights. The 
Administration believes that legislation to achieve that objective must 
(1) be consistent with the Constitution, (2) properly respect the roles 
of the States in our Federal system, and (3) facilitate creation of and 
commerce in intellectual property. While the Administration is not yet 
prepared to endorse a particular bill, we appreciate very much your 
introduction of S. 1611 as a basis for discussion of these issues. We 
believe that hearings involving representatives of private holders of 
intellectual property, States, State holders of intellectual property, 
the Administration, and legal experts in intellectual property and in 
State immunity, will enable this Committee to fashion appropriate 
legislation for further consideration.
    Before closing, I raise one technical issue with respect to S. 
1611. If S. 1611 or comparable legislation is pursued, the USPTO would 
recommend that plant variety protection and integrated circuit designs 
be added to the category of intellectual property for which States can 
obtain no infringement damages unless the States waive sovereign 
immunity. Although a State would be required to waive its sovereign 
immunity in infringement suits involving all types of federally 
protected intellectual property in order to obtain patent, trademark, 
or copyright damages, it is not clear under the current draft bill that 
a State owner of a semiconductor chip design or plant variety would be 
required to waive immunity in order to obtain damages for infringement 
of this intellectual property. Mr. Chairman, we would be happy to work 
with your staff to add the appropriate text ensuring that States owning 
integrated circuit designs or protected plant varieties be held to the 
same standards as States owning other forms of intellectual property.
                               Conclusion
    The Administration believes that, as State instrumentalities become 
increasingly involved in commerce, particularly through the educational 
and research sectors, they must accept the responsibility that comes 
with their desire to protect and enforce their own intellectual 
property rights. The federal government accepts that it may be liable 
for money damages if it infringes intellectual property rights. Indeed, 
while the federal government is precluded by statute from asserting 
copyright domestically on works created by its employees, the federal 
government can be held liable for copyright infringement. 28 U.S.C. 
Sec. 1498 (2002).
    Similarly, the federal government can be held liable for patent and 
trademark infringement and has, in fact, been ordered to pay damages 
for patent infringement. See, e.g. Hughes v. U.S., 271 F.3d 1060 (CAFC 
2001). In light of Florida Prepaid, the States are not subject to the 
same liability as the federal government. Our reading of the Supreme 
Court's decisions in the Florida Prepaid cases suggests that a 
legislative remedy is appropriate to address this concern.
    Mr. Chairman, the USPTO and the Administration look forward to 
continuing to work with you and the members of this distinguished 
Committee to ensure proper protection for intellectual property.

    Chairman Leahy. Thank you very much.
    Ms. Peters?

 STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, UNITED 
           STATES COPYRIGHT OFFICE, WASHINGTON, D.C.

    Ms. Peters. Mr. Chairman, thank you for inviting the 
Copyright Office to present its views on this important issue. 
Let me begin by thanking you, Mr. Chairman, for your leadership 
in this area.
    You began work to rectify the imbalance created by the 
Supreme Court's June 1999 ruling shortly after the decisions 
were announced. You consulted extensively with all interested 
parties, kept an open mind throughout that process, and you 
went to great lengths to accommodate all concerns. The result 
is a carefully-balanced bill providing copyright owners with 
effective tools to restore their ability to obtain appropriate 
remedies for infringement by States while remaining within 
Congress's constitutional authority. The Copyright Officer 
strongly supports S. 1611.
    Copyright owners are unable to obtain monetary relief under 
the Copyright Act against a State, a State entity or a State 
employee unless the State waives its immunity. And the 
availability of monetary awards in State courts is highly 
doubtful.
    The ability of copyright owners to protect their property 
and to obtain complete relief when their rights are violated is 
central to the balance of interest in the Copyright Act. By 
denying that opportunity to copyright owners in cases where the 
infringes are within the umbrella of a State's sovereign 
immunity, the Supreme Court's rulings dilute the incentive for 
authors, for performers and producers to create and disseminate 
works for the benefit of the public.
    I do not accept the proposition that copyright owners must 
or should endure future infringements without adequate and just 
remedies. If the Supreme Court's decisions have effectively 
blocked Congress from directly abrogating the State's immunity 
except in the narrowest of circumstances, then it is 
appropriate for Congress to consider other legislative 
responses such as those in S. 1611, providing incentives to 
States to waive immunity voluntarily by conditioning the 
receipt of a gratuity from the Federal Government on such 
waiver. Only in this way can the proper balance and basic 
fairness be restored.
    Your layered approach, designed to protect copyright owners 
with the best chance of getting their day in court is a 
balanced approach, respectful of States and carefully crafted 
to comply with the most recent Supreme Court rulings, contains 
three main components: a system designed to encourage States to 
waive their immunity from Federal Court suits seeking monetary 
relief for infringement of intellectual property. It does this 
by granting the benefit of fully enforceable intellectual 
property rights only to those states that do so. Second, there 
is a carefully circumscribed abrogation of State sovereign 
immunity in the intellectual property field to provide a remedy 
against States that choose not to waive their immunity. And 
finally, a codification of the judicially-made rule that 
notwithstanding a State's sovereign immunity, the employees of 
a State may be enjoined by a Federal court from engaging in 
illegal action.
    I believe the most important part of the bill is the waiver 
provisions, which would deny States that do not waive their 
immunity, the ability to recover monetary relief when they seek 
to enforce their own intellectual property rights. Where a 
State waives its immunity, it can seek monetary relief. This 
approach is reasonable, proportionate and appropriate.
    I am hopeful that this incentive will be successful. States 
derive significant revenue from commercial exploitation of 
their intellectual property. The price of being unable to 
obtain monetary relief for the infringement of future 
intellectual property should give States good cause to consider 
accepting the bargain that Congress offers with this 
legislation. It is only logical to expect that without an 
alteration of the status quo, infringements by States are 
likely to increase, especially in our digital online 
environment.
    The Supreme Court's rulings and the rights of States must 
surely be respected, but the current state of affairs is unjust 
and unacceptable, and it is appropriate for Congress to use its 
authority to prevent State sovereign immunity from becoming a 
tool of injustice. This bill does that, and I look forward to 
its enactment.
    [The prepared statement of Ms. Peters follows:]

 Statement of Marybeth Peters, Register of Copyrights, U.S. Copyright 
                        Office, Washington, D.C.

    Mr. Chairman, Senator Hatch, Members of the Committee, good 
morning. It is always a pleasure to appear before this Committee and I 
thank you for inviting the Copyright Office to present its views today 
on this very important issue.
    I would like to begin by thanking you, Mr. Chairman, for your 
leadership in this area. You began working on legislation to rectify 
the imbalance created by the Supreme Court's June, 1999 rulings almost 
immediately after the decisions were announced. You consulted 
extensively with my office, other agencies, the intellectual property 
community, legal scholars, another interested parties. In that process, 
you kept an open mind to all views and went to great lengths to 
accommodate all concerns that were raised. The product of your efforts, 
S. 1611, the Intellectual Property protection Restoration Act, is a 
carefully balanced bill. It provides copyright owners with effective 
tools to restore their ability to obtain appropriate remedies for 
infringement by States while remaining, I believe, within Congress' 
constitutional authority. The Copyright Office supports enactment of S. 
1611.
                             I. Background
    The broadened interpretation of state sovereign immunity and its 
resulting application to remedies available under the Copyright Act is 
a relatively recent phenomenon. The United States enacted the first 
Copyright Act in 1790. There is no judicial decision in the ensuing 172 
years that failed to subject States to the full range of remedies 
available under the copyright Act on the grounds of sovereign immunity.
    Then, in 1962, the United States Court of Appeals for the Eighth 
Circuit dismissed a copyright infringement suit against a state agency 
on sovereign immunity grounds.\1\ However, that case did not usher in a 
new era for state sovereign immunity. Just two years later, the Supreme 
Court issued its ruling in Parden v. Terminal Railway of Alabama 
(Parden) in which it held that ``when a State leaves the sphere that is 
exclusively its own and enters into activities subject to congressional 
regulation, it subjects itself to that regulation as fully as if it 
were a private person or corporation.'' \2\
---------------------------------------------------------------------------
    \1\ Wihtol v. Crow 309 F.2d 777 (8th Cir. 1962).
    \2\ 377 U.S. 184, 196 (1964).
---------------------------------------------------------------------------
    Over time, the decision in Parden was gradually eroded. More than 
twenty years after Parden, in Atascadero State Hospital v. Scanlon 
(Atascadero),\3\ the Court reversed itself on the legislative 
requirements necessary to find congressional intent to abrogate state 
sovereign immunity. The Court held that in the instant case, the 
Eleventh Amendment barred recovery from the States because a ``general 
authorization for suit in federal court is not the kind of unequivocal 
language sufficient to abrogate the Eleventh Amendment.'' \4\ Rather, 
what is required for congressional abrogation of state sovereign 
immunity is that the federal statute be ``unmistakably clear'' that 
States are included in the defendant class.\5\
---------------------------------------------------------------------------
    \3\ 473 U.S. 234 (1985).
    \4\ Id. at 246.
    \5\ Id. at 242.
---------------------------------------------------------------------------
    The decision in Atascadero created great uncertainty as to which 
federal laws were unmistakably clear in their intent to subject States 
to liability and which were not. Applying this standard to the 
Copyright Act, some courts held in favor of the States' immunity,\6\ to 
the great distress of copyright owners.
---------------------------------------------------------------------------
    \6\ See Woelffer v. Happy States of America, Inc., 626 F. Supp. 499 
(N.D. Ill. 1985); BV Engineering v. UCLA, 657 F. Supp. 1246 (C.D. Cal 
1987), aff'd, 858 F.2d 1394 (9th Cir. 1988), cert. den., 109 
S. Ct. 1557 (1989).
---------------------------------------------------------------------------
    In 1987, Congress requested that the Copyright Office produce a 
report on the current state of the law in the area of the enforcement 
of copyright against state governments. On June 27, 1988, the Copyright 
Office submitted its report, Copyright Liability of States and the 
Eleventh Amendment. That report noted that copyright owners ``caution 
that injunctive relief is inadequate--damages are needed. And if states 
are not responsible for remunerating copyright owners, as are all other 
users subject to limited statutory exceptions, proprietors warn that: 
marketing to states will be restricted or even terminated; prices to 
other users will increase; and the economic incentives, even ability, 
to create works will be diminished.'' Given these concerns and the 
analysis of the case law as it stood at that time, the report concluded 
that ``copyright proprietors clearly demonstrate the potential for 
immediate harm to them.''
    In 1990, Congress responded to the situation created by the ruling 
in Atascadero by enacting the descriptively-named Copyright Remedy 
Clarification Act (CRCA).\7\ That law added provisions to Title 17 
which clearly provide that States ``shall not be immune, under the 
Eleventh Amendment of the Constitution. . .or any other doctrine of 
sovereign immunity, from suit in Federal Court. . .for a violation of 
the exclusive rights of a copyright owner. . . .'' \8\ This clear 
statement left little doubt that Congress intended to make States 
liable for infringement and to abrogate their sovereign immunity. Thus, 
once again, the apparent uncertainty about the immunity of States from 
suits for damages for copyright infringement was removed. A similar law 
for patents and one for trademarks were enacted two years later.
---------------------------------------------------------------------------
    \7\ Pub. L. No. 101-553
    \8\ 17 U.S.C. Sec. 511.
---------------------------------------------------------------------------
    That brings us to the Supreme Court's triad of opinions on June 23, 
1999.\9\ It is worth noting that all three of these cases were decided 
by the same 5-4 vote and all three engendered strong dissenting views.
---------------------------------------------------------------------------
    \9\ College Savings Bank v. Florida Prepaid Postsecondary Educ. 
Expense Bd., 527 U.S. 666 (1999) (College Savings); Florida Prepaid 
Postsecondary Educ. Expense Bd. v. College Savings Bank, 527 U.S. 627 
(1999) (Florida Prepaid); Alden v. Maine, 527 U.S. 706 (1999) (Alden).
---------------------------------------------------------------------------
    The decision in Alden undergirded the other two decisions. In that 
case,John Alden and other employees of the State of Maine filed suit in 
state court in Maine against that state for violation of the overtime 
provisions of the Fair Labor Standards Act, a federal law. The U.S. 
Supreme Court affirmed the decision of the Maine Supreme Judicial Court 
that the State's sovereign immunity barred the suit, holding that:

        the States' immunity from suit [in the State's own courts and 
        in federal courts] is a fundamental aspect of the sovereignty 
        which the States enjoyed before the ratification of the 
        Constitution, and which they retain today . . . except as 
        altered by the plan of the Convention or certain constitutional 
        Amendments.\10\
---------------------------------------------------------------------------
    \10\ Id at 713.

    In the second of the June 23 cases, College Savings, the Court 
considered whether Congress had the authority to abrogate state 
sovereign immunity from lawsuits under section 43(a) of the Lanham Act. 
Under the Court's earlier holding in Seminole Tribe of Florida v. 
Florida,\11\ there is only one source of constitutional authority from 
which Congress may abrogate state immunity: the enforcement power in 
Section 5 of the Fourteenth Amendment.\12\
---------------------------------------------------------------------------
    \11\ 517 U.S. 44 (1996).
    \12\ College Savings at 670.
---------------------------------------------------------------------------
    The Fourteenth Amendment instructs in relevant part that ``No State 
shall . . . deprive any person of . . . property, without due process 
of law.'' \13\ Because the Court held that College Savings did not 
allege deprivation of a property right within the meaning of the 
Fourteenth Amendment, the avenue of congressional abrogation of state 
immunity was closed.\14\
---------------------------------------------------------------------------
    \13\ U.S. Const., amend. XIV.
    \14\ College Savings at 673.
---------------------------------------------------------------------------
    Next, the Court turned to the question of implied state waiver of 
immunity. Invoking the precedent of Parden, Petitioner College Savings 
sought to show that Florida had impliedly waived its immunity by 
participating in a scheme that is enforceable in federal court.\15\ Not 
only did the Court reject this argument, but it overruled Parden and 
renounced the doctrine of implied waiver of state immunity.\16\
---------------------------------------------------------------------------
    \15\ Id. at 676.
    \16\ Id. at 680.
---------------------------------------------------------------------------
    The Court's holding requires that a state's waiver be explicit and 
voluntary in order to be effective. However, Congress may provide 
incentives to the State by conditioning use of its discretionary 
authority such as that found in the Spending Clause and the Compact 
Clause on state waiver.\17\
---------------------------------------------------------------------------
    \17\ Id. at 686-87.
---------------------------------------------------------------------------
    In the third of the three opinions issued on June 23, Florida 
Prepaid, the Court considered whether Congress had the authority to 
abrogate state sovereign immunity from lawsuits under the Patent Act. 
The Court acknowledged that patents are property within the meaning of 
the Fourteenth Amendment.\18\ However, the Court held that the 
legislative enactment at issue in this case did not fall within 
Congress' Fourteenth Amendment power for three reasons.
---------------------------------------------------------------------------
    \18\ Florida Prepaid at 637.
---------------------------------------------------------------------------
    First, Congress ``must identify conduct transgressing the 
Fourteenth Amendment's substantive provisions, and must tailor its 
legislative scheme to remedying or preventing such conduct.'' \19\ The 
Court found that Congress failed to meet this burden because it did not 
identify a pattern of patent infringement by states.\20\
---------------------------------------------------------------------------
    \19\ Id. at 639.
    \20\ Id.
---------------------------------------------------------------------------
    Second, the Court recognized that patent infringement by a state is 
not a violation of the Fourteenth Amendment if the state provides a 
remedy, that is, due process.\21\ Because the statute was drafted to 
apply to all States,without regard to state-provided remedies, the 
Court held that it went beyond the power conveyed by the Fourteenth 
Amendment.\22\
---------------------------------------------------------------------------
    \21\ Id. at 642-43.
    \22\ Id. at 646-47.
---------------------------------------------------------------------------
    Third, the Court noted that ``a state actor's negligent act that 
causes unintended injury to a person's property does not `deprive' that 
person of property within the meaning of the Due Process Clause.'' \23\ 
Because a claim for patent infringement requires no showing of intent 
in order for the plaintiff to prevail, the Court held that the 
legislative enactment a tissue in this case was again overbroad.
---------------------------------------------------------------------------
    \23\ Id. at 645 (Citing Daniels v. Williams 474 U.S. 327, 328 
(1986)).
---------------------------------------------------------------------------
    Although the Supreme Court has not ruled directly on the 
constitutionality of the CRCA, the Fifth Circuit applied the Supreme 
Court's recent rulings in Chavez v. Arte Publico Press (Chavez).\24\ 
That case involved a suit by an author claiming copyright infringement 
of her book by the University of Houston, a state university.
---------------------------------------------------------------------------
    \24\ 204 F.3d 601 (5th Cir. 2000).
---------------------------------------------------------------------------
    The court followed the analysis in Florida Prepaid, first inquiring 
whether Congress identified a pattern of infringement by States. While 
noting that the legislative history in support of the CRCA, which 
included the 1988 report of the Copyright Office, was somewhat more 
substantial than that of the PRCA, the court found that the record was 
still inadequate to support the legislative enactment. Second, the 
court noted that in adopting the CRCA, Congress ``barely considered the 
availability of state remedies for infringement.'' \25\ That the 
legislative history did not meet requirements the Court articulated a 
decade after the law was enacted is not surprising. Thus, the Fifth 
Circuit refused to enforce the CRCA.
---------------------------------------------------------------------------
    \25\ Id. at 606.
---------------------------------------------------------------------------
    The same result was reached in another Fifth Circuit case, 
Rodriguez v. Texas Comm'n on the Arts,\26\ in a brief opinion that 
presumably is based upon the same rationale as that circuit's decision 
in Chavez. Given the current Supreme Court precedent, it is difficult 
to find fault with the ruling in Chavez, and we believe that the CRCA 
would most likely be held unconstitutional by the current Supreme 
Court.
---------------------------------------------------------------------------
    \26\ 199 F.3d 279 (5th Cir. 2000).
---------------------------------------------------------------------------
    Thus, like the recent, brief periods in the early 1960's and the 
late1980's, we are again faced with the issue of state sovereign 
immunity being interpreted and applied in a manner which inhibits the 
proper functioning of the Copyright Act.
    The most recent development has been a report issued by the General 
Accounting Office, at the request of Senator Hatch, which surveyed 
there cent legal landscape for the number of infringement actions 
against states and the availability of remedies for infringements by 
States.\27\ That report reached the conclusions that there are 
relatively few infringements of intellectual property rights by States 
and that there are few if any remedies available to right holders whose 
rights are infringed.
---------------------------------------------------------------------------
    \27\ Intellectual Property: State Immunity in Infringement Actions, 
GAO-01-811 (Sept. 2001).
---------------------------------------------------------------------------
    That report also contains the text of a letter that the Copyright 
Office sent to the GAO regarding the study and report. In that letter 
we expressed no surprise at the relatively low number of infringements 
found.We were not surprised because we recognized the difficulties in 
obtaining accurate and complete records of claims against states and 
the relatively recent phenomenon of state sovereign immunity trumping 
copyright liability. We believe, however, that even a few acts of 
infringement by States, if unremedied, should be sufficient to justify 
congressional abrogation of state sovereign immunity. Moreover, the 
Congress is entirely within its authority to condition the exercise of 
its discretionary authority to provide a State what amounts to a 
federal gratuity on a waiver of sovereign immunity by that State 
regardless of the extent of a record of known infringements.
                       II. The Current Imbalance
    At the outset, we acknowledge that the problems addressed by S. 
1611 apply to all forms of intellectual property. However, as Register 
of Copyrights,my remarks will be confined to intellectual property 
covered by Title 17of the U.S. Code. The effect of the Court's 1999 
decisions is that copyright owners are unable to obtain monetary relief 
\28\ under the Copyright Act against a State, state entity, or state 
employee unless the State waives its immunity. The availability of 
monetary awards through lawsuits filed in state courts is highly 
doubtful.\29\ Actions such as takings claims and tort are not designed 
to apply to intellectual property and courts may not be willing to 
expand those areas of law. Further, the States have immunity in their 
own courts as well as in Federal court,\30\ so the State would have to 
waive its immunity in any event.
---------------------------------------------------------------------------
    \28\ Monetary relief for copyright infringement may consist of some 
combination of actual damages, defendant's profits, statutory damages, 
litigation costs, and attorney's fees. 17 U.S.C. Sec. Sec. 504,505.
    \29\ Id. at 613-24.
    \30\ Id. at 23-24; Alden at 712.
---------------------------------------------------------------------------
    The ability of copyright owners to protect their property and to 
obtain complete relief when their rights are violated is central to the 
balance of interests in the Copyright Act. By denying that opportunity 
to copyright owners in cases where the infringers are under the 
umbrella of a State's sovereign immunity, the Supreme Court's decisions 
dilute the incentive for authors, performers, and producers to create. 
If the diminution of incentives to create results in a diminution of 
creative output, as may reasonably be assumed, the American economy and 
culture will be poorer for it.
    We would like to think that States and State employees will respect 
the copyright laws despite the unavailability of any monetary remedy 
when they infringe, but we are concerned that in light of the Supreme 
Court's 1999rulings the available legal remedies will be insufficient 
to ensure that result.
    We do not mean to suggest by this that States and their employees 
are any less willing to abide by the law than the American public as a 
whole.However, recent experiences in the internet environment suggest 
that some segments of the public do not view copyright as sacrosanct. 
Further, logic dictates that if a segment of people will not be held 
fully accountable for certain actions, they may be less likely to 
restrict themselves in those actions. As it was stated in Federalist 
No. 51, albeit in a different context, ``[i]t may be a reflection on 
human nature, that such devices should be necessary to control the 
abuses of government. . . .If men were angels, no government would be 
necessary. If angels were to govern men, neither external nor internal 
controls on government would be necessary.''
    In sum, we do not accept the proposition that copyright owners must 
or should endure future infringements without an adequate and just 
remedy. If the Supreme Court's decisions have effectively blocked 
Congress from directly abrogating the State's immunity, then it is 
appropriate for Congress to consider other legislative responses, such 
as those in this bill--providing incentives to States to waive their 
immunity voluntarily by conditioning the receipt of a gratuity from the 
Federal Government on such waiver. Only in this way can the proper 
balance, and basic fairness,be restored.
                        III. Elements of S. 1611
    The Copyright Office is gratified that you have undertaken to 
remedy this situation, Mr. Chairman. S. 1611, is a layered approach, 
designed to provide copyright owners with the best chance of getting 
their day in court. It is also a balanced approach, respectful of 
States and carefully crafted to comply with the most recent Court 
rulings.
    S. 1611 contains three main components: a system designed to 
encourage States to waive their immunity from federal court suits 
seeking monetary relief for infringement of intellectual property by 
granting the benefit of fully enforceable intellectual property only to 
those States that do so, a carefully circumscribed abrogation of State 
sovereign immunity in the intellectual property field to provide a 
remedy against States that choose not to waive their immunity, and a 
codification of the judicially-made rule that notwithstanding a State's 
sovereign immunity,the employees of a State may be enjoined by a 
Federal court from engaging in illegal action.
                         A. Incentive to Waive
    The bill provides significant incentives for a State to waive its 
immunity, but does so in a way that is inherently proportional and fair 
to the States and copyright owners. The bill is designed so that a 
State which chooses not to waive its immunity from monetary damages in 
intellectual property infringement cases is unable to obtain damage 
awards when it seeks to enforce its own intellectual property rights. 
If a State does waive its immunity, then it obtains the benefit of 
being able to seek monetary relief. This approach is reasonable, 
proportionate, and appropriate.
    We are optimistic that this incentive will be successful in 
encouraging states to level the playing field by waiving their 
immunity. States derive significant revenue from the commercial 
exploitation of their intellectual property. The price of being unable 
to obtain monetary relief for the infringement of future intellectual 
property should give States good cause to consider accepting the 
bargain that Congress offers with this legislation. Of course, States 
would have even greater incentive to waive their immunity if their 
ability to obtain injunctive relief was also conditioned on such 
waiver. But out of concern for not crossing the line between 
encouragement to the States and coercion of the States, Mr.Chairman, 
you elected to follow a symmetrical approach--to deny a State exactly 
what is denied to other right holders if the State refuses to waive its 
immunity. We respect that choice, and I believe that the bill can 
effectively accomplish its goals as written.
    We feel confident that the bill is within Congress' constitutional 
authority. The Supreme Court has made clear that the sovereign immunity 
of a State is ``a personal privilege which it may waive at its 
pleasure.'' \31\ Further, the Court wrote that Congress may properly 
seek to induce States to waive their immunity by conditioning ``the 
denial of a gift or gratuity. . .'',\32\ such as approval of an 
interstate compact \33\ or its grant of funds to a State,\34\ on such 
waiver. That is precisely what this bill does.
---------------------------------------------------------------------------
    \31\ College Savings, at 675 (Quoting Clark v. Barnard, 108 U.S. 
436, 447 (1883)).
    \32\ College Savings at 687.
    \33\ Petty v. Tennessee-Missouri Bridge Comm'n 349 U.S. 275 (1950).
    \34\ South Dakota v. Dole, 483 U.S. 203 (1987).
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    The Constitution grants to Congress the authority ``To promote the 
Progress of Science and useful Arts, by securing for limited Times to 
Authors and Inventors the exclusive Right to their respective Writings 
and Discoveries. . . .'' \35\ Of course, we recognize this as the 
authority by which Congress may provide copyright protection for 
qualifying works. This authority is entirely permissive. Congress may 
choose not to extend copyright protection at all, it may extend that 
protection subject to certain conditions, or it may extend that 
protection only to certain classes of authors. A particularly relevant 
example is the choice that Congress has made to withhold copyright 
protection from ``any work of the United States Government. . . .'' 
\36\ Similarly, Congress may withhold copyright protection from any 
work of any state government. That it has chosen not to do so to date 
represents a gift from the Congress to the States. And, as the Supreme 
Court has opined, Congress may condition the grant of such a gratuity 
upon a State's waiver of its sovereign immunity in the directly related 
field of suits for monetary relief under the Federal intellectual 
property laws.\37\
---------------------------------------------------------------------------
    \35\ U.S. Const. Art I, sec. 8.
    \36\ 17 U.S.C. Sec. 105.
    \37\ See supra, note 17.
---------------------------------------------------------------------------
    The fact that Congress has allowed States to enjoy copyright 
protection for their works for so long in no way alters the fact that 
such protection remains a gift from the Federal Government or 
diminishes its constitutionally granted discretion to change that 
policy. S. 1611 would effectuate a change in that policy, offering 
States an opportunity to receive full copyright protection for their 
works in the future in exchange for waiver of sovereign immunity to 
infringement claims.
    This system is closely analogous to the changes made by the 
Telecommunications Act of 1996. That Act altered the long-standing 
regime of federal acquiescence to state regulation of local telephone 
service. The Act provided that a State could continue to play a role in 
such regulation, but conditioned that gratuity on a waiver by the State 
of its immunity to suits arising under the procedures set forth in the 
Act. This condition has been challenged in federal court and upheld by 
four of the five appeals courts to hear such cases.\38\
---------------------------------------------------------------------------
    \38\ See MCI Telecomms. Corp v. Illinois Bell Tel. Co. 222 F.3d 323 
(7th Cir. 2000); Southwestern Bell Tel Co. v. Brooks Fiber 
Communications of Okla., Inc., 235 F.3d 493 (10th Cir. 
2000); Southwestern Bell Tel. Co. v. Public Util. Comm'n, 208 F.3d 475 
(5th Cir. 2000); but see Bell Atlantic MD, Inc. v. MCI 
Worldcom, Inc., 240 F.3d 279 (4th Cir. 2001), T3cert. 
granted, 121 S. Ct 2448 (2001).
---------------------------------------------------------------------------
                             B. Abrogation
    While we are optimistic that most States will waive their immunity 
under the system this bill provides, there is a distinct possibility 
that some States, perhaps more than a few, will not. In that case, it 
is necessary to provide copyright owners with at least a chance to have 
their day in court. You were therefore wise, Mr. Chairman, to have 
included the second element of the bill; a provision for the abrogation 
of state sovereign immunity, pursuant to Congress' authority under the 
Fourteenth Amendment.
    The Supreme Court's decision in Florida Prepaid leaves Congress 
almost no lee way to accomplish an abrogation of State sovereign 
immunity that will place copyright owners on the same footing they were 
prior to the Court's ruling. Not only must Congress have an extensive 
record of infringements, but the record must also include proof that 
adequate remedies in state court are not available, and possibly also 
that the infringements were willful.\39\ This standard appears nearly 
impossible to reach. We are baffled at the Court's apparent decision 
that the Fourteenth Amendment requires the denial of copyright owners' 
constitutional rights at epidemic proportions before it allows Congress 
to fully restore those rights.
---------------------------------------------------------------------------
    \39\ See supra, notes 19-23.
---------------------------------------------------------------------------
    Nonetheless, Mr. Chairman, you made full use of the few tools left 
to you in this area. The result is an abrogation provision that traces 
the outlines of the Fourteenth Amendment precisely. The Court has held 
that such narrowly-tailored abrogations do not require the support of 
the factual record that broader abrogations would.\40\ Unfortunately, 
the burden of establishing a constitutional violation merely shifts to 
the individual right holder/plaintiff. Thus, the abrogation provision 
in this bill is helpful only to those who can meet these additional 
burdens of proof beyond what is normally necessary to establish a prima 
facial case of infringement. In the final analysis, given the 
restrictions the Court has placed on Congress' exercise of its 
Fourteenth Amendment authority, we believe that this is the best 
abrogation provision that courts will sustain under the precedent of 
Florida Prepaid.
---------------------------------------------------------------------------
    \40\ Kimel v. Florida Board of Regents, 528 U.S. 62, 81 (2000).
---------------------------------------------------------------------------
                  B. Codification of Injunctive Relief
    The third and final element of the bill is a codification of the 
judicially-made rule that notwithstanding the State's immunity, state 
employees may be enjoined by Federal courts from engaging in illegal 
activity, such as infringement of copyrights. This doctrine was first 
articulated by the Supreme Court in Ex Parte Young.\41\ The reasoning 
the Court followed was that state employees are covered by the umbrella 
of the State's sovereign immunity only to the extent they are acting 
within the scope of their official duties. Because a state employee may 
not violate Federal law in carrying out his duties, if he does so, he 
is by definition operating outside the scope of his official duties. 
And because he is acting outside the scope of his official duties, he 
is no longer protected by the State's sovereign immunity and the court 
may enjoin him from that activity.\42\
---------------------------------------------------------------------------
    \41\ 209 U.S. 123 (1908).
    \42\ Id. at 159-60.
---------------------------------------------------------------------------
    Despite the long-standing recognition of this doctrine, some fear 
that the recent judicial supercharging of state sovereign immunity may 
be extended to nullify this venerable rule. Thus, we believe that it is 
wise to codify this doctrine in federal law.
                             IV. Conclusion
    It is only logical to expect that without an alteration of the 
status quo, infringements by States are likely to increase. Only 
Congress has the power to remedy the existing imbalance. The Supreme 
Court's rulings and the rights of States must surely be respected, but 
the current state of affairs is unjust and unacceptable. It is 
appropriate for Congress to use its authority to prevent state 
sovereign immunity from becoming a tool of injustice. S. 1611 achieves 
the necessary goals within the constitutional limits and I look forward 
to its enactment.

    Chairman Leahy. Well, thank you very much, Ms. Peters. 
Nobody is more protective of State sovereignty than I. I 
appreciate very much the fact that our own State of Vermont is 
able to make many decisions for itself, and whether others like 
it or not, we have that ability. But I also believe very much 
if you own property, somebody should not be able to steal it, 
and if you own a copyright, if you put your work into it, 
someone should not be able to just take it. You put yourself 
into it. You have value in that. The same as if you drive your 
car on a State road, somebody cannot just walk over and say, 
``I am from the State,'' and take it. By the same token, the 
States, of course, want to protect their own things. If they 
have a State University that spent a great deal of money in 
developing a medical procedure or developing a mechanical 
procedure or something else, they want to be able to protect 
their investment, but they should not have it--it should not be 
an either/or. They should be able to protect their investment, 
but then they have to be responsive to other people's 
investments.
    I am wondering, speaking of that, if I might ask, Mr. 
Rogan, can you give us any estimate of how many patents and 
trademarks are currently owned by States and State 
institutions?
    Mr. Rogan. Mr. Chairman, we actually had tried to look at 
that quickly, and found that our databases just are not set up 
to retrieve all of that information. It would actually involve 
a hand-held search. Although I did take the liberty of bringing 
a bit of data that we did have available. This actually, I 
think, came from the GAO report that this committee had 
requested from a year or so ago. There is an indication on page 
42 and 43 that State institutions of higher education had in 
force, at the end of 1999, almost 12,000 patents, so that is 
over two years ago.
    Those institutions also had, as of February of last year, 
over 2,000 registered trademarks, and over 650 pending 
applications, and finally, with respect to copyrights over the 
last 20 years, there were over 32,000 registrations. So you can 
see that even in those dated figures, the amounts we are 
talking about are fairly substantial.
    Chairman Leahy. So this is not just an academic exercise. 
We are talking about a great number of them. But yet, I believe 
that same GAO study mentions a relatively small number of cases 
of infringement by the States. Does that indicate in any way 
that legislation in this area is not necessary?
    Mr. Rogan. I do not think so, Mr. Chairman. In fact, 
looking at the GAO study, my recollection was it surveyed back 
from 1985. The Florida Prepaid cases did not even come down 
until 1997, so essentially, for the bulk of the period 
reviewed, there was a period of time where there was an 
expectation that intellectual property rights had to be 
reciprocally respected, and so I am not sure you can look at 
those numbers pre 1997 and make any determination as to whether 
what the GAO determined was a limited number is essentially a 
fair snapshot of the environment we are in right now, and since 
1999 it has probably been too close in time for us to get a 
fair legal analysis.
    Chairman Leahy. I cannot help but think if you have a State 
that--if they are looking at it and say, ``Well, we have 
immunity, but we are going to be good guys here. We will talk 
to a property owner, intellectual property owner, and we will 
let them have a licensing deal with us.'' But basically a case 
like that, the State has all the leverage. I mean they could 
say, ``If you are licensing this property or this intellectual 
property to a corporation at $5 per whatever unit, well, you 
can license it with us, but it would be $1 per unit.'' Now, if 
they have sovereign immunity, there is not much that the 
intellectual property owner could do about that, is there?
    Mr. Rogan. I think you probably carry the same bias for 
Vermont that I carry for my home State of California in not 
expecting our home States or the other States to be sitting 
around looking for ways to become intellectual property 
pirates. However, the sheer uncertainty of the remedies 
available now for intellectual property owners creates a skewed 
environment, that as I said in my testimony, calls for a 
legislative remedy.
    And I think that Ms. Peters is absolutely right when she 
says that merely looking to possible injunctive relief without 
monetary damages really takes any enforcement provision, any 
meaningful enforcement provision for the copyright owner out of 
the mix.
    Chairman Leahy. Well, I understand the administration's 
position that Florida Prepaid has created an inequitable 
situation, and there should be a legislative solution, but at 
some point the administration has got to endorse something, a 
particular piece of legislation, when it has been three years 
since Florida Prepaid. I think it was two years ago PTO had an 
all-day conference to look at some of the different options. It 
has been four months since I introduced this legislation. I 
mean, are you guys in favor of it or opposed to it?
    Mr. Rogan. Mr. Chairman, I can assure you, when the 
administration decides which vehicle is the best one to 
approach, you will be the first one to know.
    Chairman Leahy. Well, right now this is the only vehicle.
    Mr. Rogan. And that is why we think it is a good starting 
point, Mr. Chairman.
    Chairman Leahy. Well, I would hope the day would come that 
the administration might take a position on it, because we are 
going to have to move something. I mean if you do not take a 
position on it, we could end up in a limbo, and nobody is 
helped by that. We have an awful lot of concerned parties 
ranging from the ABA to the Chamber of Commerce, the 
Professional Photographers, to everybody else who are saying, 
``Do something.'' This is not a Democratic or Republican issue. 
This is just a good common sense issue. We have got to--I mean 
I hear all kinds of suggestions. One says that Congress should 
withhold Federal funding for academic research grants to 
institutions of higher education, unless there is a State 
agreement to waive sovereign immunity. I think our colleges and 
universities in many instances are strapped for those kind of 
funds anyway, and I am reluctant to withhold that as a method 
of operation.
    Do you have a feeling on that?
    Mr. Rogan. Mr. Chairman, first, with respect to your 
previous comments, as you know, Florida Prepaid came down I 
think about two years before this administration came into 
existence. I have been on the job for about 9 weeks I think. 
There are an awful lot of stakeholders in various areas that we 
would like to hear from. But clearly we agree with you in the 
sense that there is an inequity that has been created. Just 
what is the perfect fix, I am not quite sure what that is.
    Chairman Leahy. I do not know to beat that, but we can keep 
on it. You and I know each other well enough, I would hope you 
just pick up the phone and call me as you see areas that the 
administration is getting interested in, and please just do 
that because I do want to move something on this.
    And, Ms. Peters, I would assume that you might have a 
feeling about whether we should do a carrot and stick approach 
in the form of withholding money from universities or colleges. 
How do you feel about that?
    Ms. Peters. I honestly think that is not the better way to 
go. Actually, the virtue of S. 1611 is that there is a direct 
nexus between the conditional benefit and the subject of the 
desired waiver, so that copyright owners can get monetary 
damages if the States waive, and the States can get monetary 
damages also. So there is a real nexus and a real 
proportionality to your solution. I think that putting it with 
Federal funds, the nexus is further away from the benefit. And 
I think there is a problem with Federal funds because your 
solution, once enacted, it is over. But when you have Federal 
funds, there is a question with regard to whether or not the 
Federal funds and the waiver carry forward, or whether or not 
you have to enact legislation every year in order to accomplish 
the result that you want. So that would not be a way that we 
would like to see you go.
    Chairman Leahy. Let me ask you about another area because 
you deal with international matters on this too. This sudden 
move by the Supreme Court in articulating this new vision of 
State sovereign immunity, does that create difficulties for us 
in our international intellectual property relations?
    Ms. Peters. Certainly. The United States is the largest 
owner of intellectual property, and it is something that we 
gain a lot of money from, from exports. And we ask countries 
around the world to provide adequate and effective protection. 
And since we are the one who is asking that, they are certainly 
looking at us for the example, and already one of the countries 
that we are negotiating with raised the issue of the Supreme 
Court's decision as a possible source of noncompliance with 
TRIPS.
    But for me the real issue that having this loophole gives 
countries an opportunity, in other words, and excuse to not 
rise to the level of adequate and effective protection that 
they should have, and we should basically have a law that meets 
the requirements that we are seeking in others.
    Chairman Leahy. How many copyrighted works do States own, a 
lot?
    Ms. Peters. They probably own a tremendous number, although 
we cannot document it that way. Unlike patents and trademarks, 
copyright is created upon the actual fixing of a work. So there 
are unpublished unregistered works. Even with regard to 
registrations, it is really hard to search them because you do 
not know who is a State entity and who is not, even with 
universities. As pointed out in the GAO report, Auburn is a 
State university, but Cal Tech is not. We did do a survey of 
our records, just looking at four-year, no other, four-year 
State colleges and universities, and Secretary Rogan referred 
to the 32,000 just in monographs. That did not cover serials, 
it did not cover all other types of works. I think States, in 
their variety of activities in the educational arena, the 
hospital arena, the university presses, the radio stations, 
they own a tremendous amount of copyrighted works, though I am 
not sure that it is necessarily as important to them 
commercially as perhaps patents and trademarks.
    Chairman Leahy. Is Congress constitutionally required to 
let the States create, own, and enforce intellectual property 
right?
    Ms. Peters. Is the Congress?
    Chairman Leahy. Do we have to let States create, own, 
enforce intellectual property rights?
    Ms. Peters. Could you do something like you do to the U.S. 
Government works; could you deny protection to State works? You 
certainly have that power.
    Chairman Leahy. Well, I thank you. We will be continuing to 
work on this.
    I want to submit a number of questions for the record, a 
number of letters, statements by other senators.
    But I want to move legislation of this nature this year. 
And I want the President to sign it. I want our intellectual 
property owners to know what the playing field is, and I want a 
level playing field. I want States to be able if they create 
intellectual property, they have the rights for it. After all 
the taxpayers paid for it, the taxpayers should get the benefit 
of it. But if private parties are working, on their own they 
deserve the protection.
    So let us work together, let us keep in touch on this, but 
we have a short session ahead of us, and this is one thing that 
I think will have some strong bipartisan support, and we should 
try to get it passed. So thank you both for being here.
    Mr. Rogan. Thank you, Mr. Chairman.
    Chairman Leahy. Somebody mentioned that--I do not know 
where anybody ever got the impression that sometimes there are 
contentious hearings here in the Judiciary Committee, but I 
thought this one has been very easygoing.
    [Laughter.]
    Chairman Leahy. Mike Kirk is Executive Director of the 
American Intellectual Property Law Association, and before 
doing that, he served as Deputy Assistant Secretary of Commerce 
and Deputy Commissioner of Patents and Trademarks, capping off 
a career of more than 30 years in USPTO. While there he led and 
served on numerous U.S. Government intellectual property 
delegations. He was the Chief U.S. negotiator on the TRIPS 
agreement. Of course, no stranger to this committee.
    Keith Schraad is the Western Regional Manager of National 
Information Consortium. That is a Kansas-based eGovernment 
company. He is a native of Kansas. He is a former aide to 
Senator Bob Dole. A State Senator yourself, were you not, in 
the 11th District?
    Mr. Schraad. That is correct.
    Chairman Leahy. I know that Senator Brownback wanted to be 
here to introduce you, and he is held up at another thing, but 
he made it very clear that he wanted you to be here, and of 
course, Senator Brownback is a valued member of this committee, 
and we want to have you here.
    William Thro is General Counsel at Christopher Newport 
University, Virginia's newest public university. He is Special 
Assistant Attorney General for the Commonwealth of Virginia. He 
has represented institutions of higher education as an 
Assistant Attorney General in Colorado and Virginia, served as 
Interim General Counsel at Old Dominion University, written 
extensively on issues of sovereign immunity and handled 
numerous cases involving sovereign immunity issues, and Mr. 
Thro, we are delighted to have you here.
    Paul Bender is a Professor of Law at Arizona State 
University College of Law. He is counsel to Meyer & Klipper, a 
Washington, D.C. law firm, a well-respected firm. He has served 
as Assistant to U.S. Solicitors General Archibald Cox and 
Thurgood Marshall, General Counsel to the Federal Commission on 
Obscenity and Pornography, and most recently as Principal 
Deputy Solicitor General under Solicitor General Drew Days. He 
has argued more than 20 cases before the U.S. Supreme Court, 
and has written extensively in the areas of constitutional law 
and civil rights.
    I go through these various backgrounds as a way of saying 
how much I appreciate that all of you would take the time to 
come here to the Judiciary Committee.
    We will start with you, Mr. Kirk.

  STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN 
   INTELLECTUAL PROPERTY LAW ASSOCIATION, ARLINGTON, VIRGINIA

    Mr. Kirk. Thank you, Mr. Chairman. AIPLA appreciates your 
efforts to develop a constitutionally sound solution to the 
inequities and unfairness presented by the inability of 
intellectual property owners to enforce their rights against 
States and State entities. We believe that S. 1611 is a 
balanced and appropriate response to the Eleventh Amendment 
sovereign immunity shield available to States that infringe 
Federal intellectual property rights.
    As the previous panel noted, until relatively recently, it 
was perceived by IP rights owners that States were liable for 
the infringement of their rights. Following the Atascadero 
decision in 1985 that congressional intent to abrogate had to 
be explicitly and unambiguously stated, Congress reacted and 
adjusted the Federal intellectual property laws to provide such 
clear language. Seven years later, however, the Supreme Court 
once again shifted the goal post in Seminole, ruling that the 
Eleventh Amendment restricts judicial power under Article III, 
and that Article I cannot be used to circumvent the 
constitutional limitations placed on Federal jurisdiction. The 
Court completed the evisceration of Congress's earlier effort 
to hold States accountable for infringing Federal IP rights in 
College Savings and Florida Prepaid.
    While severely circumscribing Congress' options to enact 
legislation to abrogate sovereign immunity against suits by 
private parties to enforce their IP rights, the Court in 
College Savings did leave open an approach involving voluntary 
waiver. The Court acknowledged that Congress could condition 
the grant of a gratuity to States upon their taking certain 
action that Congress could not require them to take.
    S. 1611 adopts this approach. It offers States the right to 
obtain damages in suits to enforce their IP rights if they 
voluntarily waive their sovereign immunity to suits by private 
parties to enforce their IP rights against the States. 
Certainly Congress can exercise its Article I powers to promote 
the general public well-being by encouraging States to 
participate fully in the Federal intellectual property system.
    The wisdom of S. 1611 is further underscored by the GAO 
report requested by Senator Hatch. We agree fully with the 
comments made by Under Secretary Rogan that the fact that only 
58 lawsuits were found is not surprising, given the fact that 
for most of the recent history, it was thought that 
intellectual property rights were enforceable against the 
States. While we would not argue that States will knowingly 
infringe intellectual property rights of others, too little 
time has really passed between College Savings and Florida 
Prepaid and now to fully judge that impact.
    Let me say one word about the international ramifications 
of these cases that you raise with Ms. Peters. This involves 
the potential vulnerability of the United States under the 
TRIPS agreement. One of the most significant contributions to 
the protection of intellectual property internationally was the 
inclusion in TRIPS of provisions for effectively enforcing 
intellectual property rights. This was a very significant 
breakthrough, obligating member nations to have the authority 
to order a party to desist from infringement and to have the 
authority to order the infringer to pay the right holder 
damages adequate to compensate for the injury suffered because 
of an infringement.
    There was no question whether the enforcement and other 
obligations of TRIPS will apply to subdivisions of members 
(States in our context). The obligations would apply unless an 
exception was crafted into the text. There are specific 
exceptions to TRIPS obligations in Article 31(b) and 44.2 that 
extend to members at the Federal level. This was not the case 
with respect to subdivisions or States. Since Congress had 
addressed the problems in Atascadero during the Uruguay Round, 
there was no reason for the United States to seek exceptions 
for States to the rules set forth for enforcing intellectual 
property rates. A failure of the United States to fully meet 
its TRIPS obligations not only risks the possibility of an 
adverse dispute settlement decision, it also sets a regrettable 
example for other nations whose laws we seek to improve, as Ms. 
Peters noted.
    For these reasons: fairness, equity and self-interest, 
AIPLA strongly supports S. 1611. We look forward to working 
with this committee to make that bill a reality.
    Thank you.
    [The prepared statement of Mr. Kirk follows:]

Statement of Michael K. Kirk, Executive Director, American Intellectual 
             Property Law Association, Arlington, Virginia

    I am pleased to have the opportunity to present the views of the 
American Intellectual Property Law Association (AIPLA) on S. 1611, the 
``Intellectual Property Protection Restoration Act of 2001.''
    The AIPLA is a national bar association of more than 13,000 members 
engaged in private and corporate practice, in government service, and 
in the academic community. The AIPLA represents a wide and diverse 
spectrum of individuals, companies and institutions involved directly 
or indirectly in the practice of patent, trademark, copyright, and 
unfair competition law, as well as other fields of law affecting 
intellectual property. Our members represent both owners and users of 
intellectual property.
    We appreciate your efforts, Mr. Chairman, to develop a 
constitutionally-sound solution to the inequities and problems 
presented by the inability of intellectual property owners to enforce 
their rights against States and State entities. You initiated this 
process with the introduction of S. 1835, the Intellectual Property 
Protection Restoration Act of 1999 shortly after the Supreme Court's 
decision in College Savings Bank v. Florida Prepaid Postsecondary 
Education Expense Board, 527 U.S. 666 (1999) and Florida Prepaid 
Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 
627 (1999). The discussion and debate which this legislation generated 
have resulted in what we believe is a balanced and appropriate response 
to the Eleventh Amendment sovereign immunity shield available to States 
that infringe property rights.
                               BACKGROUND
    Prior to 1985, it was generally perceived by patent, trademark and 
copyright owners, rightly or wrongly, that States were liable for the 
infringement of their rights (Lemelson v. Ampex Corp., 372 F. Supp. 708 
(N.D.Ill. 1974); Mills Music Inc. v. State of Arizona, 591 F.2d 1278 
(9th Cir 1979)). In Lemelson, the court, relying upon Parden v. 
Terminal Railway Co., 377 U.S. 184 (1964), ruled that, in granting 
Congress the exclusive right to grant patents, the states had largely 
surrendered their sovereign immunity to patent suits and allowed the 
recovery of damages.
    In 1985, however, the Supreme Court held in Atascadero State 
Hospital v. Scanlon, 473 U.S. 234 (1985) that Congressional intent to 
abrogate State sovereign immunity must be explicitly and unambiguously 
stated in the language of the statute itself. In that case, the 
plaintiff charged that a state hospital had refused to hire him solely 
because of his physical handicaps in violation of the Rehabilitation 
Act of 1973. In rejecting plaintiff's suit, the Supreme Court found 
neither an unequivocal waiver by the state of its Constitutional 
immunity nor an unequivocal expression by Congress of its intention to 
abrogate the Eleventh Amendment. Shortly after Atascadero, courts began 
applying its reasoning to the patent and copyright laws (Chew v. 
California, 893 F.2d 331 (Fed. Cir. 1990); BV Engineering v. UCLA, 858 
F.2d 1394 (9th Cir. 1988)).
    Congress moved quickly to remedy this newly-identified omission in 
the federal intellectual property laws. The Copyright Remedy 
Clarification Act (CRCA) (Pub. L. 101-533), enacted in 1990, based its 
abrogation of State sovereign immunity on Article I, Sec. 8, cl.8. The 
CRCA was followed in 1992 by the Patent and Plant Variety Protection 
Clarification Act (PRA) (Pub. L. 102-560) and the Trademark Remedy 
Clarification Act (TRCA) (Pub. L. 102-561) which abrogated State 
sovereign immunity by reliance on Article I, Sec. 8, cl.8 and Article 
I, Sec. 8, cl.3 respectively, as well as Sec. 5 of the 14th Amendment.
    Congress relied on Pennsylvania v. Union Gas Co., 491 U.S. 1 (1989) 
in basing its abrogation of State sovereign immunity on Article I in 
the three Clarification Acts. Union Gas involved a third party 
complaint against the State under the Comprehensive Environmental 
Response, Compensation and Liability Act to recover costs associated 
with the clean up of a coal tar deposit. In a plurality decision, the 
Court had ruled that the Commerce Clause gave Congress the power to 
abrogate States' immunity (though the majority did not agree on the 
reasoning). In a dissent, four Justices disagreed that the Commerce 
Clause provided such authority.
    Seven years later, however, the Supreme Court ruled in Seminole 
Tribes of Fla. v. Florida, 517 US 44 (1996) that the Eleventh Amendment 
restricts the judicial power under Article III and that Article I 
cannot be used to circumvent the Constitutional limitations placed on 
federal jurisdiction. Seminole involved a suit under the Indian Gaming 
Regulatory Act to compel the State to negotiate in good faith a compact 
allowing certain gaming activities. The Court observed that Congress' 
authority to abrogate State sovereign immunity had been found only in 
two Constitutional provisions: the Commerce Clause and the Fourteenth 
Amendment. Stating that never before Union Gas had the Court held that 
its Article III jurisdiction could be expanded by other than the 14th 
Amendment, the Court found Union Gas to be based on a misreading of 
precedent, wrongly decided, and overruled it.
    With this pillar of the TRCA removed, the Court in College Savings 
quickly dispensed with any suggestion that these legislative responses 
to Atascadero could be grounded in Congress' Article I powers. The 
Court in College Savings then considered whether Florida Prepaid had 
constructively waived its immunity under Parden v. Terminal Railway 
Co., 377 U.S. 184 (1964). It ruled that Congress did not have the power 
to effect a constructive waiver of a State's Eleventh Amendment 
immunity, expressly overruling Parden.
    In Florida Prepaid, the Court considered whether the PRA could be 
founded on the Fourteenth Amendment's protection against deprivation of 
property without due process of law. Relying on the test it enunciated 
in City of Boerne v. Flores, 521 US 507 (1997), that the propriety of 
any Sec. 5 legislation ``must be judged with reference to the 
historical experience . . . it reflects,'' the Court ruled that the PRA 
could not be so justified. The Court relied heavily on the lack of 
examples in the Congressional hearings of States hiding behind their 
Eleventh Amendment sovereign immunity as well as the scarcity of 
evidence that patentees were left without a remedy under state law.
    Thus, the options available to Congress to enact legislation to 
abrogate state sovereign immunity against suits by private parties to 
enforce their patent, copyright and trademark rights, while not 
entirely eliminated, have been severely circumscribed by the Supreme 
Court's rulings. As noted by Professor Daniel J. Meltzer, the 
application of the Supreme Court's precedents in Florida Prepaid might 
lead one `to surmise that the majority's powerful commitment to the 
proposition that states should not be liable at the behest of private 
parties may shape its application of related constitutional doctrine' 
(Notre Dame Law Review, page 1011, Vol. 75:3 (2000)).
    Nonetheless, the Court in the College Savings case did leave open 
the prospect for an approach involving voluntary waiver by a State of 
its sovereign immunity. In rejecting College Savings Bank's argument 
that Florida Prepaid had impliedly or constructively waived its 
immunity from Lanham Act suit, the Court in the College Savings case 
acknowledged that Congress may `condition the grant of funds to the 
states upon their taking certain action that Congress could not require 
them to take, and that acceptance of the funds entails an agreement to 
the actions.' (South Dakota v. Dole, 483 U.S. 203 (1987) (an act 
authorizing the withholding of a percentage of federal highway funds to 
any State where alcoholic beverages were sold to any person younger 
than 21 found to be Constitutional even if Congress could not regulate 
drinking ages directly); see also Petty v. Tennessee-Missouri Bridge 
Comm'n, 359 U.S. 275 (1959) (the grant of approval by Congress of the 
creation of an interstate compact (where the approval required a 
consent to suit) was considered a gratuity)).
                                S. 1611
    The elegance of S. 1611 is that its major premise is to offer 
States a gratuity--the right to obtain damages in suits to enforce 
their patent, copyright and trademark rights--if they voluntarily waive 
their sovereign immunity to suits by private parties to enforce their 
patent, copyright and trademark rights against the waiving state. 
Certainly Congress can exercise its Article I powers in a manner 
calculated to promote the general public purpose of stimulating the 
creation of intellectual property and consumer choice by encouraging 
States to participate in the Federal intellectual property system.
    In this respect, the incentive to waive in S. 1611 is considerably 
weaker than the incentive to waive in its predecessor, S. 1835. In the 
earlier bill, a State would have been totally precluded from acquiring 
a Federal intellectual property right unless it waived its sovereign 
immunity to suits arising under those laws. A strong argument can be 
made that the level of inducement for States to waive their sovereign 
immunity in S. 1835 was comfortably within ``the appropriate powers of 
Congress'' (Florida v. Mellon, 273 U.S. 12 (1927) (an 80% credit 
against a federal estate tax for payments on State inheritance taxes 
which induced 36 States to amend their laws upheld as valid)). While 
both bills proceed on the basis of offering States a gratuity--rights 
under the Federal intellectual property laws to which states have no 
entitlement--the differences are noted to emphasize the fairness of S. 
1611. Under S. 1611, Congress is giving States the right to obtain 
patents, copyrights, and trademarks and to obtain injunctive relief in 
federal courts even if they never waive their sovereign immunity.
    We are aware that some rights holders would go further and deny 
non-waiving States the ability to obtain injunctive relief to enforce 
their Federal intellectual property rights. While clearly this would 
enhance the incentives for States to waive their sovereign immunity and 
which for that reason has obvious attractions, we do not ask for this 
added incentive at this time. It is our hope that the proportional 
incentive reflected in SEC. 3 will be sufficient to encourage States to 
waive their sovereign immunity. Should this incentive not prove 
adequate, however, we believe there is considerable latitude short of 
totally denying States the right to obtain federal intellectual 
property rights as proposed in S. 1835.
    We also appreciate the codification in SEC. 4 of S. 1611 of the 
Supreme Court's decision in Ex parte Young, 209 US 123 (1908) that the 
Eleventh Amendment does not preclude an action against a state official 
to enjoin the official from doing an act he had no legal right to do. 
Specifically, SEC. 4 enshrines the right of a patent, copyright or 
trademark holder to obtain remedies against an officer or employee of a 
State to the same extent that such remedies would be available against 
a private individual. While the injunctive relief Congress extends to 
non-waiving States to enforce their Federal intellectual property 
rights under S. 1611 is perhaps a more effective remedy than an Ex 
parte Young suit against a state official, the two remedies can be 
argued to be rough equivalents.
    We also support SEC. 5 of S. 1611 which seeks to comport with the 
Supreme Court's more narrow construction of Congressional power to 
abrogate sovereign immunity after College Savings and Florida Prepaid. 
It provides that Constitutional due process and takings violations of 
intellectual property rights are actionable. SEC. 5's exclusion of 
treble or other enhanced damages for either a due process or a takings 
violation should contribute to ensuring that ``Congress' means are 
proportionate to ends legitimate'' under the Fourteenth Amendment (City 
of Boerne v. Flores, 521 U.S. 507 (1997).
    We especially endorse paragraph (c)(2) of SEC. 5 which places the 
burden of proof upon a State to prove that it provides an adequate 
remedy for any deprivation of intellectual property rights suffered by 
a rights holder. The court in Florida Prepaid, relying on Parratt v. 
Taylor, 451 U.S. 527 (1981) and Hudson v. Palmer, 468 U.S. 517 (1984) 
held that ``only where the State provides no remedy, or only inadequate 
remedies, to injured patent owners for its infringement of their patent 
could a deprivation of property without due process result.'' Where a 
State defends a Constitutional violation of an intellectual property 
owner's right on the basis that the owner has adequate state remedies, 
certainly it is fair to require that State to disclose what those 
adequate remedies are.
    The wisdom of S.1611 is further underscored by the Report of the 
General Accounting Office. In June 2000, then Judiciary Committee 
Chairman Hatch requested the GAO to conduct a review of State Eleventh 
Amendment immunity in intellectual property infringement actions to 
identify the extent and outcome of such actions. The GAO released the 
results of its study this past September. As one might expect, the GAO 
did not find extensive evidence of infringement of federal intellectual 
property rights by States and state entities, identifying only 58 
lawsuits in which a State was a defendant. This is not surprising, 
however, in light of the recent history of the enforceability of 
federal intellectual property rights against States which clearly 
demonstrates that States and state entities have been (or were at least 
thought to be) liable for infringing such rights. Moreover, while we 
would not argue that States and state entities knowingly infringe the 
intellectual property rights of others, too little time has passed 
since College Savings and Florida Prepaid to fully judge their impact. 
We believe that it is for these reasons that GAO was unable to find 
large numbers of state infringements.
    In summary, AIPLA finds S. 1611 to be a thoughtful and carefully-
crafted response to the problems facing intellectual property owners in 
the post-College Savings and Florida Prepaid era.
                          THE NEED FOR EQUITY
    Having observed that GAO uncovered relatively limited evidence of 
past infringements of intellectual property rights by States for the 
reasons noted, we nonetheless believe that the post--College Savings 
and Florida Prepaid climate is highly inequitable and will get more so. 
State institutions can create, protect and profit from federally 
protected intellectual property. A 1999 Licensing Survey by the 
Association of University Technology Managers (AUTM) found that its 
member institutions (which are both State and private institutions) 
introduced 417 new products in 1999 and received $40.9 billion from 
licensing health care, software, and agricultural products as well as 
research reagents and tools used by industry and academia. AUTM members 
filed 5,545 patent applications (up 15% over 1998) and received 3,661 
patents (up 14% from 1998). Tellingly, academic institutions received 
an equity interest in 243 transactions in 1999 and reported holding 
equity interests in a total of 886 start-up companies at the end of 
1999.
    In addition, state institutions, particularly universities, have 
scores of federally-protected trademarks which they are becoming 
increasingly aggressive in enforcing according to testimony given by 
former USPTO Director, Q. Todd Dickinson, before the House Judiciary 
Subcommittee on the Courts and Intellectual Property on July 27, 2000. 
At that same hearing, the Register of Copyrights, Marybeth Peters, 
testified that state colleges and universities had obtained copyright 
registrations for over 32,000 monographs since 1978. Clearly, states 
are obtaining increasing numbers of federal intellectual property 
rights which they presently can fully enforce in the federal court 
system.
    But these same states that profit and benefit from obtaining and 
enforcing their intellectual property rights in the federal system can 
avoid any financial exposure when they infringe the intellectual 
property rights of others. This blatant inequity was well stated by the 
court in New Star Lasers v. Regents of California litigation, Supp. 2d 
1240 (E.D. Cal. 1999). The University of California had settled 
litigation in Massachusetts involving a patent held by the university, 
but when New Star Lasers sought a declaratory action invalidating that 
same patent, the University of California argued that it should have 
sovereign immunity. The court observed: `The Regents wish to take the 
good without the bad. The court can conceive of no other context in 
which a litigant may lawfully enjoy all the benefits of a federal 
property or right, while rejecting its limitations.'
    While S. 1611 would not require states to waive their sovereign 
immunity, it would provide reasonable incentives for them to 
voluntarily do so, thereby encouraging the elimination of the existing 
inequitable situation among states and their non-immune competitors. 
Fairness demands at least this much.
                      INTERNATIONAL RAMIFICATIONS
    There is another cloud on the horizon resulting from the College 
Savings and Florida Prepaid decisions: the potential vulnerability of 
the United States under the Agreement on Trade-Related Aspects of 
Intellectual Property Rights or TRIPs. One of the most significant 
contributions to the protection of intellectual property 
internationally was the inclusion in TRIPs of provisions for 
effectively enforcing intellectual property rights in member states, 
both internally and at the border. This was a very significant 
breakthrough, obligating member nations to Ahave the authority to order 
a party to desist from infringement@ (Article 44.1) and ``to have the 
authority to order the infringer to pay the right holder damages 
adequate to compensate for the injury . . . suffered because of an 
infringement . . .'' (Article 45.1)
    There was no question of whether the enforcement and other 
obligations of TRIPs would apply to subdivisions of members (States in 
the context of the United States): the obligations would apply unless 
an exception was crafted into the text. There are specific exceptions 
to TRIPs' obligations that extend to members at the Federal level. 
Article 31(b) excuses governments from seeking a voluntary license 
prior to using a patented invention in cases of public non-commercial 
use. Article 44.2 allows remedies for unauthorized government use to be 
limited to payment of remuneration. This is not the case with 
subdivisions or States. Since Congress had enacted the CRCA, PRA, and 
TRCA before the end of 1992, there was no reason when the negotiations 
concluded in 1993 for the United States to seek exceptions for States 
to the rules set forth for enforcing intellectual property rights.
    A failure of the United States to fully meet its TRIPs obligations 
not only risks the possibility of an adverse dispute settlement 
decision, it also sets a regrettable example for other nations whose 
laws we seek to improve. As noted by former Director Dickinson ``In 
fact, in the World Trade Organization's TRIPs Council, the United 
States has already been asked formally about the Florida Prepaid 
decisions, whether `States and state agencies cannot be sued in federal 
court for [intellectual property] infringements' and to `explain how 
the United States complies with Article 44(2)' of TRIPs.'' (Hearing, 
House Judiciary Subcommittee on the Courts and Intellectual Property, 
July 27, 2000) Again, S. 1611 will not guarantee compliance with these 
obligations, but it offers attractive incentives for states to enter 
fully into the Federal intellectual property system.
                               CONCLUSION
    For these reasons--fairness, equity, and self-interest--we believe 
S. 1611 should be endorsed by this Committee. We do not doubt that 
improvements can be made, but we find S. 1611 to be an acceptable 
remedy to the problems created by College Savings and Florida Prepaid. 
We look forward to working with this Committee to make S. 1611 a 
reality.

    Chairman Leahy. Thank you very much, Mr. Kirk.
    Mr. Schraad.

STATEMENT OF KEITH SCHRAAD, WESTERN REGIONAL DIRECTOR, NATIONAL 
   INFORMATION CONSORTIUM, LAWRENCE, KANSAS, ACCOMPANIED BY 
    WILLIAM PATRIE, LEGAL COUNSEL FOR NATIONAL INFORMATION 
                  CONSORTIUM, LAWRENCE, KANSAS

    Mr. Schraad. Thank you, Chairman Leahy, for the opportunity 
to testify before this committee today. I am accompanied today 
by our legal counsel, William Patrie, in the event that you 
have legal questions, but I am happy here to testify about our 
actual experiences in this matter.
    As a former State Senator, I understand and am very 
sympathetic to the needs of State Government. At the same time 
the interests of private companies, who create at great 
expense, copyrighted works for use by State Governments must 
also be protected. The interests of States and copyright owners 
need not and should not be in conflict.
    NIC is an eGovernment business. We are a Kansas company. 
Together with the State of Kansas in 1991 we developed the 
first self-supporting online access to State Government. We 
continue to work with that State and 15 others, as well as 
counties and cities in 28 different States.
    We work behind the scenes with our government clients to 
create and maintain Internet-based portals, delivering 
electronic government services to constituents. Through our 
experience working with States over the years, we have 
developed a component system of software development which 
permits reuse for all of our State clients. This free use 
ensures higher reliability since the components have been 
repeatedly tested. It also serves to reduce costs. We do not 
have to reinvent the wheel for each State, and States do not 
have to pay for a completely customized software solution.
    It is a good situation for all parties, but only so long as 
we maintain copyright in the software. Our contracts carefully 
ensure that we retain our copyright, while protecting the 
State's interest through a generous license. Given our limited 
client base we go to great lengths to keep our clients happy. 
We have to in order to survive. We thrive only by being the 
best partner that State Government ever had.
    Georgia is the first client that we have sued in our entire 
10-year history, and we did so with tremendous reluctance. It 
is bad business to sue your clients, and it is counter to 
everything we built our company on, healthy long-term 
partnerships. Litigation is also expensive. As a small company, 
we, like many companies, have been affected by the current 
economy. Allocating scarce resources to suing a client is at 
the bottom of our list of priorities.
    We had a great relationship with Georgia for 4 years, 11 
months and 30 days of a 5-year contract. On the day before that 
contract expired, the State claimed that they, not us, owned 
the software that we had developed for them. The State also 
threatened to sue us for infringement if we used our own 
material, and told us that if they did consent to our use, we 
would then have to pay them royalties for using our own 
software.
    This is completely inconsistent with our contract, but 
completely consistent with the agenda that Georgia's new chief 
technology officer, who took over in the last year of our 
contract with Georgia, has advocated publicly. Secure in 
Georgia's sovereign immunity, he has been quite vocal about 
creating a pool of software that can be shared among all the 
States, all of whom enjoy sovereign immunity.
    We tried for over 6 weeks after our contract ended to work 
out an agreement. We repeatedly offered Georgia a perpetual 
royalty-free license to use our software for all internal 
online Georgia State purposes. All we asked in return is that 
Georgia acknowledge that we were the copyright owners of our 
software. Georgia refused. We were, therefore, forced to file 
suit.
    Due to the Supreme Court's sovereign immunity decisions, we 
filed a very simply one-count Ex Parte Young claim for 
declaratory judgment that we owned our software. The State took 
a scorched-earth approach in answering our complaint. Not only 
did it challenge our ownership, but it also asserted four 
counterclaims, two Federal and two State. The two State claims 
seek monetary damages. The damages, of course, which we are 
prohibited from seeking.
    In a final insult, the State simultaneously moved to 
dismiss our claim on sovereign immunity grounds.
    We have been forced to spend a tremendous amount of time 
and money protecting the core asset of our company, our 
software, resources that could be better used helping other 
States serve their citizens.
    However meritorious or unmeritorious Georgia's plan for a 
common state pool of copyrighted works immune from damages 
under sovereign immunity, will significantly harm if not 
destroy not only our business, but those of all software 
developers working with the States.
    As I speak to you today, we have hope that we will be able 
to reach a satisfactory agreement with Georgia, but the fact 
remains that because of sovereign immunity, Georgia fought with 
virtual impunity, while we are forced to fight with one hand or 
two tied behind our back.
    Sovereign immunity substantially increased the cost and 
complexity of our litigation, unfairly increased the risk to 
our business, and emboldened Georgia in a way that it would not 
have been emboldened without immunity.
    We do not seek an advantage over our State clients, only a 
level playing field. We appreciate your efforts to create that 
necessary balance. Thank you.
    [The prepared statement of Mr. Schraad follows:]

    Statement of Keith Shraad, Western Regional Director, National 
                Information Consortium, Lawrence, Kansas

                              Introduction
    On behalf of the National Information Consortium (NIC), I 
appreciate the opportunity to testify in support of S. 1611, ``The 
Intellectual Property Protection Restoration Act of 2001.'' Legislation 
is urgently needed to prevent States from misusing the sovereign 
immunity protections granted under recent Supreme Court decisions. I 
can testify from personal experience that misuse has occurred.
                             Qualification
    I am currently Regional Manager for NIC, a Kansas-based eGovernment 
company. I was born and raised in Kansas. I was an aide to former 
Senate Majority Leader Bob Dole, and was an elected State Senator in 
Kansas, representing the 11th Senate District in Johnson County, a 
suburb of Kansas City.
    As a former State Senator, I have seen the other side. I am very 
sympathetic to the needs of State governments. Nevertheless, the 
interests of private companies who create, at great expense, 
copyrighted works for use by State governments, must also be protected. 
Our current legal situation is unbalanced, unfair, and leads to states 
taking advantage of their immunity from damages.
                             NIC's Business
    NIC is in the Government business. We are a Kansas company. 
Together with the State of Kansas, in 1991 we developed the first self-
supporting on-line access to State government. We continue to work with 
the State of Kansas and 15 others, as well as counties and cities in a 
total of 28 states. Sustainable eGovernment was born not in the dot-com 
frenzy of Silicon Valley, but in the heartland of America.
    We work behind the scenes with our government clients to create and 
maintain their Internet-based portals, delivering electronic government 
services to constituents. We employ a common look and feel to the 
websites in order to make them appealing and easy to use.
    Through our experience over the years working with States, we have 
developed a component approach to software development which permits 
re-use and adaptive re-use of those components. This re-use ensures 
higher reliability since the components have been repeatedly tested. It 
also reduces costs.
    If NIC were required to develop from scratch software for each of 
its State clients, the costs and time required would be prohibitive. It 
is, therefore, imperative to NIC's success that NIC own copyright in 
the software it develops. At the same time, in order to ensure that its 
State clients derive maximum benefit and flexibility, should a State 
terminate its contract with NIC, NIC grants the State a perpetual, 
free, non-exclusive license to use, within the State for state 
purposes, the project software, as well as the right to make future 
modifications. Until the present dispute with the State of Georgia, 
this arrangement has proved highly satisfactory to NIC and its State 
clients.
    Given our limited client base, we go to great lengths to keep our 
clients happy. We have to in order to survive. We thrive only by 
becoming the best partner each State government has ever had. Each 
state officer typically belongs to a national association of similar 
state officers. For example, all state Chief Information Officers 
belong to the National Association of States' Chief Information 
Officers, called NASCIO. The same is true for secretaries of state, 
purchasing officers, and really, any state officer you can think of. 
For most of those organizations, there are only fifty members, one for 
each state. So word travels fast among such organizations, good or bad, 
with companies such as ours.
                          The Georgia Dispute
    In 1996, under a perceived threat of abolition of the GeorgiaNet 
Authority by the Georgia legislature due to GeorgiaNet's unsatisfactory 
performance in providing eGovernment services on-line, NIC was brought 
in to quickly remake and refocus the GeorgiaNet under a one-year 
contract that was extended four times for what became a five-year 
contract period. I was the successor to the original NIC manager of 
this project and thus have first hand knowledge about it. The existing 
Georgia staff had little experience and thus NIC engaged in 
considerable training of Georgia's staff.
    As with almost all State websites NIC has developed or remade, the 
GeorgiaNet was supported entirely without tax dollars, relying on user 
fees to fund itself. The NIC-designed system contributes approximately 
$14 million annually to the Georgia treasury, after cost deductions, 
including payment of NIC's fees. It also won numerous awards, including 
#1 (by the Center of Digital Government) among all states for the 
state's use of technology; 2000 Best of the Web, 2d Place by Government 
Technology magazine; 1999 Best of the Web, 2d Place, Government 
Technology magazine; 1998 Best of the Web, 3d Place, Government 
Technology magazine.
    Near the end of NIC's contract with Georgia, the Georgia Technology 
Authority (successor to the GeorgiaNet Authority) received a new 
director, Larry Singer, who also serves as Georgia's Chief Information 
Officer. Mr. Singer brought strong and controversial views about 
copyright to his position and to the existing NIC-Georgia contract, 
which he had no role in negotiating. Mr. Singer has been vocal in 
creating a software-sharing cooperative among states, which would 
require that the States own the software developed for them by private 
companies, including NIC. NIC's contract with Georgia is an obstacle to 
Singer's plan since it did not transfer to or vest rights in Georgia.
    In June 2001, NIC was informed that it would no longer be providing 
services to Georgia at the end of its five-year contract. At Singer's 
request, NIC supplied Georgia with its usual terms for licensing the 
existing NIC software which included a perpetual, royalty-free license 
to use our software for all on-line government purposes inside Georgia, 
as originally provided in our contract. We did not hear back from 
Singer. On September 12, 2001, the last business day of the five-year 
contract, NIC received a letter from Singer, claiming for the first 
time that NIC had performed its work for Georgia as a ``work for hire'' 
(and that NIC's software was therefore owned by Georgia, not NIC). 
Singer also stated that if NIC wanted to use its own software, it would 
need Georgia's permission and would have to pay Georgia license fees. 
Georgia also claimed the right to license NIC's software to third 
parties.
    Despite these startling claims and what NIC believed to be an 
intentional misreading of the contract, NIC provided Georgia with NIC's 
source code and worked throughout the weekend with Georgia's staff in 
order to ensure a smooth transition. NIC spent countless hours getting 
Georgia's employees up to speed on operation of the sites.
    NIC also retained counsel to attempt a settlement. Counsel informed 
us that due to recent Supreme Court decisions on sovereign immunity, we 
would not be able to collect damages, but would be limited to 
declaratory and injunctive relief under Ex Parte Young. The lack of 
ability to collect damages is a significant disincentive in bringing 
any litigation. Moreover, NIC was greatly concerned about the effect 
litigation against one of its State clients would have on both existing 
and potential future State clients. NIC was, therefore, highly 
reluctant to bring suit.
    As a result, NIC engaged in six weeks of intensive correspondence, 
phone calls, and negotiations. NIC offered once again to grant Georgia 
a perpetual, free-non-exclusive license to use NIC's software within 
the Georgia system, coupled with a right to make future modifications. 
All NIC asked in return was that Georgia acknowledge NIC's exclusive 
right to market NIC's own software outside of Georgia. Georgia refused 
and still refuses. NIC therefore had no choice but to file a 
declaratory judgment action. NIC believes that sovereign immunity 
played a very important role in Georgia's recalcitrance.
                         NIC's Simple Complaint
    Mindful of its relations with other States and out of a desire to 
settle the matter amicably, NIC took a minimalist approach to its 
complaint. NIC asserted a single claim for declaratory judgment of 
ownership of its own software under Ex Parte Young. A copy of that 
complaint is attached as Appendix 1. NIC did not ask for a single penny 
from Georgia, only for acknowledgment that we owned what we created.
              Georgia's Counterclaim and Motion to Dismiss
    Georgia took a scorched earth approach to NIC's simple declaratory 
judgment action. Attorney General Baker, on behalf of Georgia 
Technology Authority, not only answered NIC's single claim complaint, 
but asserted four counterclaims, including two state claims for 
monetary damages. A copy of the answer and counterclaims are attached 
as Appendix 2. Then, in a separate motion on behalf of himself, the 
Attorney General, the same day, asserted sovereign immunity as a 
defense. See Appendix 3. We have opposed this motion. See Appendix 4.
                    Unfairness of Georgia's Actions
    NIC is appalled, as it trusts Congress will be, by Georgia's 
behavior. Having obtained the full benefit of the five-year contractual 
bargain, Georgia at the last minute laid claim to ownership of NIC's 
software, threatened NIC with litigation if it licensed its own 
software without Georgia's permission, and demanded license fees. When 
NIC attempted to settle the matter short of expensive litigation, 
Georgia refused, and then escalated the stakes even more by filing 
aggressive counterclaims, including requests for money damages, damages 
which it well knew NIC is denied under sovereign immunity, even while 
it was simultaneously asserting claiming sovereign immunity for its 
actions. Since the suit was initiated, Georgia has shifted its legal 
theories numerous times as the facts turn out to be contrary to its 
original answer and counterclaims.
                     Legislation is Urgently Needed
    Georgia is the first client we have sued and we did so with 
tremendous reluctance. It's bad business to sue clients. It's counter 
to everything we've built our company on: a healthy, long-term 
partnership. Litigation is also expensive. As a small company, we, like 
many companies, have been affected by the current economy. Allocating 
scarce resources to suing a client is at the bottom of our list of 
priorities.
    The present law encourages Georgia to take advantage of the lack of 
a level playing field. We have been forced to spend a tremendous amount 
of time and money protecting the core asset of our company, our 
software, against a baseless claim by a State, whose Chief Technology 
Officer is on a jihad against our company and private copyright in 
general. Sovereign immunity significantly helps him in that effort. It 
has forced us to waste valuable resources which could better be used 
helping other States serve their citizens. However meritorious or 
unmeritorious, Georgia's plan for a common state pool of copyrighted 
works immune from damages under sovereign immunity will significantly 
harm, if not destroy, not only our business, but those of all software 
developers working with states.
    As I speak to you today, we have some hope that we will be able to 
reach a satisfactory settlement with Georgia. But the fact remains that 
because of sovereign immunity, Georgia fought with virtual impunity, 
while we were forced to fight with one or both hands tied behind our 
back. Sovereign immunity substantially increased the cost and 
complexity of our litigation, unfairly increased the risk to our 
business, and emboldened Georgia in a way that it would not have been 
emboldened without immunity.
    NIC therefore supports S. 1611 and urges passage.
    Thank you for the opportunity to testify.

    Chairman Leahy. Thank you, Mr. Schraad.
    Mr. Thro.

  STATEMENT OF WILLIAM E. THRO, GENERAL COUNSEL, CHRISTOPHER 
           NEWPORT UNIVERSITY, NEWPORT NEWS, VIRGINIA

    Mr. Thro. I want to begin by thanking you, Chairman Leahy, 
for giving me an opportunity to speak before you today. 
Although I am speaking as a scholar of sovereign immunity and 
as someone who has litigated sovereign immunity issues on 
behalf of State universities, I am not representing Virginia 
Attorney General Kilgore. But nevertheless, I think it is 
imperative that you hear from someone who both embraces the 
Court's current sovereign immunity jurisprudence, and at the 
same time has experience representing institutions of higher 
education in Federal Court litigation.
    Quite simply, with all due respect, Mr. Chairman, I believe 
that Senate Bill 1611 is flawed in two respects. First, from a 
policy perspective, I believe it addresses a problem that quite 
simply does not exist. The GAO report found very little 
evidence that the States were infringing upon intellectual 
property rights. As I think everyone has conceded, it is too 
short after the Florida Prepaid decisions to really make any 
judgments about what the States have done in the new era, but I 
think we can assume that all states like Vermont, like 
Virginia, like Mr. Rogan's State of California, will try and 
act in good faith and will not go out and intentionally 
infringe.
    Moreover to the extent that the infringement of 
intellectual properties might constitute a taking under the 
Fifth Amendment of the Constitution, there is of course a 
remedy available.
    But I would like to talk more about what I see as the 
constitutional problems with 1611. Quite frankly, I believe 
that under the Supreme Court's current jurisprudence, 1611 will 
be declared unconstitutional.
    In order to explain the basis of my view, I think it is 
important that first we begin with the assumption that the 
Court seems to have adopted that the States are in fact 
sovereign entities. They share sovereignty with the National 
Government. Sovereignty is divided between the States and the 
National Government, and the sovereignty of the States is an 
essential aspect of our constitutional system, much like the 
separation of powers between the Executive and the Legislative 
Branch.
    With that assumption, we then easily come to the conclusion 
that there are certain things that the Federal Government 
cannot do to interfere with the State sovereignty. For example, 
Congress could not force a State to move its State Capital, but 
instead would have to respect the State's choices as to where 
the State Capital would be.
    There are two basic problems from a constitutional 
standpoint with this legislation. First, in Kimel v. Florida 
Bd. of Regents, the Supreme Court said that Congress's powers 
under Article I of the Constitution do not include the power to 
subject the States to suit by private parties. Yet that is 
exactly what this legislation does. Using the Article I 
Intellectual Property Clause, this legislation attempts to say 
to the States that they have a choice of either waiving their 
sovereign immunity or giving up their right to enforce their 
intellectual property rights. Second, and perhaps more 
significantly, I believe this legislation violates the Doctrine 
of Unconstitutional Conditions. Under that doctrine, the State 
cannot force an individual to surrender his or her 
constitutional rights as a condition of receiving a public 
benefit. Yet that is exactly what this legislation does. It 
says to the States, ``You must surrender your sovereign 
immunity as the price of enforcing the intellectual property 
rights which you already have.''
    This I believe it is severely constitutionally flawed, and 
I will be happy to take any questions.
    Chairman Leahy. Even South Dakota v. Dole would not apply?
    Mr. Thro. South Dakota v. Dole does not apply to this 
instance, Mr. Chairman, because South Dakota v. Dole is a 
Spending Clause case. It has to do with conditions that are 
imposed upon the State as a condition of receiving Federal 
funds.
    As you noted, one approach might be to say that no State 
university could receive Federal research funds unless that 
State waived its sovereign immunity. As you hinted, and as Ms. 
Peters pretty much explicitly said in her response, there are 
severe problems with that, notably that it is probably 
unrelated to the purpose for which the grant is given, and also 
it is coercive. One of the exceptions carved out in South 
Dakota v. Dole was if the grant of money was so great that the 
State really had no choice but to comply with the grant, it 
ceased being a gratuity and became a form of coercion. And I 
believe that if you were to say State universities, ``If you 
wish to receive Federal research funds, you must waive 
sovereign immunity,'' that would be unconstitutionally 
coercive, and I believe your----
    Chairman Leahy. Under your views if Christopher Newport 
University, for example, wanted to make tee shirts and put, 
say, Ralph Lauren's logo name on them, made money out of this, 
they could do that, and nobody could do anything about it. On 
the other hand, if Ralph Lauren wanted to make tee shirts and 
put Christopher Newport University on it, they could sue Ralph 
Lauren.
    Mr. Thro. Well, first, Mr. Lauren would be able to go into 
Federal Court and to get an injunction against my president, 
Paul Trible, your former colleague, to prohibit him from having 
tee shirts with the Ralph Lauren mark, assuming, of course, 
that the Ralph Lauren mark, that we were infringing. So he 
would be able to stop it. He would not be able to get money 
damages. With respect to----
    Chairman Leahy. On the other hand, Christopher Newport 
University could get money damages.
    Mr. Thro. Yes, we could get money damages from Mr. Lauren, 
yes. Absolutely.
    [The prepared statement of Mr. Thro follows:]

 Statement of William E. Thro,\1\ General Counsel, Christopher Newport 
                               University

    At the outset, I would like to thank Chairman Leahy and the members 
of the Committee for inviting me to testify before you today. Although 
I am speaking as a scholar of sovereign immunity and as someone who has 
litigated sovereign immunity issues rather than as an official 
representative of Virginia Attorney General Kilgore, I think it is 
imperative that this Committee hear the views of someone who embraces 
the Court's current sovereign immunity and who has represented state 
agencies and state institutions of higher education in litigation.
---------------------------------------------------------------------------
    \1\ The views expressed in this testimony are the personal views of 
Mr. Thro and do not necessarily represent the views of the Honorable 
Jerry W. Kilgore, Attorney General of the Commonwealth of Virginia, or 
the Rector and Visitors of Christopher Newport University.
---------------------------------------------------------------------------
    Quite simply, I believe that Senate Bill 1611 has flaws from both a 
policy perspective and a constitutional perspective. With respect to a 
policy perspective, Senate Bill 1611 attempts to resolve a problem that 
does not exist. The General Accounting Office study found that there 
were only a few dozen lawsuits against the States over a fifteen-year 
period and most of those cases were resolved in favor of the States. In 
short, the objective evidence shows fifty States are not engaged in a 
widespread practice of abusing intellectual property rights. There is 
no need for this body to enact legislation that benefits a narrow 
special interest while burdening the taxpayers of the fifty States.
    However, while I think Senate Bill 1611 is unwise public policy, 
the major thrust of my remarks today is its constitutional flaws. Quite 
simply, I believe that the Supreme Court has adopted a constitutional 
theory of ``dual sovereignty'' and that Senate Bill 1611 violates the 
fundamental tenants of ``dual sovereignty.'' In order to explain my 
position, it is first necessary to articulate what I mean by the 
Supreme Court's jurisprudence of dual sovereignty. Having accomplished 
that, I will demonstrate why Senate Bill 1611 is contrary to the 
Court's current jurisprudence of dual sovereignty.
            I. THE COURT'S JURISPRUDENCE OF DUAL SOVEREIGNTY
    The Supreme Court's current jurisprudence begins with the 
assumption that when the original thirteen colonies declared their 
independence in 1776, they effectively created thirteen sovereign 
nations.\2\ Each State retained the ``Full Power to levy War, conclude 
Peace, contract Alliances, establish Commerce, and to do all other Acts 
and Things which Independent States may of right do.'' \3\ Indeed, The 
Articles of Confederation explicitly recognized that each State 
``retains its sovereignty, freedom, and independence, which is not by 
this confederation expressly delegated to the United States, in 
Congress assembled.'' \4\ In sum, before the ratification of the United 
States Constitution, the States were sovereign entities.\5\
---------------------------------------------------------------------------
    \2\ See Declaration of Independence (``these United colonies are 
and of right ought to be free and independent states'').
    \3\ See Id.
    \4\ Articles of Confederation, art. II.
    \5\ See Blatchford v. Native Village of Noatak, 501 U.S. 775, 779 
(1991).
---------------------------------------------------------------------------
    The adoption of the Constitution in 1788 brought about a 
transformation.\6\ Although the People could easily have transferred 
all sovereignty vested in the States to the new National Government, 
they did not do so. Moreover, while the People could have allowed the 
States to retain all sovereignty and, thus, made the United States 
nothing more than a compact among States, they did not do so. Instead, 
the People, for the first time in the history of government, divided 
sovereignty between two separate sovereigns.\7\ As Justice Kennedy 
observed:
---------------------------------------------------------------------------
    \6\ Under the terms of the Constitution, it went into effect when 
nine of the thirteen States ratified it, but only for those States that 
had ratified it. New Hampshire became the Ninth State to ratify in the 
spring of 1788. Virginia and New York subsequently ratified before the 
National Government became operational in April of 1789. North Carolina 
ratified late in 1789 and Rhode Island consented in 1970.
    \7\ As the Court explained:
    Although the Constitution established a National Government with 
broad, often plenary authority over matters within its recognized 
competence, the founding document ``specifically recognizes the States 
as sovereign entities.'' Various textual provisions of the Constitution 
assume the States' continued existence and active participation of the 
fundamental processes of Governance. The limited and enumerated powers 
granted to the Legislative, Executive, and Judicial Branches of the 
National Government, moreover, underscore the vital role reserved to 
the States by the constitutional design. Any doubt regarding the 
constitutional role of the States as sovereign entities is removed by 
the Tenth Amendment, which, like the other provisions of the Bill of 
Rights, was enacted to allay lingering concerns about the extent of the 
national power. The Amendment confirms the promise implicit in the 
original document: ``The powers not delegated to the United States by 
the Constitution, nor prohibited by it to the States, are reserved to 
the States respectively, or to the people.''
    Alden v. Maine, 527 U.S. 706, 713-14 (1999)(citations omitted).

        The Framers split the atom of sovereignty. It was the genius of 
        their idea that our citizens would have two political 
        capacities, one state and one federal, each protected from 
        incursion by the other. The resulting Constitution created a 
        legal system unprecedented in form and design, establishing two 
        orders of government, each with its own direct relationship, 
        its own privity, its own set of mutual rights and obligations 
        to the people who sustain it and are governed by it.\8\
---------------------------------------------------------------------------
    \8\ U.S. Term Limits v. Thornton, 514 U.S. 779, 838 (1995) 
(Kennedy, J. concurring).
---------------------------------------------------------------------------
    Justice Kennedy's idea of dividing power between dual sovereigns is 
not new. As early as 1768, John Dickinson, in Letters From A 
Pennsylvania Farmer, suggested that sovereignty was divided between the 
British Parliament and the Colonial Legislatures.\9\ James Madison, 
writing in The Federalist, made the same point when he stated:
---------------------------------------------------------------------------
    \9\ See Alfred H. Kelly, Winfred A. Harbison, & Herman Belz, The 
American Constitution: Its Origins and Development 48-51 (6th ed. 
1985).

        ``In the compound republic of America, the power surrendered by 
        the people is first divided between two distinct governments, 
        and then the portion allotted to each subdivided among distinct 
        and separate departments. Hence, a double security arises to 
        the rights of the people. The different governments will 
        control each other, at the same time that each will control by 
        itself.\10\
---------------------------------------------------------------------------
    \10\ The Federalist No. 51, at 291 (James Madison) (Clinton 
Rossiter ed. 1961, 1999 prtg.)

    In other words, as the Court observed in 1992, ``the Constitution 
protects us from our own best intentions: It divides power among 
sovereigns and among branches of government precisely so that we may 
resist the temptation to concentrate power in one location as an 
expedient solution to the crisis of the day.'' \11\ Although the States 
surrendered many of their sovereign powers to the new National 
Government, they retained ``a residuary and inviolable sovereignty.'' 
\11\ That the Constitution divides power between dual sovereigns, the 
States and the National Government, is reflected throughout the 
Constitution's text particularly in the Constitution's conferral upon 
Congress of not all-governmental powers, but only discrete, enumerated 
ones.\13\ Thus, ``the States retain substantial sovereign powers under 
our constitutional scheme, powers with which Congress does not readily 
interfere.'' \14\
---------------------------------------------------------------------------
    \11\ New York v. United States, 505 U.S. 144, 187 (1992).
    \12\ Printz v. United States, U.S. 898, 918-19 (1997).
    \13\ See id. at 919.
    \14\ Gregory v. Ashcroft, 501 U.S. 452, 461 (1991).
---------------------------------------------------------------------------
    This division of sovereignty between the States and the National 
Government is preserved and reinforced by the Constitution's 
structure.\15\ These structural limitations, which are above and beyond 
the limitations imposed by the text of the Bill of Rights or other 
constitutional provisions, restrict the power of the National 
Government so as to preserve the sovereignty of the States and vice 
versa.\16\ Thus, although the Constitution gives vast power to the 
National Government, the National Government remains one of enumerated, 
hence limited, powers.\17\ For example, in recent years, the Court, 
relying exclusively on the structural limitations of the Constitution, 
has struck down the National Government's attempts to require the 
States to pass particular legislation,\18\ commandeer state and local 
officials to enforce federal law,\19\ force the States to adhere to 
Congress' interpretation of substantive constitutional rights,\20\ and 
regulate local matters under the guise of interstate commerce.\21\ 
Conversely, while the Constitution recognizes the sovereign character 
of the States, it also limits the States. These structural limitations 
on the States have led the Court to invalidate the States' attempts to 
impose term limits on members of Congress,\22\ discourage the migration 
of people between the States by giving lower welfare benefits to new 
residents,\23\ undermine the Nation's foreign policy,\24\ and exempt 
themselves from generally applicable regulations of interstate 
commerce.\25\ In sum, both sovereigns are limited by the Constitution's 
structure.\26\ Indeed, ``that those limits may not be mistaken, or 
forgotten, the constitution is written.'' \27\
---------------------------------------------------------------------------
    \15\ As the Supreme Court Recently Noted:

    The federal system established by our Constitution preserves the 
sovereign status of the States in two ways. First, it reserves to them 
a substantial portion of the Nation's primary sovereignty, together 
with the dignity and essential attributes inhering in that status. The 
States ``form distinct and independent portions of the supremacy, no 
more subject, within their respective spheres, to the general authority 
than the general authority is subject to them, within its own sphere.''
    Second, even as to matters within the competence of the National 
Government, the constitutional design secures the founding generation's 
rejection of ``the concept of a central government that would act upon 
and through the States'' in favor of ``a system in which the State and 
Federal Governments would exercise concurrent authority over the 
people-who were, in Hamilton's words, `the only proper objects of 
government.' '' In this the founders achieved a deliberate departure 
from the Articles of Confederation: Experience under the Articles had 
``exploded on all hands'' the ``practicality of making laws, with 
coercive sanctions, for the States as political bodies.''
    The States thus retain ``a residuary and inviolable sovereignty.'' 
They are not relegated to the role of mere provinces or political 
corporations, but retain the dignity, though not the full authority, of 
sovereignty.
    Alden v. Maine, 527 U.S. 706, 714-15 (1999).
    \16\ For a more detailed discussion of this point, see generally J. 
Harvie Wilkinson III, Federalism for the Future, 74 S. Ca. L. Rev. 523 
(2001). Chief Judge Wilkinson notes that the Court's so called 
``federalism'' jurisprudence has restricted both the National 
Government and the States.
    \17\ See McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 405 (1819).
    \18\ See New York v. United States, 505 U.S. 144 (1992).
    \19\ See Printz v. United States, 521 U.S. 898 (1997).
    \20\ See City of Boerne v. Flores 521 U.S. 507 (1997).
    \21\ See United States v. Morrison, 529 US.598 (2000); United 
States v. Lopez, 514 U.S. 549 (1995).
    \22\ See U.S. Term Limits v. Thornton, 514 U.S. 779 (1995).
    \23\ See Saenz v. Roe, 526 U.S. 489 (1999).
    \24\ See Crosby v. National Foreign Trade Council, 530 US.363 
(2000).
    \25\ See Reno v. Condon, 528 US.141 666 (2000)
    \26\ Although a majority of the Court seems to agree with this 
proposition, the individual justices approach these issues in subtly 
different ways. See generally Byron Dailey, Note, The Five Faces of 
Federalism: A State-Power Quintet Without a Theory, 62 Ohio St. L.J. 
1243 (2001)
    \27\ Marbury v. Madison, 5 U.S. (1 Cranch) 137, 176 (1803)
---------------------------------------------------------------------------
    One of these structural limitations imposed by the Constitution is 
the sovereign immunity of both the National Government \28\ and the 
individual States in the Union.\29\ As the Supreme Court recently 
observed:
---------------------------------------------------------------------------
    \28\ Marbury v. Madison, 5 U.S. Blue Fox, 525 U.S. 255,260 (1999)
    \29\ See Alden v. Main, 527 U.S. 706, 713-15 (1999).

        the sovereign immunity of the States neither derives from nor 
        is limited by the terms of the Eleventh Amendment. Rather, as 
        the Constitution's structure, and its history, and the 
        authoritative interpretations by this Court make clear, the 
        States' immunity from suit is a fundamental aspect of the 
        sovereignty which the States enjoyed before the ratification of 
        the Constitution, and which they retain today (either literally 
        or by virtue of their admission into the Union upon an equal 
        footing with the other States) except as altered by the plan of 
        the Convention or certain constitutional Amendments. . .\30\
---------------------------------------------------------------------------
    \30\ Id at 713.
---------------------------------------------------------------------------
    In effect, the preservation of sovereign immunity is essential to 
the continued existence of the States as sovereign entities and the 
continued existence of the States as sovereign entities is essential to 
the structure of the American constitutional system.\31\
---------------------------------------------------------------------------
    \31\ As the Supreme Court observed:
    Underlying constitutional form are considerations of great 
substance. Private suits against nonconsenting States--especially suits 
for money damages--may threaten the financial integrity of the States. 
It is indisputable that, at the time of the founding, many of the 
States could have been forced into insolvency but for their immunity 
from private suits for money damages. Even today, an unlimited 
congressional power to authorize suits in state court to levy upon the 
treasuries of the States for compensatory damages, attorney's fees, and 
even punitive damages could create staggering burdens, giving Congress 
a power and a leverage over the States that is not contemplated by our 
constitutional design. The potential national power would pose a severe 
and notorious danger to the States and their resources.
    A congressional power to strip the States of their immunity from 
private suits . . . would pose more subtle risks as well. ``The 
principle of immunity from litigation assures the states and the nation 
from unanticipated intervention in the processes of government.'' When 
the States' immunity from private suits is disregarded, ``the course of 
their public policy and the administration of their public affairs'' 
may become ``subject to and controlled by the mandates of judicial 
tribunals without their consent, and in favor of individual interest.'' 
While the States have relinquished their immunity from suit in some 
special contexts--at least as a practical matter--this surrender 
carries with it substantial costs to the autonomy, the decisionmaking 
ability, and the sovereign capacity of the States.
    A general federal power to authorize private suits for money 
damages would place unwarranted strain on the States' ability to govern 
in accordance with the will of their citizens. Today, as at the time of 
the founding, the allocation of scarce resources among competing needs 
and interests lies at the heart of the political process. While the 
judgment creditor of the State may have a legitimate claim for 
compensation, other important needs and worthwhile ends compete for 
access to the public fisc. Since all cannot be satisfied in full, it is 
inevitable that difficult decisions involving the most sensitive and 
political of judgments must be made. If the principle of representative 
government is to be preserved to the States, the balance between 
competing interests must be reached after deliberation by the political 
process established by the citizens of the State, not by judicial 
decree mandated by the Federal Government and invoked by the private 
citizen. ``It needs no argument to show that the political power cannot 
be thus ousted of its jurisdiction and the judiciary set in its 
place.''
    Id. at 714-15 (citations omitted).
---------------------------------------------------------------------------
    Given the importance of the States to ``the delicate equilibrium 
that is dual sovereignty,'' \32\ it is impossible to equate the States 
with the private parties that own intellectual property. The States, as 
sovereign entities, play a vital role in the governance of the Republic 
and the ultimate preservation of freedom. If the State treasury can be 
raided by powerful groups interested only in profits or if valuable 
State resources must be devoted to defending frivolous lawsuits on the 
merits, then the ability of the State to provide education, roads, and 
other essential services is undermined. Although the well-being of a 
corporation is of great concern to its employees and shareholders, the 
well-being of the States is of great concern to all citizens. Because 
the States and the private parties are not analogous, there is no need 
to level the playing field. Indeed, to suggest otherwise is to ignore 
the vital and unique role of the States.
---------------------------------------------------------------------------
    \32\ South Carolina State Ports Auth v. Federal Maritime Comm'n 243 
F.3d 165, 179 (4th Cir. 2001), cert. granted, 122 S. Ct. 392 (2001).
---------------------------------------------------------------------------
II. HOW SENATE BILL 1611 VIOLATES THE SUPREME COURT'S DUAL SOVEREIGNTY 
                             JURISPRUDENCE
    Having presented a brief and general overview of the constitutional 
theory of dual sovereignty, I would like to turn to how Senate Bill 
1611 contradicts the Supreme Court's dual sovereignty. In other words, 
I would like to explain why I believe that Senate Bill 1611 is 
unconstitutional. There are two reasons for my conclusion.
    First, ``Congress' powers under Article I of the Constitution do 
not include the power to subject States to suit at the hands of private 
individuals.'' \33\ Indeed, the Court, in holding that the mere 
participation in interstate commerce was not a waiver of sovereign 
immunity, observed:
---------------------------------------------------------------------------
    \33\ Kimel v. Florida Bd. of Regents, 528 U.S. 62, 80 (2000)

        Recognizing a congressional power to exact constructive waivers 
        of sovereign immunity through the exercise of Article I powers 
        would also, as a practical matter, permit Congress to 
        circumvent the anti abrogation holding of Seminole Tribe. 
        Forced waiver and abrogation are not even different sides of 
        the same coin--they are the same side of the same coin. . . . 
        There is little more than a verbal distinction between saying 
        that Congress can make Florida liable to private parties for 
        false or misleading advertising in interstate commerce of its 
        prepaid tuition program, and saying the same thing but adding 
        at the end ``if Florida chooses to engage in such 
        advertising.'' \34\
---------------------------------------------------------------------------
    \34\ College Savings Bank v. Florida Prepaid Postsecondary Educ. 
Expense Fund, 527 U.S. 666, 683-84 (1999) (citations omitted).
---------------------------------------------------------------------------
    In other words, although Congress may use its powers under Sec. 5 
of the Fourteenth Amendment to abrogate sovereign immunity,\35\ it may 
not use Article I powers to exact waivers of sovereign immunity from 
the States. Congress may not say that if the States wish to engage in a 
particular activity or to enforce the States' legal property rights, 
then the States have waived sovereign immunity.
---------------------------------------------------------------------------
    \35\ See Fitzpatrick v. Bitzer, 427 U.S. 445, 456 (2976).
---------------------------------------------------------------------------
    Yet, that is exactly what Senate Bill 1611 does. This Bill uses the 
Article I intellectual property clause \36\ to force the States to 
choose between waiving sovereign immunity and enforcing the State's 
legitimate intellectual property rights. If my institution, Christopher 
Newport University, wishes to stop the unauthorized use of our name and 
logo on t-shirts, then we must agree to give up our best defense to 
frivolous lawsuits designed to exact a quick settlement from the deep 
pocket of the State treasury. If, as the Supreme Court held, Congress 
cannot abrogate the sovereign immunity of the States for intellectual 
property claims, then Congress cannot accomplish the same objective 
through forced waiver.
---------------------------------------------------------------------------
    \36\ See U.S. Const. art. I, Sec. 8, cl. 8.
---------------------------------------------------------------------------
    Of course, it is theoretically possible to change Senate Bill 1611 
so that it uses Sec. 5 of the Fourteenth Amendment, rather than the 
Article I intellectual property clause, to strip the States of their 
sovereign immunity. However, as a practical matter, this cannot be 
done. In recent cases, the Court has repeatedly emphasized that, before 
the Sec. 5 power can be invoked, Congress must make findings that the 
States themselves have engaged in a pattern of unconstitutional 
conduct. As the General Accounting Office report unequivocally 
demonstrates, this is not the case.
    Second, Senate Bill 1611 violates the doctrine of unconstitutional 
conditions. Quite simply, this doctrine holds that ``the government may 
not require a person to give up a constitutional right . . . in 
exchange for a discretionary benefit conferred by the government . . 
.'' \37\ For example, the government generally may not require a 
property owner to give up a portion of his property rights as a 
condition of receiving a building permit.\38\ The reason for such a 
doctrine is clear. If government ``may compel the surrender of one 
constitutional right as a condition of its favor, it may, in like 
manner, compel surrender of all. It is inconceivable that guaranties 
embedded in the Constitution of the United States may be thus 
manipulated out of existence.'' \39\ Moreover, while the doctrine 
generally applies in the context of individual rights, it should be 
equally applicable to the fundamental aspects of a States' sovereignty. 
This is particularly true given the importance of the States' 
sovereignty to maintaining the constitutional balance. Thus, Congress 
may not require the surrender of the States' sovereignty as a condition 
of receiving a benefit from the National Government.\40\
---------------------------------------------------------------------------
    \37\ Dolan v. City of Tigard, 512 U.S. 374, 385 (1994).
    \38\ See Id at 394-95. Of course, such conditions can be imposed if 
it can be demonstrated that (1) there is an ``essential nexus'' between 
the permit condition and a legitimate interest of government; and (2) 
there is a rough proportionality between the condition and the impact 
of the new project. See Id. at 386.
    \39\ Frost & Frost Trucking Co. v. Railroad Comm'n, 271 U.S. 583, 
594 (1926).
    \40\ Of course, some of the lower federal courts have held that 
Congress may require the States to waive sovereign immunity a condition 
of receiving federal funds. See, e.g. Cherry v. University of 
Wisconsin, 265 F.3d 541 (7th Cir. 2001); Jim C. v. United States, 235 
F.3d 1079 (8th Cir. 2000) (en banc), cert. denied 121 S. Ct. 2591 
(2001); Sandoval v. Hagan, 197 F.3d 484 (11th Cir. 1999), rev'd on 
other grounds sub nom. Alexander v. Sandoval, 121 S. Ct. 1511 (2001); 
Litman v. George Mason University, 186 F.3d 544, 557 (4th Cir. 1999) 
(Litman II), cert. denied, 120 S. Ct. 1220 (2000); In re Innes 529 U.S. 
1037 (2000). But see Koslow v. Pennsylvania, 158 F. Supp. 2d 539, 542, 
543-44 (E.D. Pa. 2001); Pugliese v. Arizona Dep't of Health & Human 
Serv., 147 F. Supp. 2d 985, 990-91 (D. Ariz. 2001). to date, the 
Supreme Court has not addressed the question.
    However, if the Supreme Court were to uphold required waivers, 
then, of all practical purposes, the holdings of the recent cases 
reviving sovereign immunity would be eviscerated. To illustrate, 
because the standard for abrogation pursuant to Sec. 5 of the 
Fourteenth Amendment is so high, Congress generally will not be able to 
abrogate sovereign immunity. Yet, Congress can easily pass a statute 
that requires the States to waive sovereign immunity as a condition of 
receiving federal funds. Indeed, through the enactment of 42 U.S.C. 
Sec. 2000d-7, Congress has already done this for many anti-
discrimination statutes. Thus, if the Court were to approve such 
required waivers, it seems almost inevitable that Congress would soon 
require waivers for all federal claims. In sum, the law of sovereign 
immunity would return to its pre-Seminole Tribe status.
---------------------------------------------------------------------------
    Yet, this is exactly what Senate Bill 1611 requires. The States 
learn that unless they surrender their sovereign immunity, they will be 
``sanctioned'' by losing all ability to enforce their intellectual 
property rights. Threatening to exclude the State from enforcing its 
legitimate intellectual property rights transforms the supposed 
``choice'' into outright coercion. As the Court, observed:

        In the present case, however, what Congress threatens if the 
        State refuses to agree to its condition is not the denial of a 
        gift or gratuity, but a sanction: exclusion of the State from 
        otherwise permissible activity. Justice Breyer's dissent 
        acknowledges the intuitive difference between the two, but 
        asserts that it disappears when the gift that is threatened to 
        be withheld is substantial enough. Perhaps so, which is why, in 
        cases involving conditions attached to federal funding, we have 
        acknowledged that ``the financial inducement offered by 
        Congress might be so coercive as to pass the point at which' 
        pressure turns into compulsion.' In any event, we think where 
        the constitutionally guaranteed protection of the States' 
        sovereign immunity is involved, the point of coercion is 
        automatically passed--and the voluntariness of waiver 
        destroyed--when what is attached to the refusal to waive is the 
        exclusion of the State from otherwise lawful activity.\41\
---------------------------------------------------------------------------
    \41\ College Savings Bank, 527 U.S. at 687 (emphasis added) 
(citation's omitted).
---------------------------------------------------------------------------
    If it is unconstitutional for Congress to exclude the States from 
otherwise lawful activity as a ``sanction'' for refusing to waive 
sovereign immunity, then it is equally unconstitutional to exclude the 
States from enforcing their legitimate intellectual property rights as 
a ``sanction'' for refusing to waive sovereign immunity.
                               CONCLUSION
    At the end of day, Senate Bill 1611 has significant policy and 
constitutional problems. From a policy perspective, it attempts to 
solve a problem that is largely non-existent. From a constitutional 
perspective, it undermines the principles of ``dual sovereignty.'' By 
using Article I to bring about a waiver of sovereign immunity, it 
contradicts recent Supreme Court precedents. By forcing the States to 
choose between waiving sovereign immunity and being able to enforce 
their own intellectual property rights, it violates the doctrine of 
unconstitutional conditions.

    Chairman Leahy. Senator Brownback, as I said earlier, is a 
valued member of this committee, and was tied up with another 
matter when I introduced Mr. Schraad, and I want to yield to 
Senator Brownback.

STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR FROM THE STATE 
                           OF KANSAS

    Senator Brownback. Thank you very much, Senator Leahy, Mr. 
Chairman. Thank you for holding the hearing. And I welcome a 
fellow Kansan, Keith Schraad. He is with the group National 
Information Consortium that is providing some leading edge e-
technology, eGovernment solutions, and I am delighted to have 
him here.
    Mr. Chairman, I have a full statement to put in the record. 
I am delighted you are holding the hearing. It is a complex 
topic. I think it is an important one. I was pleased to see how 
you are moving this topic on forward. I appreciate you 
accommodating my home town--I should say home State, it feels 
like hometown--witness that is here, and also the question on 
what you are putting forward, to try to fashion a legislation 
remedy in light of the Supreme Court decision. I think it is an 
important way in what you are doing here.
    So I just ask unanimous consent this full statement be 
included in the record, and I want to apologize to the 
witnesses for not being able to stay for more of the hearing.
    [The prepared statement of Senator Brownback follows:]

   Statement of Hon. Sam Brownback, a U.S. Senator from the State of 
                                 Kansas

    Thank you Mr. Chairman for holding this important hearing. The 
question of whether or not a state should abide by the same laws as a 
private individual or company in the area of intellectual property 
rights has been a complex one for both Congress and the Courts.
    But before I get to the issue, allow me to first commend you, Mr. 
Chairman, for the quality and depth of the witnesses you've invited for 
this hearing and for your work in this area. I'm especially pleased 
that we have a native Kansan, Keith Schraad, testifying before this 
Committee on behalf of a Kansas company, the National Information 
Consortium or NIC. You may be surprised to know Mr. Chairman that NIC 
is just one of many leading technology companies that one can find 
among the wheatfields of Kansas.
    There are two sides this issue and both are compelling. For 
individuals and companies who make the investment and take the risk in 
creating new products and services, their property rights are at stake 
when a state infringes upon their intellectual property. States on the 
other hand also want to protect their sovereignty under the 
Constitution and want to assert their intellectual property rights 
especially in the context of private/public partnerships where 
ownership issues may not be as clear.
    This inherent conflict demands congressional action. Especially in 
the context of the digital revolution where exact copies and 
reproductions can be made, this is an important economic issue for 
individuals and companies trying to compete in the marketplace. The 
question is how to fashion a legislative remedy in light of recent 
Supreme Court decisions that struck down previous attempts to bring 
clarity to the issue.
    I believe Chairman Leahy's bill is a good attempt to find some 
compromise solution without running afoul of the constitutional issues 
highlighted by the Supreme Court in Seminole Tribe and the Florida Pre-
Paid cases.
    I would also like to add that this matter has repercussions which 
extend far beyond the domestic realm. The US is one of the leading 
proponents for the enforcement of intellectual property rights 
throughout the world. That's why it cannot afford to be inconsistent in 
its own observance of intellectual property rights. Through 
international agreements such as TRIPS and NAFTA, the United States has 
vigorously challenged international institutions and other nations to 
adopt and enforce more extensive intellectual property laws. When 
states assert sovereign immunity for the purpose of infringing upon 
intellectual property rights, it damages the credibility of the United 
States internationally, and could possibly even lead to violations of 
our treaty obligations. Any decrease in the level of enforcement of 
intellectual property rights around the world is likely to harm 
American businesses, because of our position as international leaders 
in industries like pharmaceuticals, information technology, and 
biotechnology.
    Again, Mr. Chairman, thank you for holding this hearing and for 
accommodating a witness from my home state of Kansas.

    Chairman Leahy. I appreciate you being here, and I also 
appreciate your suggestion on Mr. Schraad, and it has been very 
helpful.
    And we have one more witness before we go into questions, 
of course, and that is Mr. Bender.

   STATEMENT OF PAUL BENDER ON BEHALF OF THE PROPERTY OWNERS 
               REMEDY ALLIANCE, WASHINGTON, D.C.

    Mr. Bender. Thank you, Chairman Leahy and Senator 
Brownback, and thank you, Chairman Leahy especially for your 
leadership on this issue and moving this bill to solve what 
most of the witnesses and yourself have said is a really 
important and dangerous situation of unfairness.
    I am here representing the Property Owners Remedy Alliance, 
PORA, which is an ad hoc alliance of a group of copyright 
owners and associations of copyright owners that cover a very 
large range of copyrightable material, music, performance, 
films, software, publishing. We strongly support the passage of 
Senate Bill 1611 because it is necessary to remedy the 
unfairness that has been mentioned.
    An additional example of that we just learned about 
yesterday. The State of Maryland had infringed, has infringed a 
software copyright and we are negotiating with the copyright 
owner, and acknowledge $270,000 in damages, and recently, just 
within the last few days, instead of continuing with those, 
what seemed to be good-faith negotiations, suddenly wrote a 
letter and said, ``We have sovereign immunity, we are not going 
to talk about damages any more.'' And we will talk about 
perhaps a license for the future, but as you recognized, their 
bargaining position on that license price is a very strong one 
because they cannot be sued for damages.
    Congress faced this situation once before in 1985 in the 
Atascadero case. The Supreme Court held that if Congress wanted 
to abrogate immunity, it had to do so really explicitly, 
assuming that Congress could abrogate immunity using its 
Article I powers, and lower courts began to hold that 
intellectual property suits could not be maintained against 
states because the abrogation was not explicit enough.
    So Congress enacted, in order to remedy exactly the 
unfairness you are dealing with today, Congress enacted a 
series of remedies clarification acts. Now, in 1999, as you 
pointed out, the Supreme Court has changed the rules of the 
game again, and said, ``Well, even if you make it completely 
explicit, the abrogation is not constitutional unless it is to 
remedy violations of the Fourteenth Amendment.''
    The need for the legislation is even greater than it was in 
1990 given the enormous transformation of informational 
technology through the digital process, which makes it much 
easier to infringe intellectual property. And the really 
substantial increase in States both using others' intellectual 
property and commercially exploiting their own intellectual 
property, and so you have the situation, as you pointed out, 
where a State can at one and the same time, without this 
legislation, sue others for damages for violating the State's 
property and assert immunity against the claims against it, and 
the property can be exactly the same kind of property.
    We think that 1611 is both an effective, will be an 
effective and is a completely constitutional way of dealing 
with this. It has three parts, and I think all three parts are 
important. It abrogates State immunity in cases where the State 
infringement constitutes a constitutional violation, a 
deprivation of property without due process of law, or taking 
without just compensation.
    In its 1999 trilogy the Supreme Court invited Congress to 
enact that kind of legislation, and no such legislation exists 
today. That is legislation specifically making the States 
liable for deprivations of property without due process through 
the infringement of intellectual property.
    So the constitutionality of that part, since it turns on 
the plaintiff showing a constitutional violation, it seems to 
me is unquestioned.
    Then the bill also explicitly recognizes the continued 
existence of the Ex Parte Young doctrine. I think that is 
really important also, although the Ex Parte Young doctrine has 
been there for a long time, because in Seminole the Supreme 
Court said that if Congress passed a comprehensive remedial 
scheme, Ex Parte Young might not apply, and it is really 
important for the Congress to say that it wants Ex Parte Young 
to continue to apply.
    And as to the waiver provision, which I think is central 
and really important, to me the important thing there is that 
Congress is not taking anything away from the States. It is 
simply conditioning the States obtaining a future benefit on 
the States' waiving their immunity, so that they participate in 
the electoral property systems on the same basis as other 
people. So I disagree with Mr. Thro that there is any 
deprivation here of any rights that the States have. And we are 
talking about Federal intellectual property rights which are 
granted by Congress, that Congress does not have to grant, and 
the bill is prospective only. And so it will simply say to 
States, ``If in the future you want to get Federal rights for 
your future property, then you have to participate in the 
system on the same basis as private people.''
    The one substantive suggestion we would make is that the 
committee seriously consider adding to the remedies bar a 
provision that says that the States cannot get injunctive 
relief as well as damages. I think that Congress has the power 
to do that. And I think it is unfair--it is not as unfair as 
the present situation, but it is still unfair to permit the 
States to get injunctions without being liable for damages, 
whereas no private property participating in this system can do 
that. So we would suggest that you consider that, because that 
seems to me a substantial aspect of unfairness as well.
    Thank you very much.
    [The prepared statement of Mr. Bender follows:]

Statement of Paul Bender, Professor , Arizona State University College 
                of Law Counsel to Meyer & Klipper, PLLC

    Mr. Chairman, the Property Owners Remedy Alliance (PORA) welcomes 
the opportunity to present its views on your bill, S. 1611, the 
``Intellectual Property Protection Restoration Act of 2001.'' PORA's 
members greatly appreciate your and Mr. Hatch's interest in this 
important issue, as well as the time and effort that Committee staff 
has devoted to crafting this important legislation.
    PORA is an ad hoc group composed of a number of copyright-based 
companies and trade associations.\1\ Copyrights are at the core of the 
business of PORA's members. They market copies--or license the public 
performances--of millions of copyrighted works. They often sell or 
license works to States and their instrumentalities, which are 
prodigious users of copyrighted materials.
---------------------------------------------------------------------------
    \1\ PORA's members include the American Society of Composers, 
Authors, and Publishers; Broadcast Music, Inc.; the Business Software 
Alliance; The McGraw-Hill Companies; the Motion Picture Association of 
America; National Music Publishers' Association; the Recording Industry 
Association of America; Reed Elsevier Inc.; the Software and 
Information Industry Association; the West Group; and AOL Time Warner 
Inc.
---------------------------------------------------------------------------
    In 1990, with the support of many of PORA's current members, 
Congress passed the Copyright Remedy Clarification Act (CRCA) as a 
response to Supreme Court cases. The CRCA--and its subsequent patent 
and trademark counterparts--were enacted to redress the inequity of a 
situation where states as intellectual property owners may avail 
themselves of the full array of remedies as plaintiffs, but enjoy 
immunity to damage awards as defendants. In 1999, the Supreme Court 
moved the goalposts yet again in a series of sovereign immunity 
decisions that resulted in the Fifth Circuit's striking down the CRCA 
two years ago. The Supreme Court's decisions and their progeny have 
immunized States from damage awards when they infringe the federal 
intellectual property rights of others, while leaving them free to 
obtain all statutory remedies--including injunctions and damages--when 
their own intellectual property rights are violated. This is the exact 
same situation that existed in 1990. Thus, the reasons that we are here 
are not substantive so much as technical.
    State immunity from money damage awards for copyright violations is 
of great concern to copyright owners--especially at a time when the 
digital revolution is dramatically increasing the scope and gravity of 
the piracy threat copyright owners face. PORA's members are grateful to 
the Committee for the responsiveness that it has shown in enacting 
prophylactic legislation in the past--such as the Digital Millennium 
Copyright Act, the NET Act and the Digital Theft Deterrence and 
Copyright Damages Improvement Act of 1999--to deal with new piracy 
threats caused by digital technology. PORA views S. 1611 as part and 
parcel of these legislative efforts.
    We believe that an effective and constitutional sovereign immunity 
bill should have three components: (1) a provision that provides an 
incentive for states to voluntarily waive their immunity in exchange 
for access to the full remedies under the intellectual property system; 
(2) a provision abrogating state sovereign immunity for constitutional 
violations; and (3) codification of the Ex parte Young doctrine, which 
permits injunctions against state officials. S. 1611 contains all three 
of these important elements.
    For this reason, we strongly support S. 1611. Additionally, We urge 
the Committee, however, to carefully consider strengthening the 
`remedies bar' to preclude the award of injunctions or damages to non-
waiving states. An amendment of this nature will strengthen the 
incentive for states to make themselves full and equal participants in 
the marketplace.
    Mr. Chairman, the Property Owners Remedy Alliance (PORA) welcomes 
the opportunity to present its views on your bill, S. 1611, the 
``Intellectual Property Protection Restoration Act of 2001.'' PORA's 
members greatly appreciate your interest in this important issue, as 
well as the time and effort that you and your staff have devoted to 
crafting this important legislation. We also want to thank Senator 
Hatch for his long-standing interest in this issue, dating back to the 
original Copyright Remedy Clarification Act in the 101st Congress.
    PORA is an ad hoc group composed of a number of copyright-based 
companies and trade associations. It's members include the American 
Society of Composers, Authors, and Publishers; Broadcast Music, Inc.; 
the Business Software Alliance; The McGraw-Hill Companies; the Motion 
Picture Association of America; National Music Publishers' Association; 
the Recording Industry Association of America; Reed Elsevier Inc.; the 
Software and Information Industry Association; the West Group; and AOL 
Time Warner Inc. PORA was formed in early 2000 in response to the 
Supreme Court's 1999 sovereign immunity decisions, Florida Prepaid 
Postsecondary Education Expense Board v. College Savings Bank \2\ and 
College Savings Bank v. Florida Prepaid Postsecondary Education Expense 
Board.\3\ These and other decisions \4\ have created a fundamentally 
unfair situation in which States remain immune from financial 
responsibility for any harm that their infringements cause to copyright 
owners, while at the same time being free to obtain all statutory 
remedies--including injunctions and damages--against those who trespass 
on their rights. The inequity of States being able to play by two sets 
of rules caused Congress to change the law in 1990, and these new 
decisions make it even more important that it does so today.
---------------------------------------------------------------------------
    \2\ 527 U.S. 627 (1999).
    \3\ 527 U.S. 666 (1999).
    \4\ See, e.g., Chavez v. Arte Publico Press, 204 F.3d 601 (5th Cir. 
2000); Rodriguez v. Texas Comm'n on the Arts, 199 F.3d 279 (5th Cir. 
2000).
---------------------------------------------------------------------------
    Copyrights are at the core of the business of PORA's members. They 
market copies--or license the public performances--of millions of 
copyrighted works. They often sell or license works to States and their 
instrumentalities, which are prodigious users of copyrighted materials. 
As a result, State immunity from money damage awards for copyright 
violations is of great concern to copyright owners--especially at a 
time when the digital revolution is dramatically increasing the scope 
and gravity of the piracy threat copyright owners face. In the past few 
years, Congress has recognized repeatedly the threat posed to copyright 
owners by new digital technology and has acted accordingly.\5\ 
Enactment of remedial legislation in light of the Supreme Court's 1999 
sovereign immunity decisions is entirely consistent with these past 
congressional efforts.
---------------------------------------------------------------------------
    \5\ In light of the threat posed to copyright owners by digital 
technology, Congress enacted the Digital Millennium Copyright Act, Pub. 
L. No. 105-304, 112 Stat. 2860 (1998), which, in part, makes it illegal 
to circumvent copy protection technology, or to alter copyright 
management information. In 1997, Congress passed the No Electronic 
Theft Act, Pub. L. No. 105-147, 111 Stat. 2678 (1997), in order to fill 
a gap in U.S. law regarding the criminal liability of those who engage 
in harmful copyright infringement for non-commercial purposes. The 
legislative history of that Act reveals congressional concern that 
additional penalties were needed to combat electronic copyright piracy. 
See generally H.R. Rep. No. 105-339, at 4 (1997). Most recently, 
Congress enacted the digital Theft deterrence and copyright Damages 
Improvement Act of 1999, Pub. L. No. 106-160, 113 Stat. 1774, which 
significantly increases that statutory damages for copyright 
infringement as a means of deterring copyright piracy in a digital 
environment. See H.R. Rep. No. 106-216, at 3 (1999) (noting that 
``copyright piracy of intellectual property flourishes, assisted in 
large part by today's world of advanced technologies,'' and that ``the 
potential for this problem to worsen is great. By the turn of the 
century the Internet is projected to have more than 200 million users. 
. . .'').
---------------------------------------------------------------------------
    Our members' goal is to secure the passage of federal legislation 
that: (1) eliminates the inherent unfairness of the present situation, 
in which States and their instrumentalities--which are increasingly 
participating as competitors in the commercial marketplace--are able to 
enjoy the full benefits of the copyright law without shouldering one of 
its most important responsibilities; and (2) complies with the newly 
articulated constitutional boundaries established by the Supreme Court 
while effectively protecting rightsholders against State violations of 
their copyrights.\6\
---------------------------------------------------------------------------
    \6\ While our comments are offered from the perspective of 
copyright owners, we recognize that other federal intellectual property 
owners have been adversely affected by these decisions and we urge the 
enactment of legislation that protects the interests of patent and 
trademark owners as well.
---------------------------------------------------------------------------
    PORA urges the enactment of legislation that would:
    Condition the availability to States of certain judicial remedies 
under the federal intellectual property system on State waivers of 
sovereign immunity from suit for state infringements from private 
intellectual property rights;
    Abrogate State sovereign immunity when State infringements of 
federal statutory rights also violate constitutional rights; and
    Codify the doctrine of Ex parte Young,\7\ thereby affirming the 
continued availability of injunctive and monetary relief against State 
officials who violate federal intellectual property laws.
---------------------------------------------------------------------------
    \7\ 209 U.S. 123 (1908).
---------------------------------------------------------------------------
    Mr. Chairman, we are pleased that S. 1611 contains provisions 
addressing each of these important goals and PORA therefore strongly 
supports your bill. In our testimony, we will explain why we support 
the inclusion of these provisions in S. 1611. We will also suggest one 
particular, substantively important enhancement to the text of S. 1611 
regarding the scope of remedies denied non-waiving States that we 
believe will improve the bill, and urge the Committee to give careful 
consideration to this suggested change. We will first discuss the legal 
and constitutional developments that have made S. 1611 a necessity in 
the first place.
    I. The 101st Congress and the Copyright Remedy Clarification Act
    In November of 1990, President George Bush signed into law the 
Copyright Remedy Clarification Act (CRCA).\8\ Drafted in response to a 
number of federal court decisions,\9\ that legislation expressly 
abrogated state sovereign immunity from money damage awards in 
copyright infringement suits. Two years after passage of the CRCA, 
Congress enacted its patent and trademark counterparts: the Patent and 
Plant Variety Protection Clarification Act (PRA) \10\ and the Trademark 
Remedy Clarification Act (TRCA).\11\
---------------------------------------------------------------------------
    \8\ Pub. L. No. 101-553, 104 Stat. 2749 (1990).
    \9\ In 1985, the Supreme Court decided Atascadero State Hospital v. 
Scanlon, 473 U.S. 234 (1985), holding that a federal law seeking to 
abrogate State sovereign immunity must contain ``unequivocal statutory 
language'' evincing Congress' intent to abrogate immunity and must 
specifically include States within the class of defendants subject to 
statutory remedies. Subsequently, a number of federal courts determined 
that the Copyright Act lacked the necessary ``unequivocal statutory 
language.'' See, e.g., BV Engineering v. UCLA 858 F.2d 1394 (9th Cir. 
1988), cert. denied, 489 U.S. 1090 (1980).
    \10\ Pub. L. No. 102-560, 106 Stat. 4230 (1992).
    \11\ Pub. L. No. 102-542, 106 Stat. 3567 (1992).
---------------------------------------------------------------------------
    When it passed the CRCA in 1990, the 101st Congress believed that 
it had the power to abrogate State immunity under Article I, Section 8, 
Clause 8 of the Constitution--the Patent/Copyright Clause. In reaching 
this conclusion, Congress relied on the Supreme Court's decision in 
Pennsylvania v. Union Gas Co.\12\ in which the Court by a 5-4 vote 
ruled that Congress could use its Article I powers to abrogate State 
immunity if Congress made its intention to abrogate unmistakably clear. 
When the 102nd Congress enacted the PRA and the TRCA in 1992, it 
referenced two Article I powers (the Patent/Copyright and Commerce 
Clauses), as well as its authority under Section 5 of the Fourteenth 
Amendment, as the constitutional basis for the legislation.
---------------------------------------------------------------------------
    \12\ 491 U.S. 1 (1989).
---------------------------------------------------------------------------
    Now, twelve years later, the 107th Congress finds itself revisiting 
this issue because, in the interim, the United States Supreme Court has 
changed the constitutional landscape in a way that has frustrated 
Congress' purpose in enacting the CRCA, PRA and the TRCA. Thus, in a 
real sense, the task before this Committee is technical in nature: to 
draft a new law to fill the gap in State responsibility created by 
these judicial rulings--a law that meets the Court's newly articulated 
constitutional understanding and is an effective means of deterring 
State infringements of federal intellectual property rights and 
compensating those who are the victims of such violations.
    The reasons that prompted Congress to enact the CRCA in 1990 (and 
the PRA and TRCA in 1992) remain compelling today. It is instructive to 
review briefly the history surrounding the enactment of the CRCA.
    Congress began its work in this area in 1987, by requesting and 
receiving from the United States Copyright Office a study examining 
State immunity from infringement actions.\13\ Specifically, Congress 
asked the Copyright Office to examine two issues: (1) the practical 
problems relative to the enforcement of copyright law against State 
entities; and (2) the presence, if any, of unfair business practices by 
copyright owners vis-a-vis State governments.\14\ The Copyright 
Office's detailed examination revealed that copyright owners had 
suffered and would continue to suffer harm if Congress did not abrogate 
State immunity from suit for State copyright infringements.\15\
---------------------------------------------------------------------------
    \13\ United States Copyright Office, Copyright Liability of States 
and the Eleventh Amendment (1988) [hereinafter Copyright Office Repot].
    \14\ Letter from Representatives Kastenmeier and Moorhead, Chairman 
and Ranking Minority Member, Subcomm. of Courts, Civil Liberties and 
the Admin. of Justice of the House Comm. on the Judiciary, to Ralph 
Oman, Register of Copyrights (August 3, 1987), reprinted in Copyright 
Office Report, supra note 13; see also id. at iii-iv, 5.
    \15\ See copyright Office report, supra note 13, at vii, 103; H.R. 
Rep. No. 101-282, at 8 (1989); S. Rep. No. 101-305, at 10 (1990).
---------------------------------------------------------------------------
    The Copyright Office Report uncovered evidence of unremedied State 
copyright infringements. Those who filed comments with the Office 
``almost unanimously chronicled dire financial and other repercussions 
that would flow from State Eleventh Amendment immunity from damages in 
copyright infringement suits.'' \16\ The Copyright Office concluded 
that ``copyright owners have demonstrated that they will suffer 
immediate harm if they are unable to sue infringing States in federal 
court for money damages.'' \17\
---------------------------------------------------------------------------
    \16\ Copyright Office Report, supra note 13, at vii, 103; H.R. Rep. 
No. 101-282, at 8 (1989); S. Rep. No. 101-305, at 10 (1990).
    \17\ Copyright Office Report, supra not 13, at vii.
---------------------------------------------------------------------------
    Congress' own consideration of the issue confirmed the Copyright 
Office's findings and conclusions. This Committee declared that 
``[s]tate immunity from damages critically impairs creative incentives 
and business investments in the country's copyright businesses that 
deal with State entities.'' \18\ Similarly, the House Judiciary 
Committee concluded that ``actual harm has occurred and will continue 
to occur if this legislation is not enacted.'' \19\ Congress also 
recognized that the harm emanating from State copyright immunity was 
not limited to copyright owners. The Senate Report recognized that 
``[i]t is not only business enterprises that are hurt by State 
infringements, but individuals, primarily students and public colleges 
and universities, who pay the price of State immunity through higher 
prices and lower quality of materials.'' \20\ Thus, when Congress 
passed the CRCA, it acted on a record that documented the seriousness 
of the problem and the need for prompt legislative intervention in 
response to recent court decisions holding States immune from damages 
in copyright cases because of the failure of existing legislation to 
abrogate state immunity.\21\
---------------------------------------------------------------------------
    \18\ S. Rep. No. 101-305, at 9 (1990). The Senate Judiciary 
Committee also noted that ``[c]ontinued State immunity from damage 
suits will result in such adverse consequences as increases in the 
prices charged non-State users, diminution in the economic incentive to 
create new works, and decline in the quantity an quality of published 
works.'' Id at 10.
    \19\ H.R. Rep. No. 101-282, at 8 (1989).
    \20\ S. Rep No. 101-305, at 9 (1990). In addition, Congress 
received testimony that State immunity from damage actions adversely 
impacts individual authors whose markets center on college campuses. 
See id.
    \21\ These cases contravened earlier decisions holding States 
subject to damage awards in copyright infringement cases. Compare BV 
Engineering v. UCLA, 858 F.2d 1394 (9th Cir. 1988) (1979 copyright 
Act--pre-CRCA--held not to abrogate Eleventh Amendment immunity) with 
Mills Music, Inc. v. Arizona, 591 F.2d 1278 (9th Cir. 1979) (claim of 
Eleventh Amendment immunity rejected). When it enacted the CRCA, 
Congress was aware of a number of other copyright infringement suits 
brought in federal court against States. See, e.g., Richard Anderson 
Photography v. brown, 852 F.2d 114 (4th Cir. 1988), cert. denied, 489 
U.S. 1033 (1989); Lane v. First Nat'l Bank of Boston, 871 F.2d 166 (1st 
Cir. 1989); Howell v. Miller, 91 F. 129 (6th Cir. 1898); Cardinal 
Indus., Inc. v. Anderson Parrish, Inc., 230 U.S.P.Q. (BNA) 678 (M.D. 
Fla. 1986); Johnson v. University of Virginia, 606 F. Supp. 321 (W.D. 
Va. 1985); Woelffer v. Happy States of America, Inc., 626 F. Supp. 499 
(N.D. Ill. 1985).
---------------------------------------------------------------------------
    Several additional factors motivated Congress in enacting the CRCA.
    First, the 101st Congress was deeply troubled by the fact that 
sovereign immunity confers an unfair commercial advantage on States and 
their instrumentalities. It permits States to operate by two sets of 
rules: one when their copyrights are infringed and another when they 
infringe the copyrights of others. When States are victims of 
infringement, they have at their disposal all of the remedies available 
under the Copyright Act; when States infringe, however, they are 
shielded from a key copyright remedy--monetary damages. The 101st 
Congress \22\ concluded that States thus unfairly received a ``free 
ride'' by being able to obtain all of the benefits conferred by the 
copyright law without bearing one of its most important 
responsibilities.\23\
---------------------------------------------------------------------------
    \22\ The Senate Judiciary Committee stated the issue in these 
terms:
    The current state of law has resulted in the anomalous situation 
that public universities can infringe copyrighted material of private 
universities [and for that matter, of private parties] without 
liability for damages, but private universities cannot similarly 
infringe with impunity on the works created by public institutions. 
Thus, UCLA can sue USC for damages from copyright infringement but USC 
cannot collect damages from UCLA [Moreover, f]or a copyright proprietor 
who sells his or her products to educational institutions, it is 
puzzling that State schools cannot be sued for damages for their 
systematic unauthorized copying, but private institutions can be. A 
substantial segment of these companies' market is beyond the reach of 
the most important remedy provided by the Copyright Act.
    S. Rep No. 101-305, at 9 (1990).
    \23\ See generally H.R. Rep. No. 101-282, at 10 (1989); S. Rep No. 
101-305, at 6 n.3 (1990). Less than two years ago, the ranking member 
of the House Judiciary Subcommittee on courts and Intellectual Property 
echoed this concern:
    [I]t is our goal as well as our responsibility to ensure that our 
intellectual property system remains fair and balanced, while still 
being constitutional in the eyes of the Supreme Court. To the extent 
that the law protects the intellectual property of one class of actors, 
but does not correspondingly require that class of actors to respect 
intellectual property right of others, the law is distinctly unfair and 
imbalanced. Oversight Hearing on ``State Sovereign Immunity and the 
Protection of Intellectual Property'' Before the house Comm. on the 
Judiciary, Subcomm. on Courts, the Internet, and Intellectual Property 
106th Cong. (2000) (statement of Rep. Berman) available at http://
www.house.gov/judiciary/courts.htm.
---------------------------------------------------------------------------
    The 101st Congress' concern over this unfair situation was 
heightened by its recognition that States are frequent and important 
users and owners of copyrighted works. With respect to State uses of 
copyright materials, a former Register of Copyrights told the 101st 
Congress:
    States and their instrumentalities are major users of copyrighted 
material of all sorts--not only the familiar forms of printed books and 
periodicals but the whole range of creative expression in the 1980's: 
dance and drama, music and sound recordings; photographs and 
filmstrips; motion pictures and video recordings; computer software and 
chips; pictorial and graphic material, maps and architectural plans, 
and so forth, ad infinitum. State exploitation of copyrighted works is 
by no means limited to uses that can be called educational or 
nonprofit. They include publishing enterprises, computer networks, off-
air-taping, public performance and display, radio and television 
broadcasting and cable transmissions, to name only the most obvious 
[examples]. . . .\24\
---------------------------------------------------------------------------
    \24\ See Copyright Remedy Clarification Act: Hearing on H.R. 1131 
Before the House Comm. on the Judiciary, Subcomm. on Courts, 
Intellectual Property, and the Admin. of Justice, 101st Cong. (1989) 
(statement of Barbara Ringer).
---------------------------------------------------------------------------
    Moreover, the 101st Congress knew that, unlike the federal 
government which cannot generally assert copyright in the works of its 
employees,\25\ States are free to claim copyright in works created by 
their employees and to reap the commercial benefits that result from 
such rights.\26\
---------------------------------------------------------------------------
    \25\ 17 U.S.C. Sec. 105 (``Copyright protection under this title is 
not available for any work of the United States Government, but the 
United States Government is not precluded from receiving and holding 
copyrights transferred to it by assignment, bequest, or otherwise.'')
    \26\ A number of courts have ruled, however, that neither the 
federal government nor States can claim copyright protection in 
judicial opinions, State statutes, legislative histories and similar 
official documents. See Wheaton v. Peters, 33 U.S. 591 (1834) (holding 
that reporters of Supreme Court decisions cannot claim copyrights in 
those decisions); Building Officials & Code Adm. v. Code Technology 
Inc., 628 F.2d 730 (1st Cir. 1980) (giving reasons why copyright in a 
womk such as a building code might not be fully maintained after that 
work is officially adopted by the State as law); see also M. Nimmer and 
D. Nimmer, Nimmer on Copyright, Sec. 5.06. Nonetheless, some States 
continue to assert copyright or copyright-like protection in official 
documents.
---------------------------------------------------------------------------
    Second, while acknowledging the importance of Ex parte Young 
injunctions as a remedial tool under the copyright law, Congress 
concluded that injunctive relief, standing alone, was inadequate to 
protect the interests of copyright owners against State infringers.\27\
---------------------------------------------------------------------------
    \27\ See S. Rep. 101-305, at 12 (1990) (``Injunctive relief for 
copyright violations does not provide adequate compensation or 
effective deterrence for copyright infringement . . . . Injunctions 
only prohibit future infringements and cannot provide compensation for 
violations that have already occurred.''). See also H.R. Rep. No. 101-
282, at 8 (1989) (``[injunctive relief] . . . deters only future 
conduct, and does not compensate for past harm.'').
---------------------------------------------------------------------------
    Third, the 101st Congress knew that because federal courts have 
exclusive jurisdiction over federal copyright cases, sovereign immunity 
means ``the choice [in copyright cases] is . . . between the federal 
forum and no forum.'' \28\
---------------------------------------------------------------------------
    \28\ BV Engineering v. UCLA, 858 F.2d 1394, 1400 (9th Cir. 1988). 
The same is true today. See 28 U.S.C. Sec. 1338(a).
---------------------------------------------------------------------------
    The reasons that drove enactment of the CRCA in 1990 are, if 
anything, even stronger in 2002. State use of copyrighted works is even 
more frequent than twelve years ago. This is certainly true on college 
campuses; public institutions currently house nearly 80% of the 
students attending institutions of higher learning in the United 
States.\29\ Copyrighted software is used in every university setting, 
public or private. Moreover, State university systems' Intranets 
(computer networks linking classrooms, libraries, media centers and 
dormitory rooms) now make it possible for a university to distribute 
copies or performances of copyrighted works to unlimited numbers of 
faculty, students, and even members of the general public.
---------------------------------------------------------------------------
    \29\ Although we have not yet obtained state-by-state statistics, 
the gross numbers below indicate the nationwide scope of state employee 
and student populations. For example, as of Fall, 1995, nearly 80% of 
higher education students were enrolled in public institutions-11.1 
million out of 14.2 million. U.S. Dept of Educ., Digest of Educational 
Statistics 1997, Table 172. Over the past half century the percentage 
of students enrolled in public vs. private has increased dramatically. 
In fact, in 1947, a roughly equal number of students were enrolled in 
public and private institutions of higher learning. Id. In addition, as 
of July, 1999, according to the Bureau of Labor Statistics, the number 
of state employees is 4.7 million. U.S. Bureau of Labor Statistics, 
Aug., 1999. Moreover, as of the fall of 1993, 71% of all non-graduate 
student instructors in institutions of higher learning were employed by 
public versus private institutions. U.S. Dept of Educ., Digest of 
Educational Statistics 1997, Table 225 (1997).
---------------------------------------------------------------------------
    The problems posed today by State immunity are not limited to the 
university environment. Copyrighted software, music, motion pictures, 
sound recordings and other works are used by many State departments and 
agencies. Computer software programs are found in virtually every 
governmental entity performing specialized tasks or general office 
administration functions. Copyright users include State departments of 
education, taxation, and transportation.
    Finally, in assessing the unfairness of the current state of the 
law, it is also critical to take into account the fact that today 
States are major owners of intellectual property. As owners, they 
increasingly act not as sovereigns, but as commercial competitors. For 
example, in Florida Prepaid, the State allegedly infringed College 
Savings' patent in a program when it offered a competing service using 
the patented method. Moreover, like corporations in the public sector, 
States have begun to centralize the management of their intellectual 
property assets so that they may successfully exploit their 
creations.\30\
---------------------------------------------------------------------------
    \30\ See infra note 31 (noting a nonexhaustive list of states that 
have created entities to market State intellectual property more 
effectively).
---------------------------------------------------------------------------
    In addition, for years many States have aggressively registered 
their works with the Copyright Office and they continue to do so. This 
point was underscored in 2000 by the Register of Copyrights in 
testimony before the House Judiciary Subcommittee on Courts and 
Intellectual Property:
    We do have some sense of the extent to which States make use of the 
Copyright Office's registration function. The Copyright Office reviewed 
the registrations issued to four-year state colleges and universities 
for monographs since 1978. Over 32,000 such registrations were found. 
That is an average of 645 registrations for each State. Put 
differently, on average the Copyright Office has issued a registration 
for a work by a State (not including State entities other than four-
year colleges and universities, and not including serials) once every 
twelve calendar days for the last twenty-two years. Clearly, States are 
availing themselves of the copyright protection provided by federal 
law.\31\
---------------------------------------------------------------------------
    \31\ Oversight Hearing on ``State Sovereign Immunity and the 
Protection of Intellectual Property'' Before the House Comm. on the 
Judiciary, Subcomm. on Courts, the Internet, and Intellectual Property, 
106th Cong. (2000) (Testimony of Marybeth Peters) available at http://
www.house.gov/judiciary/courts.htm. It is worth noting that these 
numbers do not take into account the innumerable unregistered 
copyrights that States are free to exploit. Cf. 17 U.S.C. Sec. 408(a).
    Moreover, at the same hearing, the head of the Patent and Trademark 
Office told the House Judiciary Subcommittee on Courts, the Internet, 
and Intellectual Property:
    We have done some initial research into the extent of state 
holdings of intellectual property. For example, we know that public 
colleges and universities--that is, state institutions--acquired over 
13,000 U.S. patents between 1969 and 1997--roughly 60% of the total 
22,551 patents issued to all institutions of higher learning during the 
period. As a rough calculation, state academic institutions received 
approximately 2.5% of all U.S. utility patents issued to non-federal 
government, U.S. entities in 1997 and 1998. It is important to note 
that these figures count only issued. patents where the assignor at the 
time of issuance was identifiably a state college, university, or 
research institution. In addition, these numbers do not count the 
patents held by state hospitals, state agricultural services, and the 
like.
    Our initial look at trademark registrations suggests that state 
institutions, particularly universities, have scores of federally-
protected trademarks--which they are--note and more aggressively 
protecting. In short, the States enjoy an enormous collection of 
federally-granted intellectual property rights, each and every one of 
which will be enforced by federal courts.
    Oversight Hearing on ``State Sovereign Immunity and the Protection 
of Intellectual Property'' Before the House Comm. on the Judiciary, 
Subcomm. on Courts, the Internet, and Intellectual Property, 106th 
Cong. (2000) (Testimony of Todd Dickinson) (July 27, 2000) available at 
http://www.house.gov/judiciary/courts.htm In addition, State 
governments have begun to set up corporations for the purpose of 
commercially exploiting intellectual property created at their 
institutions of higher learning, and State laws have begun directing 
and empowering State instrumentalities to exploit creative works and 
inventions. See, e.g., 2001 Pa. Laws 77, Sec. Sec. 1701 et seq. (2001) 
(establishing biotechnology research centers, and nonprofit 
corporations to operate those centers, with the apparent goal of 
attracting venture capital and implementing the commercial development 
of new research discoveries); Haw. Rev. Stat. Sec. 307-3 (2001) 
(establishing the Research Corporation of the University of Hawaii); 
Va. Code Ann. Sec. 2.2-2221 (2001) (setting forth the powers of the 
Innovative Technology Authority); Ariz. Rev. Stat. Sec. 15-1635 (2001) 
(giving Arizona Board of Regents power to organize corporations and to 
``enter into research and development agreements [etc.] . . . 
concerning the research, development, production, or storing or 
marketing of new products developed or to be developed through 
university research ''); see also http://www.yamacraw.cor:, (describing 
a multimillion dollar fund created by Georgia designed to encourage 
investment through public/private partnerships that exploit 
intellectual property).
---------------------------------------------------------------------------
    Furthermore, universities increasingly are moving away from the 
practice of allowing professors, rather than the State or the 
university, to claim copyright in faculty-created works. This 
development is motivated in part by the upsurge in the commercial value 
of technologically-oriented faculty creations such as computer software 
and multimedia works.\32\
---------------------------------------------------------------------------
    \32\ See Sunil R. Kulkarni, All Professors Create Equally: Why 
Faculty Should Have Complete Control Over the Intellectual Property 
Rights In Their Creations, 47 Hastings L. J. 221 (Nov. 1995); see also 
Robert A. Gorman, The Rights of Faculty as Creators and Users, Academe, 
May-June 1998, at 14-18.
---------------------------------------------------------------------------
    Today, States are routinely reaping all the benefits of the 
Copyright Act--without having to expose themselves to financial 
liability for their infringing acts. This disparity creates an 
inequitable situation in the intellectual property marketplace. It 
should be corrected. S. 1611 would help do just that.
     II. The CRCA, the PTA and the TRCA Under Constitutional Attack
    In Seminole Tribe of Florida v. Florida \33\ the Supreme Court 
overruled the Union Gas case, upon which Congress had relied in 
enacting the CRCA, the PRA, and the TRCA. In Seminole Tribe, the Court 
held that Congress could not use its Article I powers to abrogate State 
immunity from suit for violation of legislation passed pursuant to 
Congress' Article I powers.\34\ This surprising decision removed 
Article I as a basis for the CRCA, PRA and TRCA. After Seminole Tribe, 
the constitutionality of these statutes turned on whether they could be 
sustained under either Section 5 of the Fourteenth Amendment or under 
the so-called Parden doctrine,\35\ under which States could waive their 
sovereign immunity by participating voluntarily in certain commercial 
activities.
---------------------------------------------------------------------------
    \33\ 517 U.S. 44 (1996).
    \34\ See id.
    \35\ See Parden v. Terminal Ry. of Ala. State Docks Dep't, 377 U.S. 
184 (1964).
---------------------------------------------------------------------------
    Ultimately, the PRA, CRCA and the TRCA (to the extent it abrogated 
State immunity for false advertising claims) were found 
unconstitutional. In June 1999, the Supreme Court invalidated the PRA 
and the false advertising provisions of the TRCA in Florida Prepaid 
Postsecondary Education Expense Board v. College Savings Bank \36\ and 
College Savings Bank v. Florida Prepaid Postsecondary Education Expense 
Board.\37\ In addition to finding that neither the PRA nor the 
challenged portions of the TRCA were proper exercises of Congress' 
Section 5 power, the Court overruled the Parden doctrine as well. 
Subsequently, relying on the two College Savings Bank cases, two 
separate panels of the United States Court of Appeals for the Fifth 
Circuit voided the CRCA.\38\
---------------------------------------------------------------------------
    \36\ 527 U.S. 627 (1999).
    \37\ 527 U.S. 666 (1999).
    \38\ See Chavez v. Arte Publico Press, 204 F.3d 601 (5th Cir. 
2000), and Rodriguez v. Texas Comm'n on the Arts, 199 F.3d 279 (5th 
Cir. 2000).
---------------------------------------------------------------------------
    At the same time that the Court handed down the two College Savings 
Bank cases, June 23, 1999, it also decided Alden v. Maine.\39\ In 
Alden, the Court held that Congress could not use its Article I powers 
to subject nonconsenting States to private suits for damages in State 
court. Taken together, Seminole Tribe and Alden mean that Congress 
cannot rely on its Article I powers to abrogate State sovereign 
immunity from suit in either State or federal court. Because of the 
critical place they occupy in the current sovereign immunity landscape, 
each of these three post-Seminole Tribe decisions--the two College 
Savings rulings and Alden--warrant some further elaboration.
---------------------------------------------------------------------------
    \39\ 527 U.S. 706 (1999).
---------------------------------------------------------------------------
  a. florida prepaid postsecondary education expense board v. college 
                   savings bank (``the patent case'')
    In Florida Prepaid,\40\ the Supreme Court, by a 5-4 vote, struck 
down the PRA. Relying on the PRA, College Savings Bank had filed a 
patent infringement suit against defendant, Florida Prepaid, alleging 
that the defendant had infringed College Savings Bank's patent in the 
financing methodology used in its college savings program. After the 
Supreme Court handed down Seminole Tribe, the defendant moved to 
dismiss the suit. The district court denied the motion \41\ and the 
Court of Appeals for the Federal Circuit affirmed.\42\ The Supreme 
Court, however, reversed.
---------------------------------------------------------------------------
    \40\ 527 U.S. 627 (Fed. Cir. 1999).
    \41\ 948 F. Supp. 400 (N.J. 1996).
    \42\ 148 F.3d 1343 (1998).
---------------------------------------------------------------------------
    At the outset, the Court held that, because Seminole Tribe 
prohibited Congress from abrogating State sovereign immunity pursuant 
to its Article I powers, the PRA could not be sustained under either 
the Commerce or Patent/Copyright Clauses. Next, although the Court 
recognized that Congress has the power to abrogate State immunity by 
enacting ``appropriate legislation'' under Section 5 of the Fourteenth 
Amendment,\43\ it determined that the PRA was not a proper exercise of 
Congress' Section 5 power. Several aspects of the Court's Section 5 
discussion bear special mention.
---------------------------------------------------------------------------
    \43\ As it had in Seminole Tribe, 517 U.S. at 59, the Court 
reaffirmed its holding in Fitzpatrick v. Bitzer, 427 U.S. 445 (1976), 
that Section 5 of the Fourteenth Amendment permitted Congress to 
abrogate State sovereignty in order to enforce rights protected by the 
Amendment. Florida Prepaid, 527 U.S. at 636-37.
---------------------------------------------------------------------------
    First, the majority found that patents are property for purposes of 
the Due Process Clause:

        Patents . . . have long been considered a species of property . 
        . . . As such, they are surely included within the ``property'' 
        of which no person may be deprived by a State without due 
        process of law. And if the Due Process Clause protects patents, 
        we know of no reason why Congress might not legislate against 
        their deprivation without due process under Sec.  5 of the 
        Fourteenth Amendment.\44\
---------------------------------------------------------------------------
    \44\ Florida Prepaid, 527 U.S. at 642 (emphasis added) (internal 
citations omitted).

    Second, the Court noted that, while patents are property for 
purposes of the Due Process Clause, that clause does not protect 
against every State patent infringement. It only encompasses those 
infringements that unconstitutionally deprive patent owners of their 
property such as infringements that deprive owners of property without 
due process of law. The Court further seemed to hold that due process 
is violated only if intentional acts of infringement occur for which 
the State has failed to provide an adequate State remedy.\45\
---------------------------------------------------------------------------
    \45\ See 527 U.S. at 646-47.
---------------------------------------------------------------------------
    Third, the Court found that the PRA was not ``appropriate 
legislation'' under Section 5 because (1) it included all statutory 
infringements, not only those infringements that amount to 
constitutional violations, and (2) Congress had made no record showing 
a need for it to reach beyond constitutional violations in order to 
protect constitutional rights. The Court noted in this connection that:

        In enacting the Patent Remedy Act . . . Congress identified no 
        pattern of patent infringement by the States, let alone a 
        pattern of constitutional violations. Unlike the undisputed 
        record of racial discrimination confronting Congress in the 
        voting rights cases . . . Congress came up with little evidence 
        of infringing conduct on the part of the States. The House 
        Report acknowledged that ``many states comply with patent law'' 
        and could provide only two examples of patent infringement 
        suits against the States. The Federal Circuit in its opinion 
        identified only eight patent-infringement suits prosecuted 
        against the states in 110 years between 1880 and 1990 . . . . 
        At most, Congress heard testimony that patent infringements by 
        States might increase in the future . . . and acted to head off 
        this speculative harm.\46\
---------------------------------------------------------------------------
    \46\ Florida Prepaid, 527 U.S. at 640-41 (internal citations 
omitted). Justice Stevens wrote a dissenting opinion joined by Justices 
Souter, Ginsburg and Breyer. The dissent criticized the majority for 
retroactively imposing a heavy evidentiary burden on Congress:[T]his 
Court has never mandated that Congress must find ``widespread and 
persistent deprivation of constitutional rights'' . . . in order to 
employ its Sec. 5 authority. It is not surprising, therefore, that 
Congress did not compile an extensive legislative record analyzing the 
due process (or lack thereof) that each state might afford for a patent 
infringement suit retooled as an action in tort. In 1992, Congress had 
no reason to believe it needed to do such a thing; indeed, it should 
not have to do so today.Florida Prepaid, 527 U.S. at 660 (Stevens, J., 
dissenting) (internal citation omitted).
---------------------------------------------------------------------------
  b. college savings bank v. florida prepaid postsecondary education 
                 expense board (``the trademark case'')
    In College Savings Bank v. Florida Prepaid Postsecondary Education 
Expense Board, 527 U.S. 666 (1999), the Court sustained the Third 
Circuit's decision \47\ that the portions of the Trademark Remedy 
Clarification Act (TRCA), which subject States to suits under Section 
43(a) of the Lanham Act \48\ for false and misleading advertising, are 
unconstitutional.\49\
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    \47\ 131 F. 3d 353 (3rd Cir. 1997).
    \48\ 15 U.S.C. Sec. 1125(a).
    \49\ Section 43(a) creates a private cause of action against 
``[a]ny person'' who uses false descriptions or makes false 
representations, in commerce. The TRCA amends 43(a) to define ``any'' 
person to encompass ``any State, instrumentality of a State, or 
employee of a State or instrumentality of a State acting in his or her 
official capacity.'' 15 U.S.C. Sec. 1125(a)(2). The TRCA also amends 
the Lanham Act to make explicit that such State entities ``shall not be 
immune, under the eleventh amendment of the Constitution of the United 
States or under any other doctrine of sovereign immunity, from suit in 
Federal court by any person, including any governmental or 
nongovernmental entity, for any violation [of this Act]'' and that 
remedies shall be available against such State entities ``to the same 
extent as such remedies are available . . . in a suit against [a non-
state entity.]'' 15 U.S.C. Sec. 1122(b)-(c).
---------------------------------------------------------------------------
    In College Savings, the bank alleged that Florida Prepaid had 
violated Section 43(a) of the Lanham Act by making misstatements about 
Florida Prepaid's postsecondary tuition savings plan in its brochures 
and annual report.\50\ Florida Prepaid moved to dismiss the case on the 
basis that the State's sovereign immunity barred the suit. Both the 
District Court for the District of New Jersey and the Court of Appeals 
for the Third Circuit agreed.\51\ The Supreme Court granted certiorari 
and affirmed by a 5-4 vote.\52\
---------------------------------------------------------------------------
    \50\ See College Savings, 527 U.S. at 670-71.
    \51\ See College Savings Bank v. Florida Prepaid Postsecondary 
Education Board, 948 F. Supp. 400 (D. N.J. 1996), affd, 131 F.3d 353 
(3`d Cir. 1997).
    \52\ 527 U.S. 666 (1999) (Scalia, J.).
---------------------------------------------------------------------------
    The Court rejected the petitioner's assertion that the TRCA was 
valid Section 5 legislation. It found that neither the right to be free 
from a business competitor's false advertising about the competitor's 
own product, nor a general right to be secure in one's business 
interests, constituted ``property'' for due process purposes.\53\ 
Because no deprivation of property occurred, the Court saw no need to 
inquire ``whether the prophylactic measure taken under purported 
authority of Sec.  5 . . . was genuinely necessary to prevent violation 
of the Fourteenth Amendment.'' \54\ The Court acknowledged, however, 
that the Lanham Act may protect other interests that qualify as 
property under the Due Process Clause: ``The Lanham Act may well 
contain provisions that protect constitutionally cognizable property 
interests--notably, its provisions dealing with the infringement of 
trademarks, which are the `property' of the owner because he can 
exclude others from using them.'' \55\
---------------------------------------------------------------------------
    \53\ See College Savings, 527 U.S. at 673. (``The Lanham Act's 
false-advertising provisions . . . bear no relationship to any right to 
exclude; and Florida Prepaid's alleged misrepresentations concerning 
its own products intruded upon no interest over which petitioner had 
exclusive dominion.'').
    \54\ College Savings, 527 U.S. at 673.
    \55\ Id. at 673.
---------------------------------------------------------------------------
    The Court then addressed the argument that the State of Florida had 
voluntarily waived its immunity from federal court jurisdiction in 
false advertising cases. Finding that Florida Prepaid had not expressly 
consented to suit in federal court, the Court considered whether the 
law could be sustained under the constructive-waiver doctrine 
enunciated in Parden.\56\ After asserting that the Court had narrowed 
Parden over the years, Justice Scalia's opinion for the Court 
``drop[ped] the other shoe'' and expressly overruled Parden's 
constructive waiver doctrine.\57\
---------------------------------------------------------------------------
    \56\ 377 U.S. 184 (1964).
    \57\ College Savings, 527 U.S. at 680.
---------------------------------------------------------------------------
    Finally, the College Savings Bank Court suggested the possibility 
that Congress could constitutionally use its Spending Clause power to 
require a State to waive its immunity from suit in order to receive its 
federal funds, as long as ``the financial inducement offered by 
Congress [is not] so coercive as to pass the point at which `pressure 
turns into compulsion.'' ' \58\
---------------------------------------------------------------------------
    \58\ Id. at 687.
---------------------------------------------------------------------------
                           c. alden v. maine
    Alden v. Maine \59\ presented the Court with the question whether 
Congress can use its Article I powers to subject nonconsenting States 
to private suits for damages in State court.
---------------------------------------------------------------------------
    \59\ 527 U.S. 706 (1999).
---------------------------------------------------------------------------
    In Alden, a group of probation officers sued the State of Maine, 
alleging that it had violated the overtime provisions of the Fair Labor 
Standards Act of 1938 (FLSA).\60\ Relying on Seminole Tribe, the 
district court dismissed the lawsuit on sovereign immunity grounds, and 
the Court of Appeals for the First Circuit affirmed.\61\ Subsequently, 
the probation officers brought the same claim in Maine State court, 
which also dismissed on sovereign immunity grounds. The Maine Supreme 
Court affirmed,\62\ and the United States Supreme Court granted 
certiorari.\63\
---------------------------------------------------------------------------
    \60\ 29 U.S.C. Sec. 201 et seq.
    \61\ See Mills v. Maine, 853 F. Supp. 551 (D. Me. 1994), affd, 118 
F.3d 37 (1st Cir. 1997).
    \62\ Alden v. Maine, 715 A.2d 172 (Me. 1998).
    \63\ See 527 U.S. 706 (1999).
---------------------------------------------------------------------------
    By another identical 5-4 division, the Court held that the State 
immunity from suit recognized in Seminole Tribe applied in State as 
well as federal court.\64\ Thus, after Alden, even if Congress were to 
give State courts concurrent jurisdiction over federal patent or 
copyright statutory infringement suits,\65\ nonconsenting States would 
nonetheless be immune from such actions.
---------------------------------------------------------------------------
    \64\ Id.
    \65\ During deliberations on the CRCA, Congress expressly 
considered a proposal to give State courts concurrent copyright 
jurisdiction, but rejected that idea because such State court 
jurisdiction would be at odds with the uniform system of copyright 
protection that was a key goal of Congress in enacting the Copyright 
Revision Act of 1976. Such concurrent jurisdiction ``creates the 
potential for differing standards and results . . . . H. R. Rep. No. 
101-282, at 9 (1989).
---------------------------------------------------------------------------
    The combination of these three Supreme Court decisions set the 
stage for the invalidation of the CRCA.
                    d. chavez v. arte publico press
    Several months after the Supreme Court rendered its opinions in the 
two College Savings Bank cases and Alden, the Fifth Circuit found the 
CRCA invalid in Chavez v. Arte Publico Press.\66\ The litigation in 
Chavez commenced in 1993, when an author, Denise Chavez, filed suit 
against the University of Houston Press--a State entity--for copyright 
infringement arising out of a dispute regarding her publishing 
agreement with the University. Previously, a Fifth Circuit panel had 
found the CRCA to be constitutional in Chavez v. Arte Publico 
Press.\67\ That decision was based on the subsequently discarded Parden 
constructive-waiver theory. The Supreme Court vacated and remanded for 
reconsideration in light of Seminole Tribe.\68\ After a second panel 
decision,\69\ the case was again remanded to the panel \70\ for 
reconsideration in light of College Savings Bank and Florida Prepaid. 
The Fifth Circuit panel then held that the CRCA ``was doomed'' in light 
of Florida Prepaid.\71\
---------------------------------------------------------------------------
    \66\ 204 F.3d 601 (5th Cir. 2000). A separate panel of the Fifth 
Circuit also found the CRCA to be unconstitutional in Rodriguez v. 
Texas Comm'n on the Arts, 199 F.3d 279 (5th Cir. 2000). Rodriguez 
involved a claim that the State of Texas had violated plaintiffs 
copyright by using his design for State license plates without 
authorization. Relying on College Savings Bank, the court, in a very 
brief opinion, found the copyright claim to be indistinguishable from 
the patent claim in College Savings Bank and held the PRA 
unconstitutional.
    \67\ 59 F.3d 539 (5th Cir. 1995).
    \68\ University of Houston v. Chavez, 517 U.S. 1184 (1996).
    \69\ Chavez v. Arte Publico Press, 157 F.3d 282, 287 (5th Cir. 
1998).
    \70\ Chavez v. Arte Publico Press, 180 F.3d 674 (5th Cir. 1999).
    \71\ Chavez v. Arte Publico Press, 204 F.3d 601 (5th Cir. 2000).
---------------------------------------------------------------------------
 III. Congress' Legislative Options After The College Savings Bank and 
                              Alden Cases
    Congress must now assess how it can respond to these decisions in a 
constitutional and effective manner. Despite the fact that Congress can 
no longer use its Article I powers to abrogate State sovereign 
immunity, we believe that Congress has sufficient tools at its disposal 
to fashion legislation that fits within the contours of the Court's 
recent decisions and also effectively implements Congress' desire to 
remove the harm to copyright owners caused by States' freedom to 
infringe copyrighted works without having to pay damages.
    As noted above, in PORA's view, any forthcoming legislation should:

         Condition the State's ability to obtain judicial 
        remedies available under the federal intellectual property 
        system on State waivers of sovereign immunity from suit in 
        federal court for state infringements of private intellectual 
        property rights;
         Abrogate State sovereign immunity in suits brought to 
        redress unconstitutional infringements of federal intellectual 
        property rights; and
         Codify the doctrine of Ex parte Young, thereby 
        affirming the availability of injunctive and monetary relief in 
        infringement suits brought against state officials and 
        employees.
a. conditioning certain federal intellectual property benefits on state 
                     waivers of sovereign immunity
    Mr. Chairman, we agree with you that it is critical that any 
forthcoming legislation should contain a ``waiver'' provision that 
conditions a State's ability to obtain judicial remedies under the 
federal intellectual property system on the State's waiver of its 
sovereign immunity from such remedies. We believe that Congress has 
power to condition a State's ability to obtain a federal judicial 
remedy upon the State's waiver of its own immunity.
1. The Remedies Bar
    Section 3 of S. 1611 would deny a non-waiving State the ability to 
recover monetary damages when it sues to protect its own intellectual 
property rights, but leave it free to obtain injunctions.\72\ We 
wholeheartedly agree that non-waiving States should not be eligible to 
obtain money damages. While we strongly support this provision of the 
bill, we respectfully question whether permitting States to retain 
their sovereign immunity while still allowing them to obtain injunctive 
relief is fair or would provide many States with a sufficient reason to 
waive their immunity. For that reason, we urge the Committee to give 
careful consideration to amending S. 1611 so as to bring both 
injunctive relief and damages within the remedies bar for non-waiving 
States.
---------------------------------------------------------------------------
    \72\ As discussed below, under certain circumstances the ``remedies 
bar'' would affect non-State pplaintiffs as well.
---------------------------------------------------------------------------
    In deciding whether to expand the reach of the remedies bar to 
include injunctions, we urge you to keep in mind that S. 1611--unlike 
S. 1835, from the prior Congress--does not condition a State's 
ownership of intellectual property rights on a waiver of its sovereign 
immunity. Rather, under S. 1611, non-waiving States would be free both 
to obtain these rights and to exploit them in the marketplace.\73\ We 
propose only that they (or their assignees) lose the ability to obtain 
judicial remedies unless the State waives its immunity from such 
remedies.
---------------------------------------------------------------------------
    \73\ With respect to copyrights, States would be afforded Copyright 
in their original works and would be free to register those works at 
any time after creation.
---------------------------------------------------------------------------
2. Straightforward Process
    College Savings and Florida Prepaid made clear that a waiver of 
State sovereign immunity must be both knowing and voluntary.\74\ Thus, 
the waiver provision must offer States a clear and unambiguous choice 
between waiving their immunity from suit or foregoing access to certain 
judicial remedies. The waiver provision must clearly spell out the 
consequences for the State in making this choice. We believe that 
Section 3 of S. 1611 achieves that goal.
---------------------------------------------------------------------------
    \74\ See College Savings, 527 U.S. at 679-681.
---------------------------------------------------------------------------
    S. 1611 also sets forth in clear and straightforward language the 
procedural steps governing the waiver process. Most importantly, the 
bill:

         Specifies that, if a State chooses to waive its 
        immunity, the waiver is to be made in accordance with the 
        constitution and laws of the State; and
         Gives States a reasonable amount of time--up to two 
        years--to make the decision to waive without any risk of losing 
        existing rights.
3. Safeguards Against End-Runs
    We share your goal of incorporating language into the voluntary 
waiver provision to help prevent ``end runs'' around the remedies bar 
applicable to non-waiving States. We certainly do not want States to be 
free to easily evade making the choice required by the Act. A non-
waiving State should therefore be subject to the remedies bar, 
regardless of whether it acquired ownership by being the author of the 
work (by virtue of its creation by an employee or pursuant to a valid 
work-made-for-hire agreement),\75\ or by exclusive license or 
assignment.
---------------------------------------------------------------------------
    \75\ Section 101 of the Copyright Act allows a commissioning party 
of a work to be deemed the author of a work if the work falls within 
certain specified categories. See 17 U.S.C. 101.
---------------------------------------------------------------------------
    We also agree that this bar should not only affect States bringing 
suits, but also those plaintiffs who exclusively license or assign 
works to or from the State under certain circumstances. Otherwise, for 
example, a State could evade the bar by assigning its exclusive rights 
to a private party for a one-time payment. Without an anti-end-run 
provision, the private party would, on the State's behalf, have access 
to all available remedies. By barring remedies where the State ``is or 
was at anytime the legal or beneficial owner,'' \76\ S. 1611 provides a 
useful way to thwart unfair circumvention of the remedies bar.
---------------------------------------------------------------------------
    \76\ Section 502(a) of the Copyright Act gives.the ``legal or 
beneficial owner'' standing to sue for infringement. See 17 U.S.C. 
502(a). Thus, copyright suits typically arise in two situations. The 
first involves the legal owner, or the person who holds title to the 
rights. The second category enables someone who used to own the rights 
to sue, if she retains a beneficial interest in the rights-for example, 
in the form of a continuing royalty obligation. Thus, an author who 
assigned a copyright to a publishing house for a continuing royalty 
would no longer be the legal owner, but would not have to watch her 
asset evaporate if the publisher decided not to bring suit. If, 
however, the author assigns the copyright for a one-time payment, the 
author is neither the beneficial nor the legal owner and has no 
standing to sue for infringement. See Hearn v. Meyer, 664 F. Supp. 832, 
840-41 (S.D.N.Y. 1987); Cavallo, Ruffolo & Fargnoli v. Torres, 1988 
U.S. Dist. LEXIS 16881 (C.D. Cal. 1988).
---------------------------------------------------------------------------
    At the same time, we agree that the bill should not unfairly 
prejudice private parties; Section 3 of your bill appears to achieve 
that important goal. It makes the remedies bar inapplicable in two 
instances where to do otherwise would be extremely unfair to a private 
party where: (1) applying the remedies bar ``would materially and 
adversely affect a legitimate contract based expectation that was in 
existence before January 1, 2002"; and (2) a downstream bona fide 
purchaser of an intellectual property right did not know that a State 
was once the legal or beneficial owner of that right.
 b. abrogation of immunity in suits based on constitutional violations
1. The Scope of Abrogation
    Section 5 of the Fourteenth Amendment gives Congress the power to 
remedy unconstitutional State deprivations of life, liberty and 
property through ``appropriate legislation'' and in the past few years, 
the Supreme Court has repeatedly stated that Congress has the power to 
abrogate State immunity by invoking this authority.\77\ Yet, in College 
Savings and Florida Prepaid, the Court voided congressional efforts to 
do this, holding that the federal laws involved were not 
``appropriate'' legislation under Section 5.
---------------------------------------------------------------------------
    \77\ See, e.g., Seminole Tribe, 517 U.S. at 59 (1996); Flores, 521 
U.S. 507, 507-508 (1997); Florida Prepaid, 527 U.S. at 635-39 
(Rehnquist, J.); College Savings, 527 U.S. at 669-70 (Scalia, J.).
---------------------------------------------------------------------------
    We believe that, by closely adhering to the Court's opinions--
particularly that in Florida Prepaid--Congress can craft a 
constitutional and effective abrogation provision.
    As S. 1611 recognizes, the key to fashioning an appropriate 
abrogation provision is to have it remove State immunity only in those 
cases where State infringements constitute unconstitutional 
deprivations of the property rights of intellectual property owners. 
Thus, unlike the CRCA which applied to all State copyright 
infringements, S. 1611 is expressly limited to unconstitutional 
violations of federal intellectual property rights--i.e., those 
violations that violate either the due process or the takings clause. 
Such an approach directly follows the central teaching of Florida 
Prepaid that not every infringement of a federal intellectual property 
right violates the Fourteenth Amendment.
    In July 2000, before the House Judiciary Subcommittee on Courts, 
the Internet, and Intellectual Property, Harvard Law School Professor 
Daniel Meltzer suggested enactment of this form of abrogation 
legislation.\78\ At that time, and again in a subsequent law review 
article,\79\ Professor Meltzer suggested that such a form of abrogation 
was not dependent upon Congress making a record of widespread 
unconstitutional activity by States:
---------------------------------------------------------------------------
    \78\ See Oversight Hearing on ``State Sovereign Immunity and the 
Protection of Intellectual Property'' Before the House Comm. on the 
Judiciary, Subcomm. on Courts, the Internet, and Intellectual Property, 
106th Cong. (2000) (Testimony of Professor Daniel Meltzer) available at 
http://www.house.gov/judiciary/ courts.htm.
    \79\ See Daniel Meltzer, Overcoming Immunity: The Case of Federal 
Regulation of Intellectual Property Rights, 53 Stan. L. Rev. 1331 
(2001).
---------------------------------------------------------------------------
        I do not read these recent decisions as holding that any 
        exercise of Section 5 power is valid only upon such a showing 
        of widespread violations; that showing is demanded, rather, 
        only when the congressional measure reaches broadly to regulate 
        conduct that is not independently unconstitutional. For in each 
        of the cases in which the Supreme Court has found a federal 
        statute regulating the States to fall beyond the scope of 
        Section 5 power, the enactment regulated at least some conduct 
        that itself did not violate Section 1 of the Fourteenth 
        Amendment. Thus, in Florida Prepaid, for example, the Court 
        found that the statute--by regulating patent infringement that 
        was unintentional, and whether or not state post-deprivation 
        remedies were available--regulated conduct that did not itself 
        constitute a deprivation of due process. Where Congress does 
        reach beyond regulating actual constitutional violations, these 
        recent decisions clearly require a strong showing of 
        legislative need . . . . By contrast, the proposed legislative 
        measure just discussed would be tailored so that it, unlike the 
        statutes recently invalidated by the Court, extends only to 
        instances of constitutional violations. Such a measure is more 
        easily viewed as ``remedial,'' and in my view the validity of a 
        statute that merely regulates unconstitutional conduct itself 
        should not require an additional showing of widespread 
        violations by the states. Examination of the record of state 
        violations is significant only when a statute reaches well 
        beyond the scope of constitutional violations.\80\
---------------------------------------------------------------------------
    \80\ Id. at 1347-48 (emphasis added).
---------------------------------------------------------------------------
    At least one federal appeals court has acted in a manner consistent 
with S. 1611's treatment of abrogation and Professor Meltzer's 
suggested approach. In Cherry v. University of Wisconsin System Board 
of Regents,\81\ the Seventh Circuit upheld Congress' abrogation of 
state sovereign immunity from suits brought under the federal Equal Pay 
Act (EPA). In finding the congressional abrogation under the EPA to be 
constitutional, the appeals court, citing Kimel v. Florida Board of 
Regents,\82\ noted that ``the lack of [evidentiary] support in the 
legislative record 'is not determinative of the Sec.  5 inquiry'' ' 
\83\ and went on to distinguish the situation in Cherry from recent 
Supreme Court rulings where the Court found the absence of evidence 
critical:
---------------------------------------------------------------------------
    \81\ 265 F. 3d. at 541 (7th Cir. 2001).
    \82\ 528 U.S. 62,73 (2000).
    \83\ Cherry, 265 F.3d at 553.
---------------------------------------------------------------------------
        But unlike the statutes at issue in City of Boerne, Kimel, 
        Florida Prepaid, and Garrett, all of which pervasively prohibit 
        constitutional State action, the EPA `prohibits very little 
        constitutional conduct.' Precisely because the EPA essentially 
        targets only unconstitutional gender discrimination, the 
        importance of congressional findings of unconstitutional State 
        action is `greatly diminished.' (emphasis added) (internal 
        citations omitted).\84\
---------------------------------------------------------------------------
    \84\ Id. at 553.
---------------------------------------------------------------------------
    In its recent decisions, the Supreme Court has held that State 
infringements are unconstitutional only if: (1) they are intentional or 
non-negligent; and (2) the State provides no adequate remedy for them. 
S. 16l1 makes specific reference to the inadequacy-of-remedies element 
of unconstitutionality, but not to the scienter element.\85\ While we 
believe that a case can be made for including express reference in the 
statute to both elements, in our view it is especially important that 
the statute make clear that the State, not the plaintiff, has the 
burden of demonstrating that it provides an adequate remedy and that 
this determination should be made by the judge in the federal 
proceeding.\86\ Section 5(d)(2) of S. 1611 correctly places this 
critical burden on the State or its instrumentality.
---------------------------------------------------------------------------
    \85\ With respect to the scienter issue, the legislative history 
should indicate that it would be overly burdensome and restrictive to 
require the plaintiff to show that the State knew that the harm 
amounted to a constitutional violation. See Oversight Hearing on 
``State Sovereign Immunity and Intellectual Property'' Before the House 
Comm. on the Judiciary, Subcomm. on Courts, the Internet, and 
Intellectual Property, 106th Cong. (2000) (Testimony of Professor 
Daniel Meltzer) available at http://www.house.gov/judiciary/courts.htm.
    \86\ Federal courts routinely examine the adequacy of State 
remedies in areas much more central to the State's power as a 
sovereign. For example, under the Tax Injunction Act, 28 U.S.C. 
Sec. 1341, the District Courts may enjoin the levy or collection of any 
tax where no ``plain, speedy and efficient'' remedy exists under State 
law. See generally Annotation, Supreme Court's construction and 
application of Tax Injunction Act (28 USCS Sec. 1341, and similar 
predecessor provisions), restricting Federal District Courts from 
interfering with assessment, levy, or collection of state taxes, 132 L. 
Ed. 2d 997 (1999). Other forms of review of the adequacy of State 
remedies occur routinely in the habeas corpus context. In both the tax 
and the habeas areas, the State's sovereign interest is far stronger 
than in the intellectual property context where the Constitution gives 
Congress exclusive control over the extent of those rights and the form 
they might take.
---------------------------------------------------------------------------
2. The Breadth of the Evidentiary Record
    As Professor Meltzer observes, although perhaps not 
constitutionally necessary, it is advisable for Congress to ``assemble 
the most complete record possible of instances in which state 
governments have violated federal intellectual property laws and, 
beyond that, of instances in which those violations appear also to 
constitute violations of the Due Process Clause.'' \87\ In part to help 
develop such a record, in June 2000, then-Chairman Hatch requested that 
the GAO undertake a study \88\ that, among other things, would compile 
instances of alleged State infringements of intellectual property 
rights.\89\
---------------------------------------------------------------------------
    \87\ Daniel Meltzer, Overcoming Immunity: The Case for Federal 
Regulation of Intellectual Property, 53 Stan. L. Rev. 1331 at 1353 
(2001).
    \88\ Letter from Sen. Orrin G. Hatch, Chairman, United States 
Senate Committee on the Judiciary, to Mr. David Walker, Comptroller 
General, General Accounting Office (June 23, 2000) (on file with the 
author). Specifically, Chairman Hatch requested that the GAO examine:

    (1) the extent to which States have been the subject of claims of 
patent, trademark, or copyright infringement in the past,
    (2) the remedies-including waiver of sovereign immunity-that States 
have adopted or employed to protect intellectual property owners 
against state infringements, and
    (3) the extent to which States are participating in the Federal 
intellectual property system as intellectual property owners.
    Id. Chairman Hatch also asked GAO ``to gather information from the 
states and the intellectual property community on the role that states 
do or should play in protecting the rights of intellectual property 
owners.'' Id.
    \89\ PORA has attempted to gather evidence of the manner in which 
States are using the federal copyright system. For example, SIIA, one 
of PORA's members, undertook a review of its records in order to 
determine whether and to what extent State entities were believed to be 
infringing its members' copyrights. SIIA was extremely conservative in 
determining which entities were ``state entities.'' Because of its 
confidentiality agreements, SIIA cannot reveal the identity of the 
parties in these matters, and can make this information available only 
in the aggregate. In the six years covered by the review, SIIA 
identified 77 matters involving infringements by State entities. Of 
these 77 matters, approximately 50% involved State institutions of 
higher learning. The other 50% consisted of State hospitals, bureaus, 
public service commissions, and other instrumentalities. In the 
overwhelming majority of cases, no litigation actually resulted. After 
SIIA learns of a possible infringement, it contacts the infringing 
entity to request an audit of its existing software, and attempts to 
bring that entity into compliance with the law. The SIIA study covers 
only those matters reported to SIIA. Drawing on PORA's experience in 
dealing with both private and public entities, we have no doubt that a 
far greater number of infringements than SIIA detected go undetected 
and unreported. In addition, SIIA reports that on more than one 
occasion, a State threatened legal sanctions against SIIA for 
attempting to either: (1) enjoin further infringing acts; or (2) obtain 
damages for unauthorized use of software.
---------------------------------------------------------------------------
    In September 2001, GAO issued its report entitled ``Intellectual 
Property: State Immunity in Infringement Actions.'' As to instances of 
past state infringements, GAO was able to document 58 instances of 
unauthorized use of intellectual property by a State since 1985.\90\ 
GAO based its findings on a review of published case law and a survey 
of the States.
---------------------------------------------------------------------------
    \90\ United States General Accounting Office, Intellectual 
Property: State Immunity in Infringement Actions, at 7 (2001) (Rep. No. 
GAO-01-0811) [hereinafter GAO Report].
---------------------------------------------------------------------------
    While GAO felt compelled to characterize the number of accusations 
of state infringements as ``few,'' \91\ this characterization fails to 
take into account a number of critical factors. First, GAO itself 
acknowledged that it faced substantial difficulties in attempting to 
come up with an accurate assessment of all past accusations of state 
infringements of intellectual property, in part because ``there are no 
summary databases providing such information.'' \92\ In addition, GAO 
acknowledged that:
---------------------------------------------------------------------------
    \91\ Id. at 7.
    \92\ Id.
---------------------------------------------------------------------------
         ``The published case law is an incomplete record, 
        because (1) both the federal and state courts report only those 
        cases in which decisions were rendered and (2) state courts 
        usually report only appellate decisions. Thus, lawsuits that 
        were dropped or settled by any court prior to a decision as 
        well as those decided by state trial courts might not appear in 
        the published case law'';\93\
---------------------------------------------------------------------------
    \93\ Id.
---------------------------------------------------------------------------
         Accusations set forth in cease and desist letters are 
        often resolved administratively, do not result in the filing of 
        a lawsuit, and thus are not reflected in published case 
        law;\94\ and
---------------------------------------------------------------------------
    \94\ Id. at 7-8.
---------------------------------------------------------------------------
    Some lawsuits are not easily identified as either involving (1) 
unauthorized use of intellectual property, or (2) a state entity that 
could claim sovereign immunity.\95\
---------------------------------------------------------------------------
    \95\ Id. at 8. Given these inherent difficulties, GAO sought to 
supplement its database of accusations of state infringements by 
surveying state institutions of higher education and state attorneys 
general. Id. at 8-9. Thirty-six of the 50 attorneys general and 99 out 
of 140 institutions responded to GAO's survey. But, as acknowledged by 
GAO, the responses to these surveys ``offered no assurance that we had 
identified all the accusations . . . as the respondents themselves did 
not always have such information.'' Id. at 9.
---------------------------------------------------------------------------
    Second, in reviewing GAO's findings, it is imperative to keep in 
mind two critical factors: (1) too short a period of time has elapsed 
since the decisions by the Supreme Court and the Fifth Circuit to 
assess whether they will result in changed State practices; and (2) 
States were considered fully liable for copyright infringement for the 
vast majority of the last twenty-five years. This latter point deserves 
some elaboration.
    Until the Court's 1986 decision in Atascadero,\96\ it was widely 
understood that when Congress passed the 1976 Copyright Revision Act, 
it intended States to be liable for their acts of infringement just 
like any other party, except in those circumstances where they were 
expressly exempted from liability. This was, for example, the view set 
forth in the House and Senate Committee Reports on the CRCA.\97\ It was 
also the position of Representative Kastenmeier, who chaired the House 
Judiciary Subcommittee involved in the consideration of both the CRCA 
and the 1976 Act,\98\ and of the Registers of Copyrights at the time of 
the passage of the CRCA and the 1976 Act.\99\
---------------------------------------------------------------------------
    \96\ 743 U.S. 234 (1985).
    \97\ See H.R. Rep. No. 101-282, at 5 (1989); S. Rep. 101-305, at 5 
(1990).
    \98\ See H.R. Rep. No. 101-282, at 11 (1989) (statement of Rep. 
Kastenmeier) (quoting 135 Cong. Rec. E525).
    \99\ In response to a question from Chairman Kastenmeier as to 
whether it was her understanding that States were and knew that they 
were liable for infringement under the 1976 Act, Barbara Ringer, former 
Register of Copyrights, replied: ``Absolutely.'' H.R. Rep. No. 101-282, 
at 6 (1989) (quoting Copyright Remedy Clarification Act and Copyright 
Office Report on Copyright Liability of States: Hearings on H.R. 1131 
Before the Subcomm. on Courts, Intellectual Property, and the Admin. of 
Justice of the House Comm. on the Judiciary, 101st Cong. 97 (1989)); 
see also Id., at 6 (statement of Ralph Oman, Register of Copyrights).
---------------------------------------------------------------------------
    This general understanding of the 1976 Act's reach was not drawn 
into question until after the Supreme Court's decision in Atascadero. 
Indeed, just prior to Atascadero, one federal court ruled that the 1976 
Act had effectively abrogated State copyright immunity.\100\ After 
Atascadero, federal courts started reaching the opposite result.\101\ 
This change from full State liability to immunity was short-lived, 
however. As noted above, the 101st Congress moved quickly after 
Atascadero, and, in November, 1990, the CRCA became law. As a result, 
between late 1990 and the Supreme Court's 1999 decisions, States were 
once again subject to the full panoply of remedies available under the 
Copyright Act.
---------------------------------------------------------------------------
    \100\ Johnson v. University of Virginia, 606 F. Supp. 321, 324 
(W.D. Va. 1985).
    \101\ See, e.g., BV Engineering v. UCLA, 858 F.2d 1394, 1396-1398 
(9th Cir. 1988); Richard Anderson Photography v. Brown, 852 F.2d 114, 
118 (4th Cir. 1988).
---------------------------------------------------------------------------
    In sum, from 1976 until 1985, and from 1990 until at least 1999, 
States have necessarily operated under the assumption that they were 
fully liable for copyright infringements. The States may just be 
beginning to grasp the potential impact of the College Savings Bank 
decisions in the copyright context. It is entirely reasonable for the 
107th Congress to conclude that State infringements will become 
commonplace in the absence of the enactment of remedial legislation by 
Congress--especially given the ease with which digital copies can be 
made and disseminated and the growth of State university and agency 
Intranets.\102\ When viewed against this background, one can better 
understand why the Patent and Trademark Office did not view the 58 
documented cases identified by GAO as few in number,\103\ and the 
Copyright Office \104\ expressed no surprise at the number of cases 
identified in the GAO's report.
---------------------------------------------------------------------------
    \102\ In this regard, Congress may take notice of the number of 
takedown notices under Section 512 of the DMCA issued to state 
institutions.
    \103\ See Letter from Nicholas P. Godici, Acting Under Secretary of 
Commerce For Intellectual Property and Acting Director of the United 
States Patent and Trademark Office, to Jim Wells, Director, National 
Resources and Environment, General Accounting Office (September 5, 
2001), reprinted in GAO Report at 69.
    \104\ See letter from David Carson, General Counsel, United States 
Copyright Office, to Jim Wells, Director, National Resources and 
Environment, General Accounting Office (August 28, 2001) reprinted in 
GAO Report at 72. (Noting that in the Copyright Office's view, too 
little time had passed since the Supreme Court's rulings to assess 
possible increases in infringing activity and that ``from the enactment 
of the first Copyright Act in 1790 until the Supreme Court's decisions 
in June, 1999, States had good reason to believe that they were subject 
to the full range of remedies if they infringed a copyright.'') In 
addition, the Copyright Office agreed with the shortcomings that the 
GAO had acknowledged with respect to the methodology GAO employed:
    [T]he public case law is an inadequate record of infringement 
litigation because it includes only reported cases, and the surveys of 
the state attorneys general, universities and bar associations are 
limited by the inability of the respondents to identify all claims of 
infringement or even lawsuits alleging infringement by States or State 
entities. For these reasons we are not surprised that this study 
yielded relatively few examples of infringements by States.
    Id.
---------------------------------------------------------------------------
3. Due Process and Takings Violations
    PORA agrees that the new statute should expressly provide for 
abrogation of State immunity in suits for State infringements that 
constitute violations of either the Due Process or the Takings Clauses. 
In our view, Section 5 of S. 1611 wisely sets forth these two bases for 
abrogation in separate provisions so that the statute's severability 
clause can preserve one should the other be held unconstitutional.
4. Congressional Review of the Adequacy of State Remedies
    In his opinion for the Court in Florida Prepaid, Chief Justice 
Rehnquist chided Congress for not thoroughly examining the availability 
of State remedies with respect to patent infringements.\105\ In the 
CRCA context, however, Congress had before it, as part of the Copyright 
Office Report, the aforementioned Congressional Research Service study. 
That study revealed the very limited, inconsistent nature of State 
remedies available to copyright owners victimized by State 
infringements.\106\ A more recent analysis of the sovereign immunity 
practices in fourteen States made by an amicus curiae in Florida 
Prepaid demonstrated the limited, haphazard remedies those States 
afford for State patent infringements (and presumably for State 
copyright infringements as well).\107\ In the same vein, the recent GAO 
report concluded that intellectual property owners have few 
alternatives or remedies against state infringement remaining after 
Florida PrepaId.\108\
---------------------------------------------------------------------------
    \105\ ``Congress. . . barely considered the availability of state 
remedies for patent infringement and hence whether the States' conduct 
might have amounted to a constitutional violation under the Fourteenth 
Amendment.'' Florida Prepaid, 527 U.S. at 643.
    \106\ Copyright Office Report, supra note 13, at CRS 1-23.
    \107\ Brief of Amicus Curiae Association of American Railroads 
(AAR) in Support of Respondents, Florida Prepaid Postsecondary 
Education Expense board v. College Savings Bank, No. 98-531 at 
[appendix] la-19a (1999) (AAR Brief). ``Based on the state law existing 
at the time of enactment, Congress could easily have found that some 
states did not provide adequate process to parties injured by a state's 
patent infringement. In some cases, state legal remedies for patent 
infringement were nonexistent, while in others, they were seriously 
questionable or otherwise inadequate.'' AAR Brief at 13.
    \108\ See GAO Report, supra note 90, at 2. (Intellectual property 
owners appear to have few proven alternatives or remedies against state 
infringement available if they cannot sue the states for damages in 
federal court.'')
---------------------------------------------------------------------------
    The GAO report recognizes that a State currently cannot be sued for 
damages in federal court except in the unlikely event that the State 
waives its Eleventh Amendment immunity.\109\ Absent such a waiver, the 
GAO states accurately that the intellectual property owner is limited 
to seeking an injunction in federal court against the infringing 
official. GAO correctly terms such injunctions as an ``incomplete 
remedy.''
---------------------------------------------------------------------------
    \109\ See Id. at 15. In this regard, the GAO noted that it did not 
identify any cases in which state defendants in infringement cases had 
waived their immunity in federal court. Thus, without the type of 
incentive built into S. 1611, it should not be anticipated that such 
waivers will be forthcoming.
---------------------------------------------------------------------------
    With regard to the state court proceedings, the GAO's study 
questioned whether litigants would obtain damage awards in such cases 
because of a number of factors: federal preemption of state claims; 
exclusive federal court jurisdiction over federal patent and copyright 
(but not trademark) claims; the absence of recognized causes of action 
under state laws; and the fact that, in addition to their Eleventh 
Amendment immunity, States typically enjoy immunity from suit in their 
own courts via statutory or constitutional provisions.\110\
---------------------------------------------------------------------------
    \110\ See Id. at 3.
---------------------------------------------------------------------------
5. Recital of Congressional Authority
    We urge that the statute, or at least the accompanying legislative 
history, state in unambiguous and unequivocal terms that Congress is 
relying on its 14th Amendment enforcement powers in abrogating State 
sovereign immunity. The Court's treatment of the just compensation 
issue in Florida Prepaid \111\ raises some concern that, in the future, 
the Court may formally break away from its ``no recital'' rule \112\ 
and require Congress expressly to refer to the relevant constitutional 
provisions when seeking to enact ``appropriate'' remedial legislation 
under Section 5 of the 14th Amendment. To avoid any such problem here, 
Congress should clearly and explicitly state its reliance on its 
Section 5 power to enforce the due process and takings clauses.
---------------------------------------------------------------------------
    \111\ In Florida Prepaid, the majority refused to consider the Just 
Compensation Clause as a basis for upholding the PRA because Congress 
had explicitly invoked its Article I and Due Process Clause powers and 
had made no reference to the Just Compensation Clause. Florida Prepaid, 
527 U.S. at 642 n. 7.
    \112\ Prior to Florida Prepaid, long-standing precedent held that 
Congress is not required to recite the source of the constitutional 
power on which it relies. See Woods v. Cloyd W. Miller Co., 333 U.S. 
138, 144 (1948) (``(t)he constitutionality of action taken by Congress 
does not depend on recitals of the power which it undertakes to 
exercise''). Accord EEOC v. Wyoming, 460 U.S. 226, *243 n. 18 (1983). 
Under this precedent, it was of no consequence that Congress did not 
allude expressly to Section 5 when it enacted the CRCA, but did 
explicitly invoke Section 5 when it passed the PRA.
---------------------------------------------------------------------------
6. ``Property'' For Purposes of the Due Process and Takings Clauses
    The Court's Florida Prepaid and College Savings decisions leave 
little doubt that copyrights, patents and, presumably, trademarks are 
considered property for purposes of the Due Process Clause. 
Nonetheless, out of an abundance of caution, the accompanying 
legislative history should: (1) refer to the Court's discussion of the 
``property'' issue in both Florida Prepaid and College Savings; and (2) 
review the general treatment in law of intellectual property as 
property.\113\
---------------------------------------------------------------------------
    \113\ For example, the legislative history might set forth 
Congress' understanding that property is properly viewed as a bundle of 
rights which, in general, have three characteristics-the right to 
assign, the right to exclude others from use and the right to inherit-
and that copyrights, patents and trademarks possess all three of these 
characteristics. Cf. College Savings, 527 U.S. at 673 (casting 
trademarks as property); Florida Prepaid, 527 U.S. at 642 (casting 
patents similarly). With respect to copyrights, see, e.g., Holmes v. 
Hurst, 174 U.S. 82, 84-86 (1899) (describing the ancestry of copyright 
in the common law as a species of property); Paige v. Banks, 80 U.S. 
608, 614 (1871) (``Independent of any statutory provision the right of 
an author in and to his unpublished manuscripts is full and complete. 
It is his property . . . .''); Mitchell Bros. Film Group v. Cinema 
Adult Theater, 604 F.2d 852, 858 n. 8 (5th Cir. 1979) (stating that 
``the large amounts of capital presently invested in disseminating 
information and thought in newspapers, magazines, books, movies, and 
other forms of copyrightable material would flow elsewhere if there 
were no property right to protect the value of these investments.'') 
(emphasis added).
---------------------------------------------------------------------------
             c. codification of the ex parte young doctrine
    S. 1611 properly calls for the codification of the Ex parte Young 
doctrine. Under this doctrine, an injured party can sue to enjoin a 
State official from violating federal law, even though the State itself 
remains immune from suit. In Ex parte Young, the Court held that State 
officials are stripped of any sovereign immunity when they perform acts 
that violate valid federal law:

        If the Act which the state Attorney General seeks to enforce be 
        a violation of the Federal Constitution, the officer in the 
        proceeding under such enactment comes into conflict with the 
        superior authority of that Constitution, and he is in that case 
        stripped of his official or representative character and is 
        subject in his person to the consequences of his individual 
        conduct.\114\
---------------------------------------------------------------------------
    \114\ 209 U.S. at 159-160.
---------------------------------------------------------------------------
    The Court has frequently alluded to the Ex parte Young doctrine as 
a means by which private parties can obtain relief against State 
officials for violations of federal law. Most recently, the Court in 
Alden v. Maine, citing Ex parte Young, noted that sovereign immunity 
``does not bar certain actions against State officers for injunctive or 
declaratory relief.'' \115\ Nonetheless, two recent Court decisions, 
Seminole Tribe of Florida v. Florida,\116\ and Idaho v. Coeur d'Alene 
Tribe of Idaho,\117\ have raised concerns that, in some situations, the 
doctrine may not continue to provide the scope of relief it has 
afforded private parties in the past.
---------------------------------------------------------------------------
    \115\ Alden, 527 U.S. at 757.
    \116\ 517 U.S. 44 (1996).
    \117\ 521 U.S. 261 (1997).
---------------------------------------------------------------------------
    In Seminole Tribe, the Court found the doctrine inapplicable where 
Congress creates a detailed remedial scheme for the enforcement of a 
particular federal right. In such instances, the Court ``hesitates'' to 
allow a different and potentially broader remedial path under Ex parte 
Young.\118\ Thus, there is concern that the more elaborate the remedial 
scheme accompanying a federal statute, the less likely a court will be 
to find the doctrine applicable. To avoid that result here, Section 4 
of S. 1611 simply codifies the Ex parte Young doctrine so as to ensure 
its continued applicability in the future.
---------------------------------------------------------------------------
    \118\ See Seminole Tribe, 517 U.S. at 74.
---------------------------------------------------------------------------
    In Idaho v. Coeur d'Alene Tribe of Idaho, the Court found the Ex 
parte Young doctrine inapplicable to ``special circumstances'' 
affecting a State's sovereignty.\119\ Moreover, two members of the 
Court stated that, in their view, the Court should engage in an 
exacting case-by-case review before approving an Ex parte Young 
injunction.\120\ Chief Justice Rehnquist and Justice Kennedy opined 
that each potential grant of Ex parte Young jurisdiction should be 
evaluated by balancing the interests served by permitting federal 
jurisdiction against a State's interests in keeping the federal forum 
closed.\121\ Section 4 of S. 1611 is designed to: (1) prevent future 
judicial reliance on a ``special sovereignty'' exemption to the 
doctrine; and (2) preclude the adoption by a Court majority of a case-
by-case approach in intellectual property infringement cases.
---------------------------------------------------------------------------
    \119\ 521 U.S. 261 (1997).
    \120\ Id. at 280.
    \121\ Id. at 278.
---------------------------------------------------------------------------
                               CONCLUSION
    Mr. Chairman, PORA supports the enactment of a constitutional and 
effective response to the Supreme Court's 1999 sovereign immunity/
intellectual property decisions. Your bill, S. 1611, contains the three 
components that we believe should be part of any forthcoming 
legislation in this area--waiver, constitutional abrogation and 
codification of the Ex parte Young doctrine. We also believe that the 
effectiveness of the bill's waiver provision can be enhanced by 
precluding non-waiving States from obtaining damages and injunctions 
when they bring intellectual property infringement suits. We urge the 
Committee to act favorably on this legislation and to take the steps 
necessary to help ensure its enactment in the 107th Congress.

    Chairman Leahy. So you disagree with Mr. Thro's opinion 
regarding the--let me ask you a couple of things, and you, I 
answering this, may want to respond to some of the arguments 
Mr. Thro has made. You have followed the Supreme Court for a 
long time. I saw in your resume you were the Supreme Court note 
editor of the Harvard Law Review, the clerk for Justice 
Frankfurter. You have been in the Office of the U.S. Solicitor 
General. Taught constitutional law for many years. So how do 
you look at the Court's new sovereign immunity jurisprudence? 
Are you surprised at what appears to be a lack of deference 
they have shown to Congress or what?
    Mr. Bender. A number of things. It is really startling 
because it just comes out of the blue. It has no textual 
foundation, and it comes from a Court which people have thought 
was a court that was not an activist court, as you said, and I 
completely agree, that the invention of this sovereign immunity 
jurisprudence, without any textual basis is about as activist a 
step as the Court has ever taken.
    And another aspect of what the Court has been doing 
recently--and I think this is really an important 
characteristic of the Court--is that they seem to have decided 
that it is really important to show control over Congress, and 
the normal kind of deference that we have been used to seeing 
on the Court's part toward congressional legislation just is 
not there any more. You could see it perhaps most prominently 
in a case like Morrison, striking down as unconstitutional part 
of the Violence Against Women Act, where you had explicit 
congressional findings that violence against women, gender 
motivated violence, had a substantial effect on interstate 
commerce. That is the kind of finding which we were brought up 
to think the Court would always defer to. It was not just 
offhand. It was based on lots of hearings, and it was quite 
explicit. And yet the Court said, ``That is what you think, and 
we will decide whether this is substantial enough effect upon 
commerce.''
    The Court's entry into that field again is startling and 
also dismaying, because our experience with that in the early 
part of the 20th century was a very unhappy one, the Court 
striking down State and Federal legislation because of a 
disagreement over a matter of social policy. And it really is 
dismaying to see the Court getting into that area again. So 
both in terms of invention of doctrines that I did not think 
anybody thought existed, especially in light of the Supremacy 
Clause. The Supremacy Clause seems to be a text that is 
directly contrary to the Supreme Court's 1999 trilogy, and yet 
they do not make reference to it.
    Chairman Leahy. After all the discussions about activist 
Supreme Courts, I have not seen anything quite this activist, 
and especially some of these pieces of legislation. I have sat 
through hour upon hour upon hour of hearings, and know that 
there have been hours beyond that. The Court, which lives in, 
by choice, is a very rarified atmosphere, made that decision on 
30 minutes worth of arguments and the briefs that were filed. 
It is an interesting view of things. But it is the law. I 
respect it. I mean no matter how wacky the decision of the 
Supreme Court might seem to me--that is non-legal terminology--
I respect the Court's decision as being the law of the land, 
but that does not mean that I feel that I do not have the right 
to suggest ways to change it.
    Mr. Bender. Well, that is what I think is so good about 
1611, is that it completely adheres to the Supreme Court's 
rules, no matter whether you think the Court is right or wrong, 
I think it is your obligation, all of our obligation to conform 
to what they said, and I think 1611 does that. It follows the 
Court's suggestion abrogation, that Congress can abrogate for 
constitutional violations. It puts into a statute explicitly Ex 
Parte Young, which is the Court's doctrine, and does it for a 
reason that the Court said Congress should respond do. That is, 
if you are setting up remedies in an area and you want Ex Parte 
Young to continue to apply, say so in the legislation, and it 
does that. And it conditions the Federal benefit, intellectual 
property rights, on the State's waiving its immunity from 
remedies under those rights, and that seems to me to be a 
completely reasonable condition on a Federal benefit. It is not 
a taking away from the State anything. It is simply saying, 
``You want to enter this system, you need to do so on the same 
basis as other people. If you do not want to enter the system, 
you do not have to enter the system.''
    So I think it conforms to the Court's rules in every 
respect, and we hope that it will solve the problem.
    Chairman Leahy. Thank you very much. Let me ask Mr. Kirk, 
because unlike the Supreme Court we have to deal with some of 
the real world issues caused by this, and I am thinking of the 
international ramifications of the Florida Prepaid decisions. 
After all, the United States is the largest economy in the 
world. It is involved in international commerce in virtually 
ever state, and our laws and our abilities to enter into 
international agreements on our laws is extremely important. I 
wonder if you think that the loophole created by these 
decisions could make it more difficult for the U.S. to advocate 
the really effective enforcement of intellectual property 
rights in other countries.
    Mr. Kirk. Mr. Chairman, absolutely. We heard from Ms. 
Peters indicating that there has already been this question 
raised in one bilateral discussion. Former Director Dickinson, 
in the year 2000, in testifying on this, indicated that one of 
the members of the TRIPS agreement had questioned the United 
States about whether or not it was in full compliance with 
TRIPS due to the College Savings, Florida Prepaid cases. What 
this hole does is it takes away the moral high ground of the 
United States to urge other nations to protect intellectual 
property as strongly as we would like to see I protected, and 
as strongly as we should protect it here ourselves, and as long 
as this is out there, we are giving those nations an out to use 
to point to, to obfuscate what we are trying to achieve.
    Chairman Leahy. I ask the question because during this week 
I will be meeting with some of the CEOs during this week and 
next of some of our largest holders of intellectual property 
involved in a lot of international dealings. Each one of them, 
I know just from past experience, are going to talk to me about 
the concerns of piracy and unauthorized use of their product in 
other parts of the world. On the one point you want 
international commerce for a number of reasons, both for own 
good, but often for good of the other countries, but you do not 
want international piracy, and especially when it gets into--
well, just take the entertainment world. Music, movies, things 
of that nature, we are talking about billions upon billions of 
dollars. Piracy, which becomes even easier in a digital age, 
becomes more pervasive, actually becomes a lot better and a lot 
more effective in digital age, with everything from pirating 
software to pirating entertainment. At the same time it is 
incumbent upon us and our trade negotiators and even the 
President of the United States, often in meetings with other 
leaders, to argue against piracy, to have the kind of 
protections that can be uniform and forceful so this does not 
happen. So that is why I asked the question. I share your 
feeling, that this creates a real problem for us, and I have 
been told, both publicly in testimony today, but also privately 
by a lot of our negotiators in the administration that it 
creates a problem for them.
    Now, Mr. Schraad, we mentioned this morning the GAO study 
that identified, my notes say 58 lawsuits since January 1985, 
in which a State was a defendant in an action involving the 
unauthorized use of intellectual property. They issued this 
report September 2001. Do you know whether your lawsuit against 
the State of Georgia is reflected in that study?
    Mr. Schraad. Mr. Chairman, it would not be. Our suit was 
filed in November of that same year, so after that report.
    Chairman Leahy. In my legislation, I create this incentive 
for States that waive their immunity in intellectual property 
cases. If they waive their immunity within two years after 
enactment of the bill, then they get all the benefits of the 
Federal intellectual property system. If they choose not to 
waive their immunity, they would be denied the ability to 
recover money damages when their own intellectual property is 
infringed.
    Now, let us say you are back there, Senator Schraad, in the 
Kansas legislature, and this bill was signed into law. What do 
you think your response would be as a State legislator?
    Mr. Schraad. I think I would have to be supportive of it. I 
mean, after all, Mr. Chairman, I think that one of the 
responsibilities of a State legislator is to encourage its 
constituents to follow the law, and that includes copyright 
law. So I think that for a State to use sovereign immunity as a 
shield that would allow them to violate that very same law 
would be--it would not seem fair to me.
    Chairman Leahy. Because I think this question is going to 
be raised more and more, and I want states to have the benefit 
of their own intellectual property rights. If my State 
university uses whatever combination of money, private money 
and State money to develop a technique to--or to develop 
software, develop whatever else on their own, and they have got 
something that is not only usable for them, but they might be--
the University of Kansas might want to buy it, and the 
University of Texas or anywhere else, but also maybe the XYZ 
Corporation, then they ought to be able to get paid for that, 
and they ought to be able to license it and be protected on it. 
But on the other hand, if the XYZ Corporation has developed 
that, I do not think they should be able to just rip it off and 
use it, and say, ``Hey, sovereign immunity.''
    Now, Mr. Thro was talking about the importance of dual 
sovereignty in our constitutional system, and I must say, Mr. 
Thro, I agree with much of what you said. I come from a very 
small State, the second population, the second smallest in the 
country, but it is a proud State. We are the 14th State in the 
Union. The history is both New Hampshire and New York wanted 
Vermont, so we declared ourselves as an independent republic, 
and then said we would be willing to join the Union. Thomas 
Jefferson told George Washington in a letter that he thought 
that might not be a bad idea because he knows the nature of 
Vermonters. It would start a war to get in our way. And having 
won some of the major Revolutionary War battles on Lake 
Champlain and elsewhere, this was not an idle threat.
    So we care about our State. Now, we sometimes do things 
that people might think are a little bit out of the mainstream. 
I cannot think of anything recently, but I am sure we have.
    But an argument that States should not have to play be the 
same rules as private rules, I do not agree with that when you 
are talking about an intellectual property context. If a state 
is going to participate in our IP system, whether by patenting 
or licensing their own inventions, or by stealing the 
intellectual property of somebody else, Mr. Schraad's company 
or anything else, they are not performing a sovereign 
governmental function. I think they are participating in the 
market, and they ought to be subject to the same rules of the 
markets. If they act as market participants, not as sovereigns, 
why should they not be subject to the same rules as anybody 
else? I mean this is like, you know, a church might have 
certain constitutional privileges on taxation and everything 
else, but if they said, ``We are going to buy a Holiday Inn 
franchise and put it up in our parking lot and make money on 
it,'' all of a sudden the rules are a little bit different. I 
mean, why should it not be the same with a State?
    Mr. Thro. Because I do not think you can properly analogize 
the States to private parties. The States----
    Chairman Leahy. Whoa, whoa, whoa, whoa. If they are out 
there buying, selling intellectual property, if they are trying 
to keep protected in their own rights in that, if they want to 
say that the next state cannot rip off something that they have 
a copyright, why are they not acting as private parties?
    Mr. Thro. I think the better analogy is to the other 
sovereign, to the National Government itself, and just as the 
National Government can make determinations as to whether or 
not it is going to assert copyright over, say, U.S. Supreme 
Court reports, and whether or not to enforce its various 
patents and other intellectual properties, the States, as 
sovereigns, have the right to waive sovereign immunity, to 
decide whether or not they wish to assert copyright and patent 
rights over products which are produced with State resources, 
and the policy on that of course varies among the 50 States. 
The better analogy is not to the private parties, but to the 
other sovereign, the National Government.
    Chairman Leahy. But you mean so they can walk in and say, 
``Look, I want all the rules and protections because it 
benefits me, but if you want to walk in that same court, you 
can go straight to hell because I am a sovereign?''
    Mr. Thro. In effect----
    Chairman Leahy. I mean it is a nice deal if you can get it. 
I just do not--I see something a little bit inherently unfair. 
Let us put it another way. You have the William Thro software 
company, and you are working to design something, and you have 
it designed, and the Commonwealth of Virginia is doing the same 
thing. And they just take a look at yours and say, ``We can 
save a whole lot of time here. We will just reverse engineer 
what the William Thro Corporation did, and we will market it at 
12 percent less. And we are going to copyright it.''
    Mr. Thro. I think under those circumstances I would have a 
claim for a constitutional violation. What you have just 
described is no different than the Commonwealth of Virginia 
saying, ``We are going to take your house,'' which is also my 
property, at least to the extent that I have any equity in it. 
The Constitution itself----
    Chairman Leahy. But they can do that under certain 
circumstances.
    Mr. Thro. They can, but they must give me compensation for 
it. And just as if the Commonwealth of Virginia took my new 
software in the manner that you just described, which I believe 
would be a constitutional violation, I would be entitled to 
compensation. Now, whether compensation would be the same as 
what I could get under the Federal intellectual property 
remedies, I think is an open question, but they could not just 
take my property any more than they could just take my house. 
To do so is a constitutional violation and the Constitution 
itself, in the Fifth Amendment and also in the 14th Amendment's 
Due Process Clause, makes the States liable for just 
compensation when they take the property of someone for a 
public purpose, such as taking a farm to build a road.
    Chairman Leahy. As a vendor, do you want to hop into this 
one?
    Mr. Bender. Yes. Well, one thing that Mr. Thro stated which 
I think cuts in favor of your bill rather than against it, is 
that the right analogy is the Federal Government. The Federal 
Government does not claim property and cannot claim property in 
its employees' creations. And if you took that analogy, you 
would say the States could not claim property either, and I 
think it is completely within Congress's power, since it is a 
Federal benefit, to not give the States that. So I do not think 
there is anything wrong with saying to the States, ``Look, we 
do not have to give you intellectual property rights at all. We 
are willing to give them to you, but you have to do them on the 
same terms as everyone else.''
    With regard to the takings point, it might be that the 
Supreme Court will ultimately say that, the Takings Clause can 
be used to deal with a lot of these infringements. The problem 
is we just do not know that, and we probably will not know that 
for a long time. In the College Savings Bank trilogy the Court 
refused to consider the takings ground.
    By the way, another example of the changing attitude of the 
Court, normally in the past, the Court has considered all 
constitutional bases on which legislation might be premised, 
even if Congress did not mention those bases. Here the Court 
said, in College Savings Bank, ``Well, there might be a takings 
violation, a takings problem here, but we are not going to 
consider it because Congress did not say it was acting under 
the Takings Clause.'' We do not know what the Court is going to 
do with that. Conceivably, it might turn out in 10 years that 
the Takings Clause would solve most of these problems, but in 
the interim everything would be uncertain, and so I think it is 
wise to put in the waiver provision in order to encourage 
States to enter the system on the same basis as everyone else 
so that you do not have to explore the difficulties of takings.
    And even with regard to the a due process violation, the 
Court is unclear about exactly what amounts to a due process 
violation. An example that you gave of the State knowing that 
something was copyrighted and deliberately taking it may or may 
not be a constitutional violation under the Court's present 
jurisprudence. The unknown is whether the State has to not only 
know that what it is taking is copyrighted, but know that the 
copyright is valid and what it is taking constitutes an 
infringement. That is, that they have to make a legal judgment 
in order to violate the Constitution, and the Court is unclear 
about that as well.
    So the waiver provision makes those things much less 
important. If you are left just with abrogating for 
constitutional violations the rules would be extremely unclear, 
and it would be up to the Court over the next years to clarify 
those.
    Chairman Leahy. Thank you. Well, I guess I am going to let 
you have that as the last word.
    But I also want all of you to know that the record stays 
open. Certainly, you see your own testimony. If you look at 
that and you think that there is something that you meant to 
have said, add a citation or clarify the point when you get 
your testimony. This is not a ``gotcha'' kind of a hearing. 
Just be sure and add that. Just note that you are adding 
something to it.
    I appreciate the amount of time all of you have taken, and 
also all the amount of time you have taken with Ms. Katzman in 
my office, who has spent a tremendous amount of time putting 
this hearing together, which I also appreciate.
    But thank you for doing that. Look at what we have here. Do 
not hesitate, any one of you, to add further material for this. 
I do want the legislation. I do want constitutional 
legislation. I do want also though to put us in the position 
where if we are going to be negotiating with 100 plus other 
countries on enforcement of our intellectual property laws, I 
want to make sure we are able to do it in the strongest 
possible way.
    So we stand in recess and I thank you all very much.
    [Whereupon, at 11:46 a.m., the committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

                         QUESTIONS AND ANSWERS

    Responses of Paul Bender to questions submitted by Senator Leahy

    Question 1: In your view, is Congress constitutionally required to 
let States create, own, and enforce intellectual property rights? 
Please explain your response.
    Answer: Congress is not constitutionally required to enact any 
federal intellectual property laws, nor is it required to give the 
States the ability to create, own and enforce federal intellectual 
property rights under those laws. Congress has the power, if it wishes, 
to create such rights pursuant to Article I, Section 8, clauses 3 and 8 
of the Constitution, but it has no obligation to do so. Moreover, when 
Congress does decide, as it has, to establish federal intellectual 
property rights, it need not extend these rights to governmental 
materials. Congress has, for example, made federal statutory copyright 
protection unavailable for works of the United States government. See 
17 U.S.C. Sec. 105. Congress could accord similar treatment to the 
works of State governments.

    Question 2: Please elaborate on your hearing response to Mr. Thro's 
constitutional analysis of S. 1611. In particular, how do you response 
to Mr. Thro's arguments that S. 1611 (1) impermissibly forces states to 
waive their sovereign immunity and (2) violates the doctrine of 
unconstitutional conditions.
    Answer: S. 1611 does not force States to waive their sovereign 
immunity. Pursuant to S. 1611, any State may, if it wishes, retain its 
full immunity simply by declining to waive it. Rather than forcing the 
States into waiver or any other action, S. 1611 gives the States the 
option of participating in the federal intellectual property system on 
the same basis as all other participants. States remain entirely free 
to choose to not to participate. If they do, their immunity remains in 
full force.
    The defect in Mr. Thro's analysis lies in his incorrect assumption 
that States have an inherent right to federal intellectual property 
protection. He reasons from this assumption that S. 1611 would require 
the States to choose between forfeiting that inherent property right or 
waiving their constitutional sovereign immunity right.
    States, however, have no inherent right to federal intellectual 
property protection--such protection is a federal benefit that Congress 
may or may not choose to make available to individuals, entities and 
governmental units. Nor is any unconstitutional condition imposed by 
offering States the opportunity to obtain the benefits of the federal 
intellectual property system on the same basis as those benefits are 
unconstitutional ``depends on whether government may properly demand 
sacrifice of the ed. 1988). The requirement that States that wish to 
obtain to benefits of the federal intellectual property system agree to 
bear the responsibilities of that system is both reasonable and proper.

    Question 3: Please explain why you believe that the constitutional 
abrogation provision of S. 1611 need not be supported by the type of 
extensive record of violations that the Court has found necessary to 
support abrogation of sovereign immunity in other contexts.
    Answer: The abrogation provision of S. 1611 removes State sovereign 
immunity only for specific, proven violations of the Fourteenth 
Amendment. Section 5 of the Fourteenth Amendment expressly gives 
Congress the power to provide appropriate remedies for such violations. 
Section 5 remedies may override State immunity because the Fourteenth 
Amendment was specifically intended to permit Congress to limit State 
action. See Fitzpatrick v. Bitzer, 427 U.S. 445 (1976). Congress' 
Section 5 enforcement authority therefore clearly extends to the 
provision of remedies imposed directly on the States for proven, 
specific State constitutional violations.
    The cases in which the Supreme Court has held that congressional 
abrogation of State sovereign immunity must be supported by a record of 
constitutional violations have, by contrast, involved federal 
legislation that sought to abrogate State immunity for all violations 
of the statute in question, not merely for unconstitutional violations 
of that statute. In those circumstances-i.e., where the abrogating 
legislation seeks to provide remedies for State actions that are not 
themselves unconstitutional-the Court has required a legislative record 
of constitutional violations in order to ensure that the Congressional 
response is appropriate and proportional to the constitutional problem. 
City of Boerne v. Flores, 521 U.S. 507 (1997). No such requirement 
exists where the remedies provided by Congress apply only to specific, 
proven State Fourteenth Amendment violations.

                                

    Responses of Paul Bender to questions submitted by Senator Hatch

    Question: As I understood your testimony, Professor Bender, the 
operative question for Congress is not whether members of Congress 
agree with the Court's sovereign immunity/intellectual property 
decisions, but whether the legislation as drafted is consistent with 
those rulings. Is that correct?
    Answer: Whether or not one agrees with the Supreme Court's 1999 
sovereign immunity decisions, the task before Congress is to craft 
legislation that is consistent with those decisions. S. 1611 is fully 
consistent with the Court's sovereign immunity decisions and can be 
supported by Senators who agree with the Court's sovereign immunity 
jurisprudence. S. 1611's abrogation provision follows the Court's 
Florida Prepaid and College Savings decisions that Congress may 
abrogate State immunity for specific, proven State violations of the 
Fourteenth Amendment. S. 1611's codification of the doctrine of Ex 
parte Young, 209 U.S. 123 (1908), conforms to the Court's view that 
Congress may decide whether or not a new statutory remedial scheme is 
to supplant the Ex parte Young remedy. See Seminole Tribe of Fla. v. 
Fla., 517 U.S. 144 (1997). Finally, S. 1611's voluntary waiver 
provisions are consistent with the Court's repeated holdings that 
States may, if they wish, waive their immunity so long as they do so 
knowingly and voluntarily.

    Question 1: Some have suggested that no legislation is needed 
because rights holders can obtain injunctive relief against an 
offending state actor. Please indicate whether you agree and explain 
why you believe such injunctive relief is or is not adequate.
    Answer: There are two critical reasons why Ex parte Young 
injunctions are not standing alone-an adequate remedy for rights 
holders whose works are infringed by States.
    First, injunctions by themselves do not adequately protect the 
interests of rights holders. This is the conclusion that the 101th 
Congress reached when it enacted the Copyright Remedy Clarification Act 
in 1990. The legislative history of that Act is replete with statements 
underscoring that conclusion. For example, this Committee found that:
    Injunctive relief for copyright violations does not provide 
adequate compensation or effective deterrence for copyright 
infringement. . . . Injunctions only prohibit future infringements and 
cannot provide compensation for violations that already occurred. S. 
Rep. No. 101-305, at 12 (1989).
    The reasons that motivated the 101th Congress to conclude that 
injunctions are not, alone, an adequate remedy are equally applicable 
today. In fact, it is fair to say that the inability to obtain money 
damages is even more problematic today than in 1990. Today, the 
Internet enables immediate worldwide distribution of copyrighted works. 
Rights holders whose markets are eviscerated by digital piracy can take 
little solace in an injunction that takes effect after the damage is 
done. Well before the digital sea change, Congress recognized that 
compensation to copyright owners was of sufficient importance that it 
created a statutory damage system compensating the owner even when the 
plaintiff cannot establish the fact or amount of damages.
    Second, as discussed in greater length in my written statement, it 
is unfair for rights holders to be limited to injunctive relief against 
States while States can avail themselves of the full panoply of 
remedies available under the Copyright Act, including money damages as 
well as injunctions. States are major users and owners of copyrighted 
works. States register their own works with the Copyright Office, and 
have formed private-public partnerships to exploit their intellectual 
creations. As the recent University of Texas case shows,\1\ they will 
aggressively use the courts to seek monetary compensation when they 
believe their rights have been infringed. When States infringe rights, 
however, property owners currently cannot obtain similar monetary 
compensation. The unfairness of the current legal situation is 
highlighted by the predicament of businesses like Mr. Schraad's that 
cannot recover damages against the State even if substantial economic 
harm has been caused by their property being placed in software `pools' 
to be shared among a number of State ``clients'' without authorization.
---------------------------------------------------------------------------
    \1\ See The Wall Street Journal (Feb. 12 2002).

    Question 2: Professor Bender suggested that S. 1611 could be 
improved by an amendment that did not allow states that do not waive 
their sovereign immunity to be able to sue for either damages or 
injunctions. Would the provisions be a good or a bad idea on public 
policy grounds? Would it make any difference in the constitutionality 
of the bill? And would such a provision be better drafted to state that 
non-waiving states will simply not have access to the federal courts to 
enforce property rights?
    Answer: Precluding non-waiving States from obtaining injunctions as 
well as damages is sound public policy, for several reasons. Although 
injunctions are not, by themselves, adequate remedies in many 
situations, they are an important component of an adequate remedial 
scheme. Conditioning the right to obtain injunctions on the State's 
waiver of sovereign immunity will therefore provide an important reason 
for States to choose to participate fully and equally in the federal 
intellectual property system. On the other hand, if States can continue 
to obtain injunctions while simultaneously asserting their immunity 
from damages, they will unfairly enjoy a privilege open to no other 
participant in that system.
    Congress need not permit States to participate at all in the 
federal intellectual property system. Having decided to permit State 
participation, Congress may, in order to avoid unfairness, require all 
participants in the system, including States, to participate on the 
same basis-to enjoy the same benefits only while being subject to the 
same responsibilities. Congress cannot require State participation in 
the federal intellectual property system, but it can refuse to permit 
States to participate unless they do so on an equal basis. Conditioning 
a State's ability to obtain declaratory or injunctive relief on its 
waiver of immunity from damages would not, therefore, create any 
constitutional doubts.
    The provision we recommend-barring non-waiving States from 
obtaining injunctive relief against threatened or ongoing 
infringements-should also include a ban on declaratory relief against 
an alleged infringer of federal intellectual property rights. Such a 
provision could be drafted so as completely to bar access to federal 
court, rather than to bar access to specified remedies. There may, 
however, be situations in which a non-waiving State should 
appropriately have federal court access. One such situation may occur 
where state officials are threatened with suit for an alleged 
infringement. If the State believes that its officials' conduct does 
not constitute an infringement, the State might wish to seek a federal 
declaratory judgment to that effect. There seems no reason to bar a 
non-waiving State from such wholly defensive relief:
    If the Committee agrees with our suggestion of adding injunctive 
and declaratory relief to the remedies not available to non-waiving 
States, we would be happy to work with the Committee to craft language 
that accomplishes that result.

    Question 3: If Congress can confer federal intellectual property 
protections to States, can it condition application for federal 
protection at the USPTO or Copyright Office on waiver of immunity? 
Would it be preferable on policy grounds to structure such a condition 
as an application provision, as part of the federal application and 
review process, or simply as a substantive statutory condition to be 
raised and decided only in litigation?
    Answer: As discussed above, Congress can prospectively refuse to 
grant non-waiving States copyright protection. It can, therefore, 
condition the ability to apply for federal intellectual property rights 
on a waiver of state immunity. But PORA believes that the route 
followed in S. 1611-denying remedies rather than the ability to apply 
for benefits-is the better approach.
    In PORA's view, there are three main problems with tying the waiver 
to the application for federal benefits. The first involves the 
existing differences in state immunity laws. Some States permit waiver 
of the state's immunity by the state attorney general. Others, like 
West Virginia, require an amendment to the state constitution. Under 
the latter type of system, a registration for a copyright purporting to 
waive the State's immunity probably would not effectively bind the 
State.
    Second, tying the waiver to the application would result in 
different treatment for copyrights, on one hand, and patents on the 
other. Whereas copyright protection attaches upon fixation, patent 
protection requires the acceptance of an application by the Patent and 
Trademark Office. Thus, if waiver were tied to the application for 
protection, copyright owners could claim protection and exploit their 
works, but patent applicants could not.
    Third, as was recognized during the discussion regarding S. 1835 in 
the 106th Congress, tying waiver to the application process could 
impose significant additional administrative burdens on the PTO and 
Copyright Offices.

    Question 4: Mr. Schraad discussed his company's dispute with the 
State of Georgia. How would S. 1611, as now drafted, help Mr. Schraad's 
company in that dispute? Are there ways to modify S. 1611 so that it 
would better help them and similarly situated companies?
    Answer: S. 1611 might help Mr. Schraad's company in several 
respects. In the short term, S. 1611 would permit the recovery of 
damages from non-waiving States for constitutional violations. Thus, if 
Georgia were shown to have violated the company's constitutional 
rights, and no adequate state remedy was shown to exist in Georgia, 
monetary damage recovery would be available under S. 1611. S. 1611 
would also ensure that Mr. Schraad and others like him could obtain 
injunctions against future infringing acts through codification of the 
Ex parte Young doctrine. The greatest long term help that S. 1611 would 
offer to companies like Mr. Schraad's is that if States like Georgia 
choose to participate in the federal intellectual property system on a 
full and equal basis, Mr. Schraad's company will become able to obtain 
the full range of statutory remedies for any future infringements.

    Question 5: Is there any way for States to provide adequate 
remedies against State infringement in an intellectual property system 
that is almost wholly federal?
    Answer: PORA does not believe the States can grant adequate 
remedies for copyright infringement. When Congress enacted the 1976 
copyright revision, it expressly intended to create a uniform system of 
copyright protection and foresaw two benefits of particular relevance: 
(1) avoiding the practical difficulties of enforcing an author's rights 
under a different regime in every State; and (2) aiding the United 
States in international copyright negotiations. See H. Rep. No. 94-
1476, at 129 (1976). For these reasons, Congress rejected granting 
concurrent jurisdiction to state courts when it enacted the Copyright 
Remedy Clarification Act in 1990. See H. Rep. No. 102-282, at 9 (1989).
    In pursuance of Congress' desire for uniformity, Section 301 of the 
Copyright Act preempts all state causes of actions that involve the 
subject matter of copyright and that provide rights equivalent to those 
provided by the federal Copyright Act. Any attempt to permit adequate 
state remedies for copyright infringement would require significant 
modification of this preemption provision, with consequent damage to 
the uniformity objective. Moreover, since state legal principles in 
this area have been preempted for many years, the content of those 
state principles would be highly uncertain if they were to be revived 
now solely for purposes of permitting actions against States. The 
adequacy of such State remedies would vary from State to State and 
would continue to be speculative for a considerable period of time.

                                

  Responses of Marybeth Peters to questions submitted by Senator Hatch

    Question 1: Some have suggested that no legislation is needed 
because rights holders can obtain injunctive relief against an 
offending state actor. Please indicate whether you agree and explain 
why you believe such injunctive relief is or is not adequate.
    Answer: The Copyright Office does not believe that injunctive 
relief alone is sufficient relief for copyright owners and therefore 
strongly believes that legislation is necessary and appropriate. 
Injunctive relief is only a useful remedy to prevent future 
infringement of the same work. While an injunction will prevent future 
infringements, it provides no remedy for infringements that have 
already taken place. If the infringement involves only a one-time 
copying, an injunction is irrelevant because the copy has already been 
made and the sale of a legitimate product displaced. Similarly, 
infringements may go on for extended periods of time without the 
knowledge of but to the great detriment of the copyright owner. 
Copyright owners whose works have been misappropriated are entitled to 
compensation for their losses. Finally, injunctions provide no 
deterrent to infringement. If no monetary remedies are available, a 
potential infringer knows that the only consequence of being caught is 
an order to stop and therefore has little incentive to avoid 
infringement.

    Question 2: Professor Bender suggested that S. 1611 could be 
improved by an amendment that did not allow states that do not waive 
their sovereign immunity to be able to sue for either damages or 
injunctions. Would the provisions be a good or a bad idea on public 
policy grounds? Would it make any difference in the constitutionality 
of the bill? And would such a provision be better drafted to state that 
non-waiving states will simply not have access to the federal courts to 
enforce property rights?
    Answer: The proposal to condition injunctive relief as well as 
monetary relief on waiver of sovereign immunity by States is based on a 
desire to increase the incentive for States to waive. We are optimistic 
that conditioning monetary relief alone will be successful in 
encouraging States to level the playing field by waiving their 
immunity. States derive significant revenue from the commercial 
exploitation of their intellectual property. The price of being unable 
to obtain monetary relief for the infringement of future intellectual 
property should give them good cause to consider accepting the bargain 
that Congress offers with this legislation.
    Of course, States would have even greater incentive to waive their 
immunity if their ability to obtain injunctive relief was also 
conditioned on such waiver. And we believe that Congress would be 
within its constitutional authority to do just that. However, we 
recognize that the current Supreme Court gives great deference to state 
prerogatives and that a strengthening of the incentives in S. 1611 
would also increase the chances that the legislation would be found 
unconstitutional as an impermissible compulsion of States.
    We are supportive of S. 1611 and believe it contains the right 
balance and structure. However, if such an amendment were to be made to 
S. 1611, the Copyright Office believes that it would most easily and 
effectively be drafted as a limitation on remedies, stating that non-
waiving states may not obtain injunctions or monetary relief as a 
remedy to infringement of works created after the enactment of the 
bill.

    Question 3: If Congress can confer federal intellectual property 
protections to States, can it condition application for federal 
protection at the USPTO or Copyright Office on waiver of immunity? 
Would it be preferable on policy grounds to structure such a condition 
as an application provision, as part of the federal application and 
review process, or simply as a substantive statutory condition to be 
raised and decided only in litigation?
    Answer 3: The Constitution grants to Congress the authority ``To 
promote the Progress of Science and useful Arts, by securing for 
limited Times to Authors and Inventors the exclusive Right to their 
respective Writings and Discoveries. . . .'' \1\ Of course, we 
recognize this as the authority by which Congress may provide copyright 
protection for qualifying works. This authority is entirely permissive. 
Congress may choose not to extend copyright protection at all, it may 
extend that protection subject to certain conditions, or it may extend 
that protection only to certain classes of authors. A particularly 
relevant example is the choice that Congress has made to withhold 
copyright protection from ``any work of the United States Government. . 
. .''\2\ Similarly, Congress may withhold copyright protection from any 
work of any state government. That it has chosen not to do so to date 
represents a gift from the Congress to the States. And, as the Supreme 
Court has opined, Congress may condition the grant of such a gratuity 
upon a State's waiver of its sovereign immunity in the directly related 
field of suits for monetary relief under the Federal intellectual 
property laws.\3\
---------------------------------------------------------------------------
    \1\ U.S. Const. Art. I, sec. 8.
    \2\ 2 17 U.S.C. Sec. 105.
    \3\ College Savings Bank v. Florida Prepaid Postsecondary Educ. 
Expense Bd., 527 U.S. 666, 686-87 (1999).
---------------------------------------------------------------------------
    The structure of such a condition would surely be better as a 
substantive statutory condition rather than as a condition of 
application. S. 1611 follows the substantive statutory condition model 
with the result that the bill is clear, understandable, and comports 
with current Supreme Court precedent. Placing the focus of the 
condition on the application process, on the other hand, would be 
confusing to applicants, difficult for the intellectual property 
agencies to implement, ambiguous to right holders, and ultimately 
unproductive.
    It is no simple matter to ask applicants to indicate whether they 
are state entities or state employees acting within the scope of their 
duties who fall within the umbrella of that state's sovereign immunity 
and, if so, whether their state has effectively waived its sovereign 
immunity to suits for monetary relief for infringements of federal 
intellectual property. Many of those applicants will be confused by 
this question. Those who think it has no relevance to them may simply 
ignore it. Those who are using old registration application forms may 
not even know of a new requirement to answer this question.
    Currently, the Copyright Office will accept an application using 
any form it has used since 1978. Adding a sovereign immunity question 
would require us to reject all previous application forms. To 
illustrate how substantial a problem that would pose for applicants, 
when the Copyright Office raised the application fee by $10 in 1999, 
despite substantial public education efforts well in advance of the 
effective date of the increase, the Office experienced insufficient fee 
submissions for over half the applications filed for months after the 
fee increase took effect. For each application which fails to include 
or answer a new sovereign immunity question, the examiner will need to 
contact the applicant for additional paperwork. Given that the 
Copyright Office processes over 600,000 registrations every year, the 
scope of this problem becomes clear.
    The longstanding practice in the Copyright Office is to accept at 
face value the factual assertions of the applicant regarding the 
identity of the author, the nature of the authorship, the date of 
publication, and so on, unless there is something in the application or 
on the face of the work that appears to contradict those assertions. 
The applicant is the person in the best position to know these facts 
and we rely on them to do so accurately. Of course, there are penalties 
for the rare case of material misrepresentation. We do not 
independently research and verify the identity of every author or other 
such assertions, nor do we have the resources to do so.
    The status of the author as a state entity and the waiver status of 
the relevant State are not facts that the person preparing the 
application, who may be a paralegal or an other employee with limited 
knowledge and authority--is in a good position to know. With the 
addition of a requirement that applicants make these judgements, the 
Office would then be faced with the choice of accepting at face value 
the assertions regarding sovereign immunity regardless of their 
unreliability or of conducting its own investigation.
    For the Copyright Office to conduct its own investigation would 
involve the impossible task of evaluating which applicants are in fact 
state entities or which state employees acting within the scope of 
their duties fall within the umbrella of that state's sovereign 
immunity. For example, how is an examiner to know whether either the 
Pennsylvania State University or the University of Pennsylvania or both 
meet these criteria? How is an examiner to know whether a particular 
junior college or vocational school is considered a state entity, when 
the rules vary from State to State? Is the applicant employed by a 
State, and if so, was the work in question created as part of the 
applicant's official duties? Has a given State waived its immunity and 
is that waiver legally effective? Even those who may be employed by a 
state institution are not likely to be familiar with the status of that 
institution vis-a-vis sovereign immunity and are even less likely to 
know whether their state has waived its immunity in the necessary 
manner and scope. In order responsibly to implement a waiver condition 
as an application provision, the Office would have to try to make 
determinations on all of these examples and infinitely more. Mistakes 
and inconsistencies would be inevitable, to the detriment of right 
holders.
    At a time when we are trying to streamline the registration 
process, imposing such a requirement will only complicate and elongate 
the process, with little benefit to be gained in exchange for the 
burdens of implementation.
    Whether the conditioned protection is part of the application 
process or not, the final authority regarding the status of 
registrations will be the courts. It will be left to them to determine 
whether an author is within the umbrella of state immunity and whether 
that State has effectively waived it immunity. Resolution of these 
issues is fact-specific and can best be accomplished on a case-by-case 
basis by a court--the institution best suited to engage in 
determination of the facts and application of the law. Given this, we 
believe it is far preferable to leave the matter entirely to the courts 
rather than to create a complicated and confusing process that would, 
in any event, be only a prelude to ultimate resolution by the courts.

    Question 4: Mr. Schraad discussed his company's dispute with the 
State of Georgia. How would S. 1611, as now drafted, help Mr. Schraad's 
company in that dispute? Are there ways to modify S. 1611 so that it 
would better help them and similarly situated companies?
    Answer 4: Literally speaking, S. 1611 as drafted would not help Mr. 
Schraad because the bill has no retroactive application and Mr. 
Schaad's dispute has already arisen. However, if S. 1611 becomes law, 
people in the future who are similarly situated to Mr. Schaad will 
enjoy the full range of remedies for infringement under the Copyright 
Act against any State which has chosen to waive its immunity in light 
of the incentives in S. 1611.
    Congress could amend S. 1611 so that it is explicitly retroactive. 
However, such an amendment would likely generate substantial 
controversy and would probably increase the likelihood that the law 
will be found unconstitutional. Accordingly, the Copyright Office does 
not recommend such an amendment.

    Question 5: Is there any way for States to provide adequate 
remedies against State infringement in an intellectual property system 
that is almost wholly federal?
    Answer 5: In order for States to provide adequate remedies, the 
federal copyright and patent laws would have to be amended to allow 
States to grant jurisdiction to state courts to hear cases brought 
under those laws. To be effective, the States would also have to waive 
their sovereign immunity in their own state courts.
    This scenario is undesirable given the lack of expertise among 
state court judges in intellectual property. It would also be 
problematic because there would be no effective avenue for federal 
judicial review of state court decisions. The result would inevitably 
be an inconsistent application of copyright and patent laws. Given that 
all these negative aspects would accompany a system which still 
depended on the waiver of sovereign immunity by States, the Copyright 
Office believes that the remedies should remain in federal court and 
the focus should be on convincing States to waive their immunity.

    Question 6: Are you aware of any further cases on matters relevant 
to the scope of the General Accounting Office study on this matter that 
have arisen since that report was issued last fall?
    Answer 6: No. The Office does not collect information relating to 
assertions of sovereign immunity by States or allegations of copyright 
infringement by States.

    Question 7: Is there any other issue or comment you would like to 
add for the completeness of the hearing record?
    Answer 7: No.

                                

  Responses of William E. Thro to questions submitted by Senator Leahy

    Question 1: In your view, is Congress constitutionally required to 
let States create, own, and enforce intellectual property rights? 
Please explain your response
    Answer: If Congress exercises its powers over intellectual 
property, then I believe that Congress is constitutionally required to 
let the States create, own, and enforce intellectual property rights.
    To explain, the Article I intellectual property clausel \1\ gives 
Congress exclusive power over intellectual property. There is no 
requirement that Congress use its powers over intellectual property. 
Congress could decide that no person or entity will be allowed to 
create, own, or enforce intellectual property rights.
---------------------------------------------------------------------------
    \1\ See U.S. Const. art. I, Sec. 8, cl. 8.
---------------------------------------------------------------------------
    Of course, if Congress chooses to use its powers over intellectual 
property, it is limited by the Constitution. For example, Congress 
could not forbid Roman Catholics from creating, owning, or enforcing 
intellectual property rights. Such a restriction would violate the 
First Amendment.
    Moreover, if the Constitution limits the exercise of the 
intellectual property power, then the Constitution precludes Congress 
from undermining the inherent sovereignty of the States. Quite simply, 
except where it is necessary to enforce the substantive guarantees of 
the Fourteenth Amendment, Congress may not undermine the inherent 
sovereignty of the States.
    This limitation, which is derived from the structure of the 
Constitution, is just as much a part of the Constitution as the First 
Amendment or any other restriction on the powers of the National 
Government.
    Finally, if the inherent sovereignty of the States limits the 
intellectual property power, then Congress may not prohibit the States 
from creating, owning, or enforcing intellectual property rights. To do 
so would be no different from saying that Roman Catholics cannot 
create, own, or enforce intellectual property rights.

    Question 2: Much of your argument for why States should be immune 
from infringement lawsuits seems to rest on the assumption that all 
such lawsuits against the States are frivolous. For example, in your 
written testimony, you called sovereign immunity ``a State's best 
defense to frivolous lawsuits designed to exact a quick settlement from 
the deep pocket of the State treasury.'' Assume for a moment that an 
intellectual property owner has a non-frivolous infringement claim 
against a State. As a policy matter, why should the State be immune 
from suit?
    Answer: As an initial matter, I fear that you have misunderstood 
certain aspects of my written testimony. I did not mean to suggest that 
all or even most of the small number of intellectual property suits 
against the States were frivolous. Obviously, there are some claims 
that do have merit. Rather, I simply meant to point out that the 
States, as deep pocket entities that cannot go bankrupt, are frequently 
subjected to frivolous claims from parties desiring a quick and 
lucrative settlement. This is true not only in the context of 
intellectual property, but with respect to other areas of the law as 
well. I am sure that any of the State Attorneys General would agree 
with that point. Moreover, one of the best defenses to such suits is 
sovereign immunity. The litigation can be disposed of quickly and with 
little cost to the taxpayers. I am sure that the Attorneys General 
would agree with me on that point as well.
    Before turning to your question on policy, I would like to address 
a more fundamental question. That question is which sovereign, the 
States or the National Government, is best empowered to make policy 
judgments about the sovereign immunity of the States. Senate Bill 1611 
implicitly assumes that the National Government can best make that 
policy judgment. I respectfully disagree. I believe that the State 
Legislatures are the best qualified to make policy judgments about the 
sovereign immunity of the States. Similarly, I believe that Congress, 
not the State Legislatures, is best qualified to make policy judgments 
about the sovereign immunity of the National Government. In short, each 
sovereign's legislature should decide its policy with respect to 
sovereign immunity.
    Of course, allowing the States to decide would make things more 
difficult for the owners of intellectual property. It is far easier to 
convince Congress that Georgia should be liable to Mr. Schraad's 
company then it is to convince the Georgia Legislature that tax money 
should be diverted from health care and schools to pay Mr. Schraad's 
company. Based on the States' responses to tort claims, it seems safe 
to assume that the States would have a variety of responses. Some 
States would waive their sovereign immunity and others would refuse. 
Many would partially waive, imposing a limit on the amount of damages 
or dictating special procedures for suits. While this lack of 
uniformity would be frustrating, it is the price that our society pays 
for preserving liberty through a federal system.
    Once it is determined which sovereign will decide the policy issues 
related to the sovereign immunity of the States, then I think the 
policy arguments for immunity are clear. Perhaps, the Supreme Court 
itself gave the best explanation when it observed:

        Underlying constitutional form are considerations of great 
        substance. Private suits against nonconsenting States-
        especially suits for money damages-may threaten the financial 
        integrity of the States. It is indisputable that, at the time 
        of the founding, many of the States could have been forced into 
        insolvency but for their immunity from private suits for money 
        damages. Even today, an unlimited congressional power to 
        authorize suits in state court to levy upon the treasuries of 
        the States for compensatory damages, attorney's fees, and even 
        punitive damages could create staggering burdens, giving 
        Congress a power and a leverage over the States that is not 
        contemplated by our constitutional design. The potential 
        national power would pose a severe and notorious danger to the 
        States and their resources.
        A congressional power to strip the States of their immunity 
        from private suits ... would pose more subtle risks as well. 
        ``The principle of immunity from litigation assures the states 
        and the nation from unanticipated intervention in the processes 
        of government.'' When the States' immunity from private suits 
        is disregarded, ``the course of their public policy and the 
        administration of their public affairs'' may become ``subject 
        to and controlled by the mandates of judicial tribunals without 
        their consent, and in favor of individual interests.'' While 
        the States have relinquished their immunity from suit in some 
        special contexts-at least as a practical matter this surrender 
        carries with it substantial costs to the autonomy, the 
        decisionmaking ability, and the sovereign capacity of the 
        States.
        A general federal power to authorize private suits for money 
        damages would place unwarranted strain on the States' ability 
        to govern in accordance with the will of their citizens. Today, 
        as at the time of the founding, the allocation of scarce 
        resources among competing needs and interests lies at the heart 
        of the political process. While the judgment creditor of the 
        State may have a legitimate claim for compensation, other 
        important needs and worthwhile ends compete for access to the 
        public fisc. Since all cannot be satisfied in full, it is 
        inevitable that difficult decisions involving the most 
        sensitive and political of judgments must be made. If the 
        principle of representative government is to be preserved to 
        the States, the balance between competing interests must be 
        reached after deliberation by the political process established 
        by the citizens of the State, not by judicial decree mandated 
        by the Federal Government and invoked by the private citizen. 
        ``It needs no argument to show that the political power cannot 
        be thus ousted of its jurisdiction and the judiciary set in its 
        place.'' \2\
---------------------------------------------------------------------------
    \2\ Alden v. Maine, 527 U.S. 706, 714-15 (1999) (citations omitted)

    I believe that all of the Court's concerns are reasons why 
sovereign immunity should be preserved.
    In addition to the Court's concerns, I think there are two other 
policy arguments. First, this problem is largely non-existent. While 
Mr. Schraad's narrative about his company's experience in Georgia 
certainly is egregious, the fact remains that it appears to be one of a 
very few isolated incidents. As the General Accounting Office report 
confirms, there are only a few cases of the States allegedly infringing 
intellectual property rights. Congress should not attempt to strip all 
of the States of their immunity simply because of a few incidents. 
Second, the States should not be treated differently than foreign 
nations. Under current law, foreign nations, including those in the 
``Axis of Evil'' are immune from intellectual property suits in the 
federal courts. If Iraq can escape liability to Mr. Schraad's company, 
should not the taxpayers of Georgia be equally immune?

    Question 3: You have argued that Senate Bill 1611 is 
unconstitutional because ``Congress may not require the surrender of 
States' sovereignty as a condition of receiving a benefit from the 
National Government.'' But several existing federal statutes do just 
that. For example, as a condition of receiving federal funds, States 
must comply with various nondiscrimination requirements that may be 
enforced by private parties in federal court. E.g. 42 U.S.C. Sec. 2000-
d-7. Is it your view that these statutory schemes are also 
unconstitutional?
    Answer: I believe that those statutes that require the States to 
waive their sovereign immunity as a condition of receiving federal 
funds or some other federal benefit are unconstitutional. I recognize 
that my view is, at the moment, very much the minority view and is 
embraced by only four judges on the Eighth Circuit, a few District 
Court judges, and a handful of legal academics. However, I also 
recognize that the issue has never been decided by the Supreme Court. 
At present, the issue of requiring the States to waive sovereign 
immunity is before the Third, Ninth, and Tenth Circuits. There is a 
strong possibility that a case from the Sixth Circuit will be heard by 
the Supreme Court next term. When the Court eventually hears such a 
case, I am confident that the Court will invalidate those statutes that 
impose such a requirement.
    Having embraced a distinctly minority position and engaged in the 
always perilous task of predicting future Supreme Court decisions, I 
would like to briefly explain the basis for my position.
    First, the Court's pronouncements on the subject are, at best, 
ambiguous. To explain, those who disagree with me and believe that 
Congress may require the States to waive sovereign immunity generally 
base their position on a portion of the College Savings Bank decision 
where the Court stated:

        The United States points to two other contexts in which it 
        asserts we have permitted Congress, in the exercise of its 
        Article I powers, to extract ``constructive waivers'' of state 
        sovereign immunity. In Petty v. Tennessee-Missouri Bridge 
        Comm'n, we held that a bistate commission which had been 
        created pursuant to an interstate compact (and which we assumed 
        partook of state sovereign immunity) had consented to suit by 
        reason of a suability provision attached to the congressional 
        approval of the compact. And we have held in such cases as 
        South Dakota v. Dole that Congress may, in the exercise of its 
        spending power, condition its grant of funds to the States upon 
        their taking certain actions that Congress could not require 
        them to take, and that acceptance of the funds entails an 
        agreement to the actions. These cases seem to us fundamentally 
        different from the present one. Under the Compact Clause, 
        States cannot form an interstate compact without first 
        obtaining the express consent of Congress; the granting of such 
        consent is a gratuity. So also, Congress has no obligation to 
        use its Spending Clause power to disburse funds to the States; 
        such funds are gifts. In the present case, however, what 
        Congress threatens if the State refuses to agree to its 
        condition is not the denial of a gift or gratuity, but a 
        sanction: exclusion of the State from otherwise permissible 
        activity. Justice Breyer's dissent acknowledges the intuitive 
        difference between the two, but asserts that it disappears when 
        the gift that is threatened to be withheld is substantial 
        enough. Perhaps so, which is why, in cases involving conditions 
        attached to federal funding, we have acknowledged that ``the 
        financial inducement offered by Congress might be so coercive 
        as to pass the point at which 'pressure turns into compulsion.' 
        '' In any event, we think where the constitutionally guaranteed 
        protection of the States' sovereign immunity is involved, the 
        point of coercion is automatically passed-and the voluntariness 
        of waiver destroyed--when what is attached to the refusal to 
        waive is the exclusion of the State from otherwise lawful 
        activity.\3\
---------------------------------------------------------------------------
    \3\ College Sav. Bank, 527 U.S. at 686-87 (citations omitted).
---------------------------------------------------------------------------
    This suggestion that Congress can require a waiver of sovereign 
immunity as a condition of receiving federal funds has led many Courts 
of Appeals to conclude that the States or state agencies have waived 
their sovereign immunity as a condition of receiving federal funds or 
some other federal benefit.\4\ Conceivably, Congress could overturn all 
of the recent sovereign immunity decisions simply by saying that if the 
States wish to receive federal funds or some other federal benefit, 
then the States must waive their sovereign immunity.
---------------------------------------------------------------------------
    \4\ See, e.g. Cherry v. University of Wisconsin, 265 F.3d 541 (7th 
Cir. 2001); Jim C. v. United States, 235 F.3d 1079 (8th Cir. 2000) (en 
banc), cent. denied, 121 S. Ct. 2591 (2001); Sandoval v. Hagan, 197 
F.3d 484 (11th Cir. 1999), rev'd on other grounds sub nom. Alexander v. 
Sandoval, 121 S. Ct. 1511 (2001); Litman v. George Mason University, 
186 F.3d 544, 557 (4th Cir. 1999) (Litman II), cert. denied, 120 S. Ct. 
1220 (2000); In re Innes, 184 F.3d 1275, 1282-83 (10th Cir. 1999), 
cert. denied sub nom. Kansas State Univ. v. Innes, 529 U.S. 1037 
(2000). As the Tenth Circuit, deciding a case involving the 
Telecommunications Act of 1996, explained:

    [Flor a constructive waiver of sovereign immunity to be valid under 
College Savings Bank, it must be altogether voluntary and not forced 
from a state by Congress. A constructive waiver is voluntary only where 
Congress threatens a state with the denial of a ``gift or gratuity'' if 
the state refuses to consent to suit in federal court. Where Congress 
threatens a state with a ``sanction'' if it refuses to consent to suit, 
then the waiver is no longer freely given. In addition, it may be that 
the difference between a gift and a sanction disappears when the gift 
Congress threatens to withhold is large enough.
    To illustrate its holding in College Savings Bank, the Court 
distinguished the legitimate conditions Congress placed on states in 
Petty v. Tennessee- Missouri Bridge Comm'n and South Dakota v. Dole, 
from the forced waivers in Parden and the case at bar. In Petty, the 
Court held that a bistate commission created pursuant to an interstate 
compact ``had consented to suit by reason of a suability provision 
attached to the congressional approval of the compact.'' In Dole, the 
Court held ``that Congress may, in the exercise of its spending power, 
condition its grant of funds to the States upon their taking certain 
actions that Congress could not require them to take, and that 
acceptance of the funds entails an agreement to the actions.''
    The College Savings Bank court explained that the bistate 
commission's waiver was valid because, under the Compact Clause of the 
U.S. Constitution, states may not form an interstate compact without 
the consent of Congress. The granting of consent therefore is a 
gratuity. Similarly, ``Congress has no obligation to disburse funds to 
the States; such funds are gifts.''
    In contrast, in both Parden and the case before the Court, Congress 
did not threaten the denial of a gift or gratuity if the states refused 
to waive their constitutional sovereign immunity. Instead, in both 
Parden and College Savings Bank, Congress threatened a sanction: 
``exclusion of the State from otherwise permissible activity.'' 
Specifically, the federal statute in Parden required Alabama to waive 
its immunity or give up its ability to own and operate a railroad in 
interstate commerce. In College Savings Bank, the TRCA required Florida 
to waive its immunity or give up its ability to engage in the business 
of advertising and selling a for-profit educational investment vehicle. 
The voluntariness of a waiver is destroyed ``when what is attached to 
the refusal to waive is the exclusion of the State from otherwise 
lawful activity.''
    MCI Telecom. Corp. v. Public Serv. Comm'n of Utah, 216 F.3d 929, 
937 (10fl' Cir. 2000), cert. denied, 121 S. Ct. 1167 (2001)(citations 
omitted). In other words, if the National Government tells the State 
that it must waive sovereign immunity or be punished, the required 
waiver is unconstitutional. However, if the National Government informs 
the State that it must waive as condition of receiving a benefit, and 
the inducement is not coercive, then the waiver is constitutional.
---------------------------------------------------------------------------
    Yet, there is another portion of College Savings Bank that appears 
to command the exact opposite result. Specifically, the Court observed:

        Recognizing a congressional power to exact constructive waivers 
        of sovereign immunity through the exercise of Article I powers 
        would also, as a practical matter, permit Congress to 
        circumvent the antiabrogation holding of Seminole Tribe. Forced 
        waiver and abrogation are not even different sides of the same 
        coin--they are the same side of the same coin.... There is 
        little more than a verbal distinction between saying that 
        Congress can make Florida liable to private parties for false 
        or misleading advertising in interstate commerce of its prepaid 
        tuition program, and saying the same thing but adding at the 
        end ``if Florida chooses to engage in such advertising.'' \5\
---------------------------------------------------------------------------
    \5\ College Savings Bank v. Florida Prepaid Postsecondary Educ. 
Expense Fund, 527 U.S. 666, 683-84 (1999) (citations omitted).

    In other words, Congress cannot overrule the Court's recent 
sovereign immunity decisions simply by saying that if the States want 
money or intellectual property rights, they must waive sovereign 
immunity. As the Court observed in a later case, ``Congress' powers 
under Article I of the Constitution do not include the power to subject 
States to suit at the hands of private individuals'' \6\
---------------------------------------------------------------------------
    \6\ Kimel v. Florida Bd. of Regents, 528 U.S. 62, 80 (2000)
---------------------------------------------------------------------------
    In sum, College Savings Bank appears to contradict itself. On the 
one hand, it seems to endorse the view that Congress may force the 
States to waive sovereign immunity as a condition of receiving a 
federal benefit. On the other hand, it appears to say that Congress 
cannot use its Article I powers to force the States to waive sovereign 
immunity and thereby undermine the antiabrogation holding of the recent 
sovereign immunity decision. At some point, the Court will have to 
resolve this contradiction. When it does, I believe that it will 
reaffirm the idea that Congress cannot use its Article I powers to 
effectively overrule the anti-abrogation decisions.
    Second, forcing a State to choose between waiving its sovereign 
immunity and losing federal funds or the right to enforce its 
intellectual property rights is unconstitutionally coercive.\7\ 
Although the Supreme Court has recognized that ``Congress may, in the 
exercise of its spending power, condition its grant of funds to the 
States upon their taking certain actions that Congress could not 
require them to take,'' \8\8 the Court has also recognized that ``the 
financial inducement offered by Congress might be so coercive as to 
pass the point at which 'pressure turns into compulsion.'' ' \9\ Thus, 
the Supreme Court has acknowledged that some ``choices'' imposed by 
Congress' exercise of its Spending Clause power are unconstitutionally 
coercive.\10\ I believe that forcing a State to choose between federal 
funds for a specific purpose and sovereign immunity or between 
asserting its intellectual property rights and sovereign immunity 
crosses the line and is coercive.
---------------------------------------------------------------------------
    \7\ See Frost & Frost Trucking Co. v. Railroad Comm'n, 271 U.S. 
583, 594 (1926) (If government ``may compel the surrender of one 
constitutional right as a condition of its favor, it may, in like 
manner, compel a surrender of all. It is inconceivable that guaranties 
embedded in the Constitution of the United States may thus be 
manipulated out of existence.'').
    \8\ College Savings Bank, 527 U.S. at 686
    \9\ South Dakota v. Dole, 483 U.S. 208, 211 (1987) (quoting Steward 
Machine Co. v. Davis, 301 U.S. 548, 590 (1937)).
    \10\ See College Savings Bank, 527 U.S. at 687 (``In any event, we 
think where the constitutionally guaranteed protection of the States' 
sovereign immunity is involved, the point of coercion is automatically 
passed--and the voluntariness of waiver destroyed--when what is 
attached to the refusal to waive is the exclusion of the State from 
otherwise lawful activity.'').

---------------------------------------------------------------------------
                                

  Responses of William E. Thro to questions submitted by Senator Hatch

    Question 1. Do you believe any federal legislation providing some 
remedy for infringement against the States would be constitutional? Why 
or why not.
    Answer: First, if Congress made an explicit finding that most 
States were engaging in a pattern of constitutional violations, then it 
would be constitutional for Congress, in the exercise of its powers 
under Sec. 5 of the Fourteenth Amendment, to abrogate sovereign 
immunity for all States and provide some remedy for infringement. In 
order to accomplish this, Congress would have to find that the States 
were engaged in a consistent pattern of depriving owners of their 
intellectual property without due process of law and without paying 
just compensation. If Congress found that only a few States were 
engaged in such practices, then I think it would be constitutional to 
abrogate the sovereign immunity for the offending States.
    Second, as I stated in my written testimony and in response to 
Chairman Leahy's written questions, I do not believe that Congress may 
use its Article I powers to exact a waiver of sovereign immunity from 
the States. If sovereign immunity is to be diminished, Congress must 
act pursuant to Sec. 5 of the Fourteenth Amendment.
                          Additional Questions
    Question 1: Some have suggested that no legislation is needed 
because rights holders can obtain injunctive relief against an 
offending state actor. Please indicate whether you agree and explain 
why you believe such injunctive relief is or is not adequate.
    Answer: If the doctrine of Ex Parte Young \11\ allows the issuance 
of an injunction against a state actor who is violating intellectual 
property rights, then the injunctive relief is adequate. I take this 
position because I believe that severe cases of infringement by the 
State constitute a ``taking'' of property under the Fifth Amendment 
and, thus, the owner is entitled to just compensation. Given the 
possibility that the owner can recover under the Fifth Amendment, I see 
no need to allow an additional damages remedy.
---------------------------------------------------------------------------
    \11\ 209 U.S. 123 (1908).

    Question 2: Professor Bender suggested that Senate Bill 1611 could 
be improved by an amendment that did not allow States that do not waive 
their sovereign immunity to be able to sue for either damages or 
injunctions. Would such a provision be a good or bad idea on policy 
grounds? Would it make any difference in the constitutionality of the 
bill? And would such a provision be better drafted to state that non-
waiving States cannot get injunctions or damages as a remedy or that 
non-waiving States simply will not have access to the federal courts to 
enforce intellectual property rights?
    Answer: As I have stated previously, I believe that any attempt by 
Congress to use its Article I powers to diminish the sovereign immunity 
of the States is unconstitutional. Thus, I think Professor Bender's 
proposal has no impact on the bill's constitutionality.

    Question 3: If Congress can confer federal intellectual property 
protections to the States, can it simply deny States all federal 
intellectual property rights or, less drastically, can it condition 
application for federal protection to the USPTO or Copyright Office on 
a waiver of immunity? Would it be preferable on policy grounds to 
structure such a condition as an application provision, as part of the 
federal application and review process, or simply as a substantive 
statutory condition to be raised and decided only in litigation?
    Answer: As I explained in response to a similar written question 
from Chairman Leahy, assuming that Congress exercises its powers over 
intellectual property, then I believe that Congress is constitutionally 
required to let the States create, own, and enforce intellectual 
property rights.
    Moreover, I believe that requiring the States to surrender 
sovereign immunity in order to obtain or enforce intellectual property 
rights violates the doctrine of unconstitutional conditions. Quite 
simply, this doctrine holds that ``the government may not require a 
person to give up a constitutional right . . . in exchange for a 
discretionary benefit conferred by the government.'' \12\ For example, 
the government generally may not require a property owner to give up a 
portion of his property rights as a condition of receiving a building 
permit.\13\ The reason for such a doctrine is clear. If government 
``may compel the surrender of one constitutional right as a condition 
of its favor, it may, in like manner, compel surrender of all. It is 
inconceivable that guarantees embedded in the Constitution of the 
United States may be thus manipulated out of existence.'' \14\ 
Moreover, while the doctrine generally applies in the context of 
individual rights, it should be equally applicable to the fundamental 
aspects of a States' sovereignty. This is particularly true given the 
importance of the States' sovereignty to maintaining the constitutional 
balance. Thus, Congress may not require the surrender of the States' 
sovereignty as a condition of receiving a benefit from the National 
Government.
---------------------------------------------------------------------------
    \12\ Dolan v. City of Tigard, 512 U.S. 374,385 (1994).
    \13\ See Id at 394-95. Of course, such conditions can be imposed if 
it can be demonstrated that (1) there is an ``essential nexus'' between 
the permit condition and a legitimate interest of government; and (2) 
there is a rough proportionality between the condition and the impact 
of the new project. See Id. at 386.
    \14\ Frost & Frost Trucking Co. v. Railroad Comm'n, 271 U.S. 583, 
594 (1926).

    Question 4: Mr. Schraad discussed his company's dispute with the 
State of Georgia. How would Senate Bill 1611, as now drafted, help Mr. 
Schraad's company in that dispute? Are there ways to modify Senate Bill 
1611 so that it would better help them and similarly situated 
companies?
    Answer: Because I believe that Senate Bill 1611, as currently 
drafted, is unconstitutional, I do not believe it would help Mr. 
Schraad at all. Georgia would simply get the new law declared 
unconstitutional and then get Mr. Schraad's suit dismissed on sovereign 
immunity grounds. Assuming that I am wrong and that Senate Bill 1611 is 
constitutional, then Mr. Schraad's company could recover money from 
Georgia's State Treasury. While this would be helpful to Mr. Schraad's 
company, it would mean a diversion of funds away from schools, health 
care, police protection, and the myriad of other necessary services 
provided by the State of Georgia.
    I also want to emphasize my belief that Mr. Schraad's company does 
not need Senate Bill 1611 in order to achieve justice. Assuming that 
the facts are exactly as Mr. Schraad has told this Committee, then the 
State of Georgia has ``taken'' the company's property and the company 
is entitled to just compensation under the Fifth Amendment.

    Question 5: Is there any way for States to provide adequate 
remedies against state infringement in an intellectual property system 
that is almost wholly federal?
    Answer: At present, all intellectual property cases must be brought 
in federal court. Congress could allow state courts to hear 
intellectual property claims against the States. If Congress took this 
step, then many States might choose to waive their sovereign immunity 
and allow suits in their own courts.

    Question 6: Are you aware of any further cases on matters relevant 
to the scope of the General Accounting Office study on this matter that 
have arisen since that report was issued last fall?
    Answer: Based on my communications with the other members of the 
Education Section of the Virginia Attorney General's Office and with my 
colleagues at state universities in other States, I am unaware of any 
further cases. I also want to emphasize my belief that the General 
Accounting Office study demonstrates that this alleged problem is 
almost non-existent.

    Question 7: Is there any other issue or comment you would like to 
add for the completeness of the hearing record?
    Answer: While I am honored that you have invited me to share my 
views regarding the constitutionality of this proposal I really think 
it is necessary for this Committee to hear from many other people 
before it can make an objective judgment. The action being contemplated 
is nothing less than a significant diminishment of a fundamental aspect 
of the State's sovereignty. It is not an action to be taken lightly and 
it is at least as important as the confirmation of a judge to a federal 
appellate court.
    Yet, despite the obvious importance of this issue, this Committee 
only held one hearing that lasted less than two hours and involved six 
witnesses, only one of whom was critical of the bill. There is 
absolutely no objective evidence indicating that this is a real 
problem. Mr. Schraad's anecdotal evidence has gone unchallenged because 
no one has been invited to present the State of Georgia's side of the 
story. Before this Committee assumes that Georgia has acted illegally, 
if not unconstitutionally, and, as a result, diminishes the sovereignty 
of every State, Georgia should have an opportunity to be heard. 
Although witnesses have asserted that the States violate intellectual 
property rights, no one has discussed the extraordinary steps that 
state universities and state agencies take to prevent their employees 
from engaging in infringement. While the General Accounting Office 
report finds that the States are suing almost as frequently as they are 
being sued, no one has been invited to discuss blatant examples of the 
private sector infringing upon the States' intellectual property rights 
or what steps the private sector takes to insure that they do not 
violate the States' intellectual property rights. Before this Committee 
approves legislation that will allow private parties to raid the 
coffers of the States, it should hear from the Governors and state 
legislators about the impact on local revenues. Similarly, state 
attorneys general and counsel for state universities should be invited 
to address the impact of increased litigation on their offices. 
Although foreign governments are immune from intellectual property 
suits, no one has been invited to explain why they should be immune and 
the States should not. While Professor Bender did an outstanding job of 
presenting the view that, such legislation is constitutional and while 
I did my best to present the opposite view, the fact remains that, this 
Committee has not heard from many of the leading constitutional 
scholars.
    In sum, before this Committee takes such a monumental step, I 
believe it is imperative to hear from a wide variety of other groups 
and interests.

                                

                       SUBMISSIONS FOR THE RECORD

                                   American Bar Association
                                   Chicago, Illinois, 60611
                                                  February 22, 2002

Hon. Patrick Leahy
Chairman, Committee on Judiciary
United States Senate
Washington, DC 20510

    Dear Mr. Chairman:

    This letter is being written to express the support of the American 
Bar Association for the enactment of S. 1611, the ``Intellectual 
Property Protection Restoration Act,'' which you introduced on November 
1, 2001.
    The ABA is convinced that Congress must deal with the situation 
created by the decisions of the United States Supreme Court in Florida 
Prepaid Postsecondary Education Expense Board v. College Savings Bank 
and College Savings Bank v. Florida Prepaid Postsecondary Education 
Expense Board, and the ABA believes that S. 1611 is an appropriate and 
well reasoned response. Those decisions nullified laws enacted in 1990 
and 1992 to affirm congressional intent that States not be immune from 
suit for acts' of infringement of intellectual property rights. As a 
result of these decisions, States now enjoy the full range of 
protection of federal intellectual property laws for their own patents, 
copyright, trademarks, and other intellectual property, while at the 
same time they are free to infringe IP rights of others without fear of 
suit for damages.
    S. 1611 would remedy this untenable situation by placing States on 
an equal footing with other intellectual property owners. Recovery of 
damages for infringement of its own intellectual property rights would 
be denied to a State unless it has waived immunity from suit for its 
own acts of infringement of privately-owned intellectual property 
rights.
    The ABA supported congressional efforts a decade ago to clarify 
States' liability for infringement of intellectual property rights, 
and. we support your current efforts to restore a level playing field 
for all owners of intellectual property. States should of course have 
access to legal remedies under federal intellectual property laws to 
protect state-owned intellectual property. At the same time, fairness 
dictates that when a State infringes rights of others, it be subject to 
those same legal remedies. The American, Bar Association believes that 
S. 1611 provides the framework to restore that fan and balanced 
approach. and we support its enactment.

            Sincerely,

                                          Charles P. Balder
                        Chair, Section of Intellectual Property Law

                                

                                            Biosource, Inc.
                                        Worcester, MA 01607
                                                      March 3, 2002

Chairman Patrick Leahy
Committee on the Judiciary
SD-224 Senate Dirksen Building
Washington DC 20008

    Honorable Chairman,

    I am glad that there are hearings on Sovereign Immunity. That was 
why the people of The United States threw out the British.
    Biosource developed the flow through capacitor in the basement of 
my house in Worcester, MA. This technology was initially commercialized 
to market in a self-funded manner, together with my licensee Sabrex. 
The Sabrex facility is a graffiti covered warehouse in a bad part of 
San Antonio. Biosource is currently a recipient of a DARPA contract to 
enhance this technology for broader water purification and seawater 
desalination use. We no longer operate from a basement.
    The University of California through Lawrence Livermore National 
Laboratory (LLNL, which it operates, has done grave harm to my company 
and to this technology. Advice of counsel indicates that, while it 
would be possible to sue them, there would be little to no remedy, 
because the University of California would simply assert Sovereign 
immunity, In other words, we would be free to spend what little money 
we have for nothing. I believe that parties injured by the University 
of California should have recourse to remedy through the courts. I 
dislike the idea of alternative dispute resolution mediated by the 
perpetrators.
    Harm done to Biosource includes:

         Libel of Biosource and usurpation of the flow through 
        capacitor technology in the press. LLNL also claims invention 
        of the flow through capacitor. Joe Farmer is both the 
        ``inventor'' and was LLNL's spokesperson. He was quoted in 
        ``Technology Transfer Business'' magazine as calling me a 
        charlatan. I had neither met nor talked to him at the time. 
        LLNL accepted an R&D 500 award for this technology from R&D 
        magazine, and has been featured in such publications as 
        Business Week.
         Misrepresentation of Patent Rights. Patent law 
        requires that known, relevant, prior art be reported to the 
        patent examiner. Farmer called me a charlatan while his patent 
        was still being examined. Yet, the University of California 
        failed to cite my half dozen or so prior art patents. 
        Unfortunately, the examiner failed to catch this. LLNL 
        continues to develop narrow patents that cannot be practiced 
        against Andelman in what must be an expensive attempt to 
        reinvent the wheel. For example, the file wrapper of a second 
        continuation in part patent shows that the examiner rejected 
        their patent about six times against myself, until the patent 
        issued with useless narrow claims that cannot be practiced 
        without infringing upon Andelman,
         Misrepresentation in License Agreements. LLNL 
        continues to represent that they invented this technology and 
        has actively been seeking to license it, thereby sidetracking 
        investment that would have gone to Biosource. LLNL licensed a 
        small Arizona Company, called Far West Group. This company has 
        succeeded in sublicensing several large corporations for 
        millions of dollars in total. One large company, ABB, walked 
        away with nothing from their $1 MM Investment in Far West Group 
        after learning about Andelman. Biosource has yet to raise 
        investment from private industry. I believe that Biosource 
        license agreements and business opportunities have been 
        derailed, never happened, or set back due to LLNL.
         Patent Infringement and sale of inferior, unauthorized 
        equipment. We have put LLNL on notice that practice of the 
        Farmer patent would infringe one or more Andelman patents. LLNL 
        has directly sold inferior, unauthorized flow through capacitor 
        equipment to valuable customers, including large water 
        districts in California. Their version of this technology is 
        made without my approval and supervision, did not work well, 
        and should not have been sold in this form. This has worked to 
        sour the engineering community on the technology.

    Harm Done To Everyone Includes:

    This is a water purification technology. I believe there could be a 
whole Senate hearing on the stunning lack of effort in this field. DOE 
is steward of nuclear waste currently seeping into aquifers the size of 
a Great Lake, Water and energy are interrelated. One cannot talk about 
conservation of one without the other. Over a billion people are facing 
a water shortage. The University of California chose to be an elephant 
muddying the water.

    Bayh-Dole:

    Lastly, I believe that a root of this problem lies in Bayh-Dole. 
Government funded work should be put into the public domain. This would 
raise the bar to innovation and strengthen the patent system, 
Currently, the patent system is plagued with many minor, derivative 
patents, which impede commercialization. This can only play into the 
hands of the CEO's who are working for Wall Street, as opposed to 
developing new products for the benefit of the customer, shareholder, 
or employee. The fact that the transistor was not patented did not 
impede its commercialization.

    Thank you again for the opportunity to be of service to this 
committee.

            Sincerely yours,

                                              Marc Andelman
                                                          President

                                

                                 Business Software Alliance
                                     Washington, D.C. 20036
                                                  February 25, 2002

The Hon. Patrick Leahy
Chairman
Committee on the Judiciary
U.S. Senate
Washington, DC 20510

    Dear Chairman Leahy,
    On behalf of the members of the Business Software Alliance,* I 
write in support of S. 1611, the Intellectual Property Protection 
Restoration Act of 2001.
---------------------------------------------------------------------------
    * The Business Software Alliance is the voice of the world's 
software and Internet industry before governments and with consumers in 
the international marketplace. Its members represent the fastest 
growing industry in the world. BSA educates computer users on software 
copyrights; advocates public policy that fosters innovation and expands 
trade opportunities; and fights software piracy. BSA members include 
Adobe, Apple, Autodesk, Bentley Systems, Borland, CNC Software/
Mastercam, Compaq, Dell, Entrust, IBM, Intel, Intuit, Macromedia, 
Microsoft, Newtwook Associates, Novell, Sybase, Symantec, and UGS.
---------------------------------------------------------------------------
    S.1611 is important to a fair and effective system of protection 
for intellectual property. To the envy of the rest of the world, the 
copyright laws in place in this country have helped foster the creation 
of software programs that are incomparably productive, valuable and 
popular. They have done so, in part, by securing the basic principle 
that it is more expensive to violate the copyright laws than to comply 
with them. As the Supreme Court itself has recognized, that principle 
is essential to promoting respect for and compliance with those laws. 
S. 1611 will ensure that it remains in place.
    The Supreme Court's recent decisions, immunizing state entities 
from monetary damages, removes the financial incentive to comply with 
copyright requirements. When a private business is deciding whether to 
acquire licenses for the software it needs--or simply make illegal 
copies--its potential exposure to monetary damages renders the latter 
option a bad business risk. But when a state entity, even one competing 
with the private business, faces the same decision, it need not factor 
in any financial exposure at all. Fairness issues aside, this system 
encourages non-compliance.
    In 2000, BSA estimates that software publishers lost $2.6 billion 
dollars in U.S. sales due to the unauthorized reproduction or 
distribution of software. A substantial percentage of these losses are 
attributable to workplace copying. Without incentives for voluntary 
compliance by state entities, those lost sales will only rise, along 
with the associated harms to R&D investment, employment, and tax 
revenue. Ironically, monetary damages are important, not because rights 
owners seek to recover money from violators, but because they lessen 
the need to file suit in the first place by increasing voluntary 
compliance.
    BSA joins the written statement and testimony submitted by the 
Property Owners Remedy Alliance, including the suggested change to one 
provision of S.1611 offered therein. I look forward to working with you 
in order to ensure that this legislation passes during this session of 
Congress.

            Sincerely,

                                       Robert Holleyman, II
                                                  President and CEO

                                

  Statement of Hon. Maria Cantwell, a U.S. Senator from the State of 
                               Washington

    Thank you, Mr. Chairman for holding this hearing. The issue before 
the committee today is not only important to intellectual property 
holders but also challenges this Committee and the Congress to properly 
exercise its powers to enact laws that support innovation while 
providing equal treatment for both state-run and private sector 
entities. I am cognizant of the constitutional framework within which 
we must craft our efforts. I am also concerned with any negative 
impacts that legislative proposals might have on the academic 
community. I look forward to exploring these issues with our witnesses 
with an eye towards supporting innovation and resolving current 
inequities in the marketplace.
    The U.S. Constitution gives Congress the power to enact laws to 
give to authors and inventors certain rights in their creations for a 
limited time. In addition to encouraging new inventions and creative 
works, our system of strong intellectual property rights has created 
jobs, generated billions of dollars in revenue, and enriched the lives 
of the American people and the world. Our intellectual property laws 
have provided incentive to inventors and intellectual property owners 
by giving them the ability to enforce their rights against infringement 
in Federal court and recoup their investments. The issue of sovereign 
immunity is relatively new in the context of intellectual property law. 
If some actors in the marketplace are immune from infringement 
liability, the system may be less effective in achieving its goals. So 
I am concerned with the course that the Supreme Court has charted, and 
look forward to working with the Chairman to correct that course.
    Congress first acted to clarify state sovereignty conflicts in 
intellectual property cases in the early 1990's. Congress passed three 
``Remedy Clarification'' acts clarifying its intent to abrogate state 
sovereign immunity--providing that no state could claim immunity from 
copyright, patent, or trademark infringement under the 11th amendment. 
In passing this legislation, Congress sought to clarify the law 
providing that all potential infringing parties were to be treated 
similarly.
    Then in the late 1990s, the Supreme Court decided three cases that 
limited Congress' authority to abrogate state sovereign immunity in the 
context of patent and trademark law, Seminole Tribe of Florida v. 
Florida, Florida Prepaid Postsecondary Education Expense Board v. 
College Savings Bank, and College Savings Bank v. Florida Prepaid 
Postsecondary Education Expense Board. Subsequently, the 5th Circuit 
held that the Copyright Remedy Clarification Act does not abrogate 
state sovereign immunity. Taken together, these decisions essentially 
voided the three clarifying laws that Congress enacted in the early 
1990's.
    Currently, states are able to bring suit against those who infringe 
their intellectual property rights, while claiming immunity from 
similar suits against them. Unless some significant policy concern 
overcomes equity in application, those who infringe upon the 
intellectual property rights of another should be equally subject to 
federal infringement suits. Further, to be effective and provide proper 
incentives to innovation, I believe that intellectual property laws 
should be applied equally to all players in the market.
    I want to note a broader concern. The Supreme Court decisions 
driving our need to legislate in this area reflect an extremely 
disconcerting shift in the Supreme Court's perspective on the 
respective roles of Congress and the Court. We have an obligation to 
those who have elected us to preserve the appropriate Constitutional 
role of Congress.
    The Supreme Court's decisions at issue today have produced a 
complex and daunting legal landscape, one that forces us to move 
forward carefully and within the proper constitutional framework. I am 
confident that balance and equity can be brought back to this legal 
setting, and I appreciate the Chairman's efforts to resolve this 
problem in a manner sensitive to both state interests and the interests 
of other intellectual property owners.
    I look forward to hearing the witnesses today and exploring the 
constitutional challenges that face this committee.

                                

                                   U.S. Chamber of Commerce
                                Washington, D.C. 20062-2000
                                                  February 13, 2002

Hon. Patrick J. Leahy
Chairman,
Senate Judiciary Committee
United States Senate
Washington, DC 20510

    Dear Mr. Chairman:

    I am writing on behalf of the United States Chamber of Commerce 
(``U.S. Chamber''), the world's largest business federation, 
representing more than three million businesses and organizations of 
every size, sector and region, to express our strong support for 
legislation that would end the threat of intellectual property 
infringement by states and state agencies.
    As a result of the Supreme Court's decision in Florida Prepaid 
Postsecondary Educ. Expense Br. v. College Savings Bank, 119 S. Ct. 
2199 (1999), the states and state employees possess the unfair ability 
to infringe the intellectual property rights of holders of patents, 
trademarks and copyrights under federal law while at the same time 
using those very same federal laws to safeguard the considerable volume 
of patents, trademarks and copyrights held by them. Legislation is 
needed that would require states to waive their sovereign immunity from 
suits against them in federal court for infringement of intellectual 
property rights that are protected by federal law before they could 
seek legal relief for infringement of their own patents, trademarks and 
copyrights. Furthermore, there should be legal remedies against states 
that violate the due process or takings rights of intellectual property 
owners.
    The U.S. Chamber supports strong protection for intellectual 
property owners under the patent, trademark and copyright laws. Such 
protection stimulates investment and fosters innovation, thereby 
assuring a continuing stream of new products and services. Many states 
have chosen to participate in the commercial marketplace. Those that do 
must be held to the same standards as all participants in that 
marketplace and must not be allowed to use their sovereign immunity to 
shield conduct which, if engaged in by any other market participant, 
would be considered illegal.
    We urge your Committee to address this issue and correct a serious 
imbalance that has developed regarding the protection afforded by the 
country's intellectual property laws.

            Sincerely,

                                            R. Bruce Josten
                                           Executive Vice President
                                                 Government Affairs

                                

 Statement of R. Bruce Josten, Executive Vice President for Government 
          Affairs, U.S. Chamber of Commerce, Washington, D.C.

    Thank you Chairman Leahy, Senator Hatch, and Members of the 
Committee, for this opportunity to provide comments on this very 
important issue. My name is Bruce Josten and I am Executive Vice 
President for Government Affairs at the U.S. Chamber of Commerce. The 
US. Chamber represents more than 3 million businesses and organizations 
of every size, sector and region.
    Our members are deeply concerned about the ability of states and 
state entities, such as state universities, to use their Constitutional 
protection from lawsuits to freely infringe upon the copyright, patent, 
and trademark rights of others, while at the same time taking full 
advantage of copyright, patent and trademark protection for their own 
intellectual property. This bill would not permit the states to have it 
both ways: if they want copyright, patent, and trademark protection, 
they must expressly waive their sovereign immunity.
                               Background
    For over ten years, Congress has been attempting to remedy a series 
of unfortunate Supreme Court decisions that began in 1962. Under these 
decisions, the principle of sovereign immunity, in the context of 
intellectual property, has come to mean that the owners of patents, 
trademarks, and copyrights cannot sue states even when the state 
infringes those intellectual property rights. This is an abuse of the 
states' Constitutional protection from stir.
    It had been widely thought that when a state engages in an activity 
that can properly be regulated by Congress, it impliedly consented to 
suit in Federal court.\1\ This principle has been eroded over the years 
and today states can. use their Constitutional sovereign immunity 
protection, even for non governmental activities, such as unfairly 
competing with patent owners and infringing their patents.
---------------------------------------------------------------------------
    \1\ Parden v. Terminal Railway of Alabama, 377 U.S. 184 (1964).
---------------------------------------------------------------------------
    The U.S. Chamber and its members are deeply concerned about this 
situation. The system of patent, trademark, and copyright protection in 
the United States encourages investment in invention and innovation. 
Such protection assures innovative companies and individuals that they 
will stand to reap the financial rewards if their new product or 
service finds favor in the marketplace. However, when a substantial 
group of parties, such as states and state agencies, can disregard 
these protections, the intellectual property protections are eroded.
    The prospect of state infringement of intellectual property rights 
will have an adverse effect on the level of investment in research and 
development of new products and services. Companies will be reluctant 
to invest the necessary funds in the development of new products when 
they know that a state or state agency can appropriate that product or 
service to their own use, without licensing the technology or paying 
royalties. As states increasingly face budget shortfalls, the 
likelihood of their ventures into patented or copyrighted commercial 
ventures increases.
    States have not shied away from taking advantage of their unfair 
status in the marketplace. According to testimony by Marybeth Peters, 
Register of Copyrights, in a hearing before the House Judiciary 
Committee on this subject in July 2000, four-year state colleges and 
universities have registered over 32,000 monographs since 1978 and this 
does not include scholarly journals, magazines, newsletters, and 
computer programs.
    Similarly, the US. General Accounting Office reported to this 
Committee last September' that state institutions of higher learning 
hold nearly 12,000 patents and 2,700 trade'' in addition to the 32,000 
copyrights.
    State universities often obtain their patents with federal funding. 
They protect and license these patents the same as would any other 
patent holder. The U.S. Camber and its members believe that the states 
cannot continue to have it both ways. If they participate in the 
commercial marketplace, they must abide by the rules that apply ;to 
everyone.
    We recognize that some states, as a matter of policy, seek licenses 
and attempt to avoid infringement. However, so long as the threat of 
infringement remains real and not theoretical, the chilling effect will 
continue.
                        The Pending Legislation
    The bill now under consideration does not attempt to abrogate state 
sovereign immunity. Rather, it requires stares to expressly waive their 
immunity if they want to be able to sue to protect their own patents, 
trademarks and copyrights. In addition, the legislation provides 
remedies against officers or employees of a state or state agency for 
unlawful infringement, including monetary damages, declaratory and 
injunctive relief, costs, attorneys' fees and destruction of infringing 
articles. Furthermore, the legislation creates liability on the part of 
the states and state agencies if they violate the rights of 
intellectual property owners in such a way as to violate their due 
process or unlawful takings rights under the Constitution. Relief under 
this section of the legislation would include actual damages, profits, 
statutory damages and fees, but would not include treble damages.
    This approach is rational and reasonable. It narrowly tailors the 
solution to the problem while avoiding the Constitutional shortcomings 
that have undermined past efforts at legislation. Rather than broadly 
abrogating the states' sovereign immunity protection, it gives the 
states an incentive to expressly waive their sovereign immunity. The 
case of Alden v. Maine, 119 S. Ct--2240 (1999), established that states 
may waive their immunity and that Congress may provide incentives for 
such waivers. This legislation offers an incentive--the right to sue to 
protect intellectual property owned by the states--in exchange for the 
waiver of immunity when the state or state agencies are charged with 
infringement. It is a fair and equitable solution.
    The U.S. Chamber of Commerce enthusiastically supports this 
legislation and urges the Committee to favorably act upon it.

                                

                                                  February 19, 2002

Senator Patrick Leahy
Chairman
Senate Judiciary Committee
SD-224 Senate Dirksen Building
Washington D.C. 20510

    Dear Senator Leahy,

    I write regarding your hearing on Sovereign Immunity and the 
Protection of Intellectual Property.
    I am a university professor at a public university and a small 
business owner. Although my training is in architecture, I conduct 
research in the area of self-healing materials--materials that have 
wide application in concrete structures such as buildings and airport 
runways, in composites such as aircraft wings, and in many other areas. 
In 1989, I applied for my first patent in this area., and I have 
subsequently obtained several patents on my inventions U.S. Pat numbers 
5,561,173 and 5,575,841 and 5,660,624 and 5,803,963 and 5,989,334. The 
university for which I work waived it rights in the technology, giving 
me all rights to commercialize it and keeping only the right to use it 
for internal University purposes.
    In August of 1999, I learned that two faculty members at my 
University had obtained research grants on my patented ideas and were 
seeking to exploit their work commercially using University funds. I 
informed the University of the problem and asked the University to stop 
supporting grant proposals that were based on my patented ideas, 
especially where the granting agencies had not been made aware of my 
rights in the area. Rather than resolving the problem, the University 
has used the shield of sovereign immunity to continue working in this 
area. For example, the University approved a proposal to DARPA for a 
$10-15 million center that would use my inventions. After I notified 
DARPA, I was told by the contract manager that DARPA had decided not to 
fund any work on this topic. As another example, the University chose 
this year to back an application on the technology to a government 
agency for an approximately $10 million center, and have sought the 
involvement of many large commercial entities. I was told second hand 
by someone from a faculty committee looking into this problem, that the 
Vice Chancellor for Research at the University told them that the 
university was immune from lawsuits on patent matters and therefore 
could and would ignore the issue.
    I believe that this is an attempt by the University to circumvent 
the United States patent system and to get to commercial market in a 
way others could not. The University's projects involve research toward 
commercial ends and use the cover of sovereign immunity to do what a 
private company can-not do because of my patent coverage. It appears 
that the University would use sovereign immunity to get a tread-start 
on my technology, waiting to be the first to market once my patents 
expire. A ,private company could not do this, and the University should 
not either.
    I have tried to get attorneys to take my case. However, no lawyers 
that I have met want to take on a case costing $500,400 to $1,000,000 
if they can only get an injunction and no damages because of the 
University's sovereign immunity. That is especially true when they are 
facing the deep pockets of a large public university.
    I plead for your intervention. I am person with a small company who 
has spent $100,000 of my own money to obtain patent coverage on this 
technology to which the University promised me I had the rights. I now 
find that at every turn the University and these researchers block me 
and my access to research funds and company involvement. They ignore my 
patent rights in the invention and instead seek large grants and 
commercial involvement in my patented technology. You can see the 
injustice of the University's use of sovereign immunity and its heavy-
handed and unethical application against an individual with a small 
business.

            Sincerely,

    Carolyn Dry, Ph.D.

                                

                                            Gray Matter LLC
                                  Newport Beach, California
                                                      March 6, 2002

Senator Patrick Leahy,
Chairman,
Senate Judiciary Committee
224 Dirksen Office Building
Washington, D.C. 20510

    Re: S. 1611, ``Intellectual Property Protection Restoration Act of 
2001''

    Dear Chairman Leahy:

    I am writing to support enactment of S. 1611, the ``Intellectual 
Property Protection Restoration Act of 2001.''
    As a principal in a software development firm that relies on the 
protection of federal copyright, patent and trademark law, I am 
concerned about the Supreme Court's decision Florida Prepaid 
Postsecondary Educational Expense Board v. College Savings Bank, 527 
U.S. 627 (1999) and the disparity it creates between commercial 
entities, who are subject to federal infringement remedies, and state 
entities, who are not.
    Recent amendments to state law allow conduct by licensees that 
infringe an intellectual property owner's rights under federal law. For 
commercial licensees, intellectual property owners can sue for 
infringement in federal court to protect their rights. For state 
entities, however, that avenue is now closed due to Florida Prepaid. As 
the GAO reports, many states do not waive sovereign immunity against 
suit for infringement and related tort claims. The recent changes to 
state law now make even breach of contract actions, for which states do 
waive sovereign immunity, unavailable as well.
    Examples of these changes include:

    Assignment: Under federal law, a non-exclusive intellectual 
property license is not assignable without consent of the licensor. 
State law now says that most restrictions on assignment of a non-
exclusive license are unenforceable. For example, if our company were 
to license software at a reduced price to a state entity ``for 
education use only'' and the state entity were then to make an 
unauthorized assignment in the commercial market, we would have no 
remedies for breach of the license under state law. Florida Prepaid 
would deny us access to federal courts to pursue an infringement claim 
as well.
    Use after cancellation: Under federal law, if we terminate a 
license, all silblicenses are terminated as well. This right is 
essential to protect our trademark, since continued use by a 
sublicensee after such a termination could constitute ``naked 
licensing,'' invalidating our mark. State law now says that a 
``licensee in the ordinary course of business'' can continue exercising 
intellectual property rights after its licensor's rights are 
terminated. If one of our licensees makes an unauthorized sublicense to 
a state entity that qualifies as a ``licensee in the ordinary course of 
business'' and the licensee's rights are then terminated, the state 
entity can continue using our software even though it knows it has no 
rights. We cannot invoke breach of contract remedies in state court, 
and cannot seek remedies for infringement in federal court due to 
Florida Prepaid.
    Pirated Copies: State law now provides that if software 
``customarily is considered part of goods,'' it is treated as 
``goods.'' Under state law, a person with a ``voidable'' title to 
goods, such as a bailee or a consignee, can transfer good title to a 
``good faith purchaser for value'' even if the delivery was procured by 
criminal larceny. Under federal law, an unauthorized sale of such 
software by a bailee or consignee would be an infringement. However, if 
the buyer is a state entity that qualifies as a ``good faith purchaser 
for value,'' under state law the software owner cannot sue in state 
court for breach of the consignment agreement even if the delivery was 
procured by larceny. Florida Prepaid now denies access to federal court 
for any infringement remedies as well.
    Many of our dealings are international. There is a also a question 
whether the U.S. can remain in compliance with its international 
obligations, such under the TRIPS Agreement, the WIPO Copyright Treaty, 
the Trademark Law Treaty and the proposed Patent Law Treaty. Among 
other things, these agreements require recognition of effective 
remedies for infringement. If U.S. law does not provide effective 
remedies against infringement by state entities, then continued U.S. 
compliance with its treaty obligations may be in doubt.
    The General Accounting Office Report has presented a thoughtful 
report that examines lawsuits against state entities for intellectual 
property infringement. While lawsuits are certainly evidence of 
infringement, the inquiry need not end there. As the Court said: ``It 
is this conduct then--unremedied . . . infringement by the States--that 
must give rise to the Fourteenth Amendment violation that Congress 
[seeks] to redress.'' Florida Prepaid at 527 U.S. 640 (emphasis added). 
To the GOA's list of unavailable tort remedies for infringement against 
state entities, one must now add the unavailability of breach of 
contract remedies against state entities that license intellectual 
property.
    There is mounting conflict between the requirements of federal 
intellectual property law and state law. For commercial parties, 
intellectual property owners can protect their rights by an 
infringement suit in federal court. Due to Florida Prepaid, that is not 
possible against a state entity, and state law remedies are 
increasingly inadequate as well. Legislation like S. 1611 is urgently 
needed to correct a significant and growing problem.

            Very truly yours,

                                             Lorin Brennan,
                                                            Manager

                                

Statement of Hon. Orrin G. Hatch, a U.S. Senator from the State of Utah

    Thank you, Mr. Chairman. First, let me thank you for holding this 
important hearing today. On the day the Supreme Court issued its 
decision in the Florida Prepaid and College Savings Bank cases in 1999, 
you and I both pledged to work together to find an appropriate response 
to the court that would fairly protect the rights of American 
innovators and creators. Continuing that process, today we will have a 
discussion of the issues and of your proposed legislation, S. 1611. I 
also want to commend your enthusiastic leadership on this important and 
complex property rights issue.
    You will recall that as part of the fact-finding process the Court 
suggested we undertake in fashioning future legislation, I requested 
that the General Accounting Office make a study of the factual 
background and options available to us. They issued a report on their 
findings in September of last year. I would ask that their report, 
Intellectual Property: State Immunity Infringement Actions, be included 
in the Record of this hearing so as to be included formally in the 
Congressional fact-finding process.
    In brief, Mr. Chairman, while their process relied largely on self-
reporting, and was therefore not probably exhaustive, what the GAO 
found includes the following: First, States very often own intellectual 
property and benefit from the federal protection of such intellectual 
property. Second, that for most of the 15 years reviewed, most 
commentors believed States were liable for infringing intellectual 
property rights. Third, that despite this widespread belief, at least 
58 active cases were brought against States for infringement and 
perhaps hundreds of matters dealt with short of litigation. Fourth, 
very few, and perhaps no remedies now exist for redress against a State 
or state entity that is violating someone's intellectual property 
rights.
    Mr. Chairman, this state of affairs is unfair. I applaud you for 
seeking to address this imbalance in our intellectual property system 
and for holding this hearing today. I understand your legislation seeks 
to be clearly within the bounds the Supreme Court has set for such 
legislation. I hope, Mr. Chairman, that we might continue to work 
together so that we can be sure that, while we can be comfortable with 
any final legislation's constitutionality, we can also be certain that 
it will be effective in protecting these important property rights and 
in restoring a substantial amount of the fairness that has been lost 
since 1999. We must ensure that our creators and innovators are 
provided adequate and effective protection for their works. That is 
what our Constitution empowers this body to do and we have not 
hesitated in recognizing the need to do so.
    In sum, Mr. Chairman, I hope that we will be able to continue to 
work together to make the federal intellectual property system as fair 
and as successful as it has been previous to these decisions, and I 
look forward to the testimony the Committee receives today.

                                

                                            IPO Association
                                     Washington, D.C. 20037
                                                  February 19, 2002

Hon. Patrick J. Leahy Chairman
Committee on the Judiciary
United States Senate
224 Dirksen Senate Office Building
Washington, DC 20510

    Dear Mr. Chairman:

    I am writing on behalf of Intellectual Property Owners Association 
to express our strong support for S. 1611, the Intellectual Property 
Protection Restoration Act of 2001.
    Intellectual Property Owners Association (IPO) represents companies 
and individuals who own patents, trademarks, copyrights and trade 
secrets. Our members obtain about 30 percent of patents that are 
granted to U.S.: nationals and federally register thousands of 
trademarks each year. Our nearly 100 corporate members are largely 
U.S.-based technology and consumer products firms.
    1PO has been a strong advocate for an effective U.S, intellectual 
property system. Our members know that for this system to' function 
properly, the right to receive patents, trademarks, and copyrights must 
be accompanied by a requirement to respect them. S--1611 seeks to 
ensure just that.
    By encouraging a waiver of sovereign immunity, S. 1611 attempts to 
place States on equal footing with private parties, Quite simply, a 
State cannot sue for damages on State-owned intellectual property 
without submitting to the possibility of being sued for damages. This 
common sense solution should eliminate the State infringement loophole 
and make a strong statement for respecting intellectual property rights 
worldwide.
    We thank you for introducing this legislation and look forward to 
working with you on its further consideration.

            Sincerely,

                                         Herbert C. Wamsley
                                                 Executive Director

                                

                        International Trademark Association
                                     Washington, D.C. 20036
                                                   February 4, 2002

Hon. Patrick Leahy,
Chairman
Committee on the Judiciary
United States Senate
Washington, D.C. 20510

    Re: S. 1611, the ``Intellectual Property Protection Restoration Act 
of 2001''

    Dear Chairman Leahy:

    I am writing to lend the support of the International Trademark 
Association (``INTA'') to S. 1611, the ``Intellectual Property 
Protection Restoration Act of 2001.'' This bill is a fair and effective 
measure that would restore federal remedies for violations of 
intellectual property rights by states. INTA, the world's largest 
organization dedicated exclusively to the protection of trademarks and 
to their preservation as valuable tools for consumer protection, 
respectfully requests that this letter be made part of the record for 
the hearing on federal remedies for state violations of intellectual 
property rights,
    The matter of state abrogation of sovereign immunity has been of 
substantial concern to owners of private intellectual property rights 
in light of recent Supreme Court opinions on the Eleventh Amendment to 
the U.S. Constitution and federalism, and, Mr. Chairman, INTA very much 
appreciates your leadership on this issue. INTA has worked with other 
members of the intellectual property community and your staff to 
develop legislation that would as a matter of fairness and in the 
interest of consumer protection hold states and state entities to the 
same principles of law as the private sector. After all, states and 
their agencies often present themselves as valid commercial entities 
that compete with private sector enterprises. Examples of state 
commercial activity include the sale of goods and services, with the 
ability to sue for breach of contract, and, most importantly with 
respect to trademark law, registration of trademarks on the Principal 
and Supplemental Registers of the U.S. Patent and Trademark Office.
    We are especially pleased to see that S. 1611 places trademarks as 
coequal partners with patents and copyrights in the waiver arrangement 
set forth in the bill. We agree with your position that like patents 
and copyrights, trademarks are a form of property that falls within the 
scope of the Fourteenth Amendment. From bath a common law and statutory 
perspective, it is clear that the scope of protection afforded to 
trademarks is determined by more than the metes and bounds of the 
goodwill attached to them.
    Contrary to the view of some commentators that trademark law should 
reach only the intangible goodwill attached to particular marks, the 
common law always has protected coined, arbitrary, and suggestive marks 
from the inception of their use and without a requirement that their 
owners demonstrate actual goodwill.\1\ Likewise, a senior user of a 
mark may, under certain circumstances, enforce its rights even in 
geographic areas in which a junior user has cultivated goodwill in its 
own mark first.\2\ It is thus apparent that trademark protection and 
goodwill were not necessarily congruent concepts under the common law 
even prior to the passage of the Lanham Act.
---------------------------------------------------------------------------
    \1\ See, e.g., Blisscraft of Hollywood v. United Plastics Co., 294 
F.2d 694, 700 (2d Cir. 1961) (``The presumption that a fanciful word or 
mark becomes distinctive and identifies the source of goods on which it 
is used immediately after adoption and bona fide first use is basic in 
trademark law.'').
    \2\ See United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90 
(1918); Hanover Star Milling Co. v. Metcalf, 240 U.S. 403 (1916); see 
also Davidoff Extension S.A. v. Davidoff Comercio E Industria Lida., 
747 F. Supp. 122 (D.P.R. 1990).
---------------------------------------------------------------------------
    Statutory provisions of the Lanham Act, including the Act's 
constructive notice and nationwide priority provisions reinforce the 
common law rule by requiring a mark owner whose use began after the 
issuance of a senior user's registration to forfeit its goodwill in the 
face of a challenge by the senior user, even if the junior user adopted 
its mark in good faith.\3\ The legislative abrogation of the goodwill 
model is even more apparent in the Trademark Law Revision. Act of 1988 
(``TLRA''), in which Congress adopted the intent-to-use system after 
consultation with the trademark community.\4\ Under this regime, 
claimants filing intent-to-use applications may, depending on the 
length of the application process, secure priority of rights in their 
marks that can predate by years the actual goodwill that accompanies 
the ultimate use of the marks in commerce.\5\ Finally, both the express 
text and the legislative history of the Federal Trademark Dilution Act 
of 1995 (``FTDA'') \6\ clearly reflect an intent to protect not merely 
the public from the risk of confusion that is the hallmark of the 
traditional infringement cause of action, but also mark owners' 
investments as well.
---------------------------------------------------------------------------
    \3\ See generally 15 U.S.C. Sec. Sec. 1057(c), 1072; see also 
Foxtrap, Inc. v. Foxtrap, Inc., 671 F.2d 636 (D.C. Cir.1982); Howard 
Stores Corp. v. Howard Clothing Inc., 308 F. Supp. 70 (N.D. Ga. 1969).
    \4\ See Pub. L. No. 100-667, 102 Stat. 3935 (1988).
    \5\ See 15 U.S.C. Sec. 1051(b)-(d).
    \6\ See Id. Sec. 1125(c).
---------------------------------------------------------------------------
    INTA does not mean to suggest, of course, that the right to exclude 
conferred by a property ownership in a trademark is absolute or that it 
should be.\7\ This does not, however, prevent trademarks from being 
property rights any more than copyright law's fair use doctrine 
precludes copyrights from property status.\8\
---------------------------------------------------------------------------
    \7\ See, e.g., 15 U.S.C. Sec. 1115(b)(4) (authorizing ``fair 
descriptive uses'' even of words covered by incontestable federal 
registrations); see also Stop the Olympic Prison v. United States 
Olympic Committee, 489 F. Supp. 1112 (S.D.N.Y. 1980) (holding use of 
the ``Olympic'' trademarks by political protesters subject to first 
Amendment protection).
    \8\ See College Sav. Bank v. Florida Prepaid Post-Secondary Expense 
Bd., 119 S. Ct. 2219, 2224 (1999) (``The Lanham Act may well contain 
provisions that protect constitutionally cognizable property 
interests--notably its provisions dealing with infringement of 
trademarks, which are the property of the owner becaase he can exclude 
others from using them.'').
---------------------------------------------------------------------------
    Mr. Chairman, INTA appreciates that S. 1611 gives due consideration 
to the settled expectations of mark owners in their ability to protect 
the property rights represented by their brands, whether against the 
states or other market participants. We also gratefully acknowledge 
your efforts and that of staff to develop legislation that would create 
a level playing field between private entities and states that own 
intellectual property. INTA looks forward to working towards the 
passage of a measure that would effectively protect all forms of 
intellectual property rights.

            Sincerely,

                                         Nils Victor Montan
                                                          President

                                

                                           Mittel Asen LLC,
                                           Attorneys at Law
                                            Portland, ME 04112-0427

Hon. Patrick Leahy
Committee on Judiciary
SD-224
Dirksen Building
Washington DC 20510

Hon. Orrin Hatch
Committee on the Judiciary
SD-152
Dirksen Building
Washington DC 20510

    Dear Chairman Leahy and Senator Hatch:

    I represent Julie Harrington who has been employed by the State of 
Maine at the Northern Maine Juvenile Detention Facility as a teacher 
and administrator. Ms. Harrington has written and installed a piece of 
software used for inmate tracking.
    Ms. Harrington has filed a suit for copyright infringement of that 
software against the State of Maine and several state employees in the 
United States District Court for the District of Maine, Dkt. No. 02-25-
B-H. Although the State has yet to file its answer, we believe the 
state will assert its Eleventh Amendment immunity.
    This case was filed well after the conclusion of the GAO study on 
the subject. of Eleventh Amendment immunity in the area of intellectual 
property. However, to amplify on the statistics appearing in the 
report, I consulted with the Maine State Law Library. A search of its 
historical legislative database was conducted by Library staff. The 
search indicates the following.
    There have been 53 bills introduced in the last 10 years through 
which a waiver of sovereign immunity for actions in state court was 
sought. No bills were introduced seeking a waiver of sovereign immunity 
for actions filed in federal court. Of those 53 bills, only four of 
those bills had even partial success.
    A bill was recently introduced seeking a waiver of sovereign 
immunity in federal court on behalf of Ms. Harrington. Its author is 
Rep. Anita Haskell, of Milford, Maine.
    On behalf of Ms. Harrington, I ask that the Senate approve S. 1611 
so that people like herself can obtain adequate compensation of their 
intellectually property.

            Very truly yours,

                                           Robert E. Mittel

                                

                                 Motion Picture Association
                                     Washington, D.C. 20006
                                                  February 26, 2002

    Dear Pat

    I want to take just a moment to thank you, Mr. Chairman, the 
Ranking Republican, Senator Hatch, and your other Judiciary Committee 
colleagues for taking rip the ``Intellectual Property Protection 
Restoration Act'' (S. 1611). As you know, the MPAA strongly 5uhports 
your efforts to redress the inequities rendered by the Suprerne Court's 
recent Florida Prepaid decisions, which effectively immunized states 
from liability for state infringements of private intellectual property 
rights. We believe S. 1611 is appropriate, timely, and much deeded 
legislation, and I encourage you to move swiftly toward its enactment.
    MPAA member companies are among the leading producers and 
distributors of motion pictures in the United States. Collectively our 
companies produce and distribute roughly 90 percent of the filmed 
entertainment in the theatrical, television, and horne video markets. 
State-owned entities--schools, libraries, public agencies, even 
prisons--are significant consumers of these products, including through 
purchase or licensing of copies and public performance rights. 
Increasingly, these entities are acting not just as consumers, but also 
as competitors in the marketplace, as was the case with the alleged 
patent and trademark infringements in the Florida Prepaid cases.
    Unfortunately, in its efforts to limit Congress' Article I powers 
to abrogate State sovereign immonity, the Supreme Court has created an 
anomalous situation wherein states--unlike the Federal Government--are 
free to enjoy Federal intellectual property protection and to exploit 
that protection against private parties, including to their own 
competitive advantage, but are left free from obligation to respect the 
intellectual property rights of private parties. This is an inequity 
that cries out for congressional attention, as it did over a decade 
ago, in 1990, when the Judiciary Committee first took up, and Congress 
passed, the Copyright Remedy Clarification Act (CRCA) to level the 
playing field in this area.
    Fortunately, in limiting Congress' Article I powers, the Supreme 
Court has not in any way suggested that Congress cannot, or should not, 
act to maintain a level playing field in the exploitation of Federally-
granted intellectual property rights. In fact, quite to the contrary, 
the Florida Prepaid cases provide valuable guidance in terms of the 
several ways in which Congress may properly exercise its legitimate 
authority to that end. we believe that S. 1611 reflects a faithful 
adherence to the lessons of Florida Prepaid and the cases that preceded 
it, and we commend your thoughtful study of these issues and the care 
with which you have crafted the provisions of this legislation.
    Again, thank you for your attentive efforts in this area. We look 
forward to continuing to work with you to ensure timely enactment of 
this important legislation.

            With affection

                                               Jack Valenti
                                  Chairman, Chief Executive Officer

                                

                      Professional Photographers of America
                                          Atlanta, GA 30303
                                                  February 25, 2002

Hon. Patrick Leahy
Chairman,
Senate Judiciary Committee
224 Dirksen Building
Washington, DC 20510

    Mr. Chairman, Senator Hatch and members of the Committee:
    On behalf of Professional Photographers of America and its 14,000 
members working in all fields of photography and imaging, thank you for 
the opportunity to be heard regarding the Intellectual Property 
Protection Restoration Act of 2001. As the world's largest and oldest 
trade association for professional photographers, the protection of our 
members' work from illegal copying is of primary concern.
    Unfortunately, the Supreme Court's nullification of Congressional 
Acts designed to prevent States and their agencies from seizing the 
intellectual property of photographers, artists and inventors without 
any form of compensation has created an environment where States may 
freely trample on the rights of citizens.
    In addition to violating the right of individuals to be secure in 
their property, the current state of affairs permits States to 
economically harm small businesses--the very backbone of our national 
economy. In general, photographers do not derive the majority of their 
income from the initial creation of photograph. Instead, their income 
comes from licensing the images they create for a set purpose, period 
of time or presentation to a specific audience. This arrangement, 
created by market forces, allows photographers to profit from their 
work and makes high-quality images more affordable to those clients who 
require only limited usage of a particular image. Without adequate 
protection from copyright infringements, this system no longer 
functions properly.
    Since State governments and their agencies have been placed above 
the reach of federal intellectual property laws, they have no incentive 
to compensate an artist for his or her endeavors. These governments 
have both the opportunity and ability to steal the creative efforts of 
both those who do business with them directly, and of those whose work 
can be viewed on the Internet. In addition to the direct harm from lost 
sales, such ability dilutes the ability of photographers to earn income 
by licensing these works to others.
    Ironically, while States and their agencies are free to ignore the 
patents, trademarks and copyrights of individual citizens and 
businesses, works created by States are given full protection of the 
law. The net effect of the current legal environment is a chilling of 
the individual's incentive to promote the progress of the useful arts 
and sciences, which runs counter to the entire purpose of the 
Constitution's copyright clause.
    Fortunately, this gaping hole in intellectual property protections 
can be easily patched. The Intellectual Property Protection Restoration 
Act, with its careful construction that stays within the boundaries set 
by the Supreme Court, is an excellent opportunity for Congress to right 
this wrong and restore the longstanding ability of individuals to 
protect themselves from State infringements.
    We respectfully urge the committee to remedy this unequal 
protection of the law and restore the protections of all patent, 
copyright and trademark owners from infringement by State governments 
by approving Senate 1611.
    Again, we thank the committee for this opportunity.
            Respectfully submitted,
                                             David P. Trust
                                            Chief Executive Officer

                                

                      Professional Photographers of America
                                          Atlanta, GA 30303
                                                      April 2, 2002

Hon. Patrick Leahy
Chairman,
Senate Judiciary Committee
224 Dirksen Building
Washington, DC 20510

    Mr. Chairman, Senator Hatch and members of the Committee:
    As part of our testimony regarding S. 2031, the Intellectual 
Property Protection Restoration Act of 2002, we offer the stories of 
three photographers who have been the victims of infringement by a 
state government or one of its divisions:
    1. According to photographer Ken Meade of Hillsboro, Illinois, he 
created images of a state resort park for the Illinois Department of 
Tourism in 1989. Originally, the images were used according to the 
agreement between the photographer and the state. However, in 1998, the 
same year that states were given sovereign immunity in copyright suits, 
Illinois reused the images in a new brochure without securing 
permission of the copyright owner or offering payment for the 
additional usage. When questioned about the images, the State claimed 
ownership of the images.
    2. David Boyce of Portage, Michigan reports that he was in a local 
camera store and noticed a clerk making copies of professionally made 
high school senior portraits. Being one of the store's ``regulars,'' 
Mr. Boyce asked what the employee was doing. She said she was making 
the copies for Western Michigan University. According to Mr. Boyce, he 
then examined the photographs, and all of them were marked as being 
copyrighted by their respective photographers. Mr. Boyce pointed out 
that making such copies violated the law. The clerk agreed but said the 
University had given her permission to make the copies. The clerk then 
produced a letter from the University stating that they were aware of 
the copyright laws and regulations and they would take responsibility 
for infringement.
    3. According to John D. Landry Jr., of Landry Studio in Carencro, 
Louisiana he created 360-degree panoramic photographs during a football 
game between the University of Southwest Louisiana (now known as UL-
Lafayette) and the University of Alabama at Cajun Field in Lafayette, 
Louisiana. Dan McDonald, USL Athletic Information Director, asked to 
see the images for the purpose of reviewing them with the school's 
athletic director the head coach. They were supplied a contact sheet, 
with the copyright notice attached. Without the photographer's 
knowledge or consent, the University copied an image from the contact 
sheet and printed the image on the season tickets for the next (1991) 
football season.
    Intellectual property owners should not be forced to live in fear 
that they have no recourse if a state government destroys their ability 
to derive economic gain from their artistic and creative labors. 
Bearing that in mind, we urge passage of S. 2031, so that photographers 
and other intellectual property holders may once again have adequate 
remedies for copying by state governments.

            Respectfully submitted,

                                             David P. Trust
                                            Chief Executive Officer

                                

                Software & Information Industry Association
                                  Washington, DC 20005-4095
                                                      March 4, 2002

Chairman Leahy
Committee on the Judiciary
United States Senate
Washington, DC 20510
    Dear Mr. Chairman:
    The Software & Information Industry Association (SIIA) hereby 
requests that the following letter and attachments be included in the 
record for the hearing before the Senate Judiciary Committee on S. 
1611, the Intellectual Property Protection Restoration Act held on 
February 27th, 2002.
    SIIA is the principal trade association of the software and 
information industry and represents over 800 high-tech companies that 
develop and market software and digital content for business, 
education, consumers, the Internet, and entertainment. Hundreds of 
these companies look to SIIA to protect their intellectual property 
rights around the world. SIIA combines strong antipiracy education and 
enforcement efforts through such programs as its piracy hotline (1-
800388-7478), the Certified Software Manager course, SPAudit, KeyAudit, 
the Software Management Guide, videos, posters and other educational 
and audit materials. Information on SIIA and its wide range of 
antipiracy activities can be found at www.siia.net.
    SIIA supports immediate enactment of legislation that would level 
the playing field between state entities and other intellectual 
property owners. State entities should not be able to benefit from the 
patent, copyright and trademark laws as owners of intellectual property 
but not be liable for damages for infringing the intellectual property 
rights of others. SIIA appreciates the efforts of Chairman Leahy and 
his staff to resolve this problem. We support S. 1611 and urge its 
immediate consideration and enactment.
    Following the Supreme Court's decisions in Florida Prepaid v. 
College Savings, SIIA's antipiracy division undertook a review of its 
records to determine whether and to what extent State entities were 
infringing our members' copyrights. SIIA was extremely conservative in 
determining which entities were ``state entities.'' If there was any 
doubt whether an entity was a state entity that entity was excluded 
from our study. Further, we only included in our study obvious and 
flagrant instances of piracy. We are able to make this determination 
largely because after SIIA learns of a possible infringement, we audit 
the infringing entity's computers. The audit helps us conclusively 
determine what software exists on an entity's computers and how much of 
that software is licensed and how much is illegal.
    In the six years covered by the review,\1\ we identified at least 
77 matters involving infringements by State entities. Of these 77 
matters, approximately 50% involved State institutions of higher 
learning. The other 50% consisted of State hospitals, bureaus, public 
service commissions, and other instrumentalities. In the overwhelming 
majority of cases, no litigation actually resulted. This helps bolster 
assertions made by the U.S. Copyright Office and U.S. Patent and 
Trademark Office and others that the results published in the GAO 
report do not accurately reflect the amount of intellectual property 
infringement engaged in by state entities because many--if not most--
instances of intellectual property infringement never find their way 
into the courts. Moreover, the SIIA study covers only those matters 
reported to SIIA. We have no doubt that a far greater number of State 
infringements than we are made aware of go undetected and unreported.
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    \1\ Because of confidential settlement agreements, we cannot reveal 
the identity of the parties in these matters, and can make this 
information available only in the aggregate.
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    The Florida Prepaid decision has had a dramatic and adverse effect 
on our ability to combat software piracy by state entities. The most 
recent example of this occurred this past Monday, February 25, 2002.
    Through a confidential source, SIIA was alerted to the piracy of 
hundreds of computer software programs on computers owned by Spring 
Grove Hospital Center in Baltimore, Maryland. With Spring Grove's 
approval, SIIA audited their computers to determine the extent of the 
piracy. The audit revealed several hundred thousand dollars worth of 
unlicensed software, which the hospital acknowledged.
    For more than a year SIIA and Spring Grove Hospital attempted to 
work out a settlement. This settlement was to involve a monetary sum to 
be paid by Spring Grove Hospital ranging anywhere from three quarters 
of a million dollars to a quarter of a million dollars, with SIIA and 
the hospital negotiating in good faith toward a reasonable settlement. 
Although the actual amount of monetary damages at issue in this case 
might be disputed, it is evident that the amount was large and directly 
related to the amount of software piracy taking place in their 
facilities. Also, as is the case with all SIIA settlement agreements, 
any settlement agreement with Spring Grove would have required them to 
legitimately license the software.
    On Monday, February 25th, SIIA's antipiracy department received a 
letter from Spring Grove Hospital asserting their 11th Amendment 
immunity and referencing the Florida Prepaid and Rodriguez cases. (see 
Attachment A) They now refuse to pay any monetary damages. So, although 
Spring Grove Hospital has all but admitted wrong doing and appeared 
potentially willing to settle the case for hundreds of thousands of 
dollars in damages, once they discovered this giant loophole in the law 
they took full advantage of it.
    This case illustrates the unfairness of the Court's sovereign 
immunity decisions. Effectively, the State gets at least one free 
infringement-no matter how large the damage. The State went from 
potentially paying a sum of at least a quarter million dollars for the 
infringed software to zero. They made no offer to pay for licenses that 
they would need to make their use of the software legitimate. Moreover, 
without the threat of damages, it is unlikely that the State would 
agree to an audit in the first instance, which is the primary way that 
we determine the extent of piracy at a given location. The current 
state of the law virtually forces SIIA to sue for an injunction first, 
and ask questions later.
    This is just one example. There are many others. In fact, after 
discovering software piracy by a state entity in New Hampshire, that 
state entity threatened legal sanctions against SIIA for attempting to 
either: (1) enjoin further infringing acts; or (2) obtain damages for 
unauthorized use of software. (see Attachment B). The results in these 
cases exemplifies the types of problems enforcing the intellectual 
property rights of our members. It also completely undercuts the 
incentive for states to monitor their copyright compliance. It is 
precisely this kind of inequity that Congress attempted to remedy when 
it passed the CRCA in 1990, and that we are asking the Committee to 
remedy.
    Thank you again for all your work in this very complex area of the 
law and thank you for this opportunity to submit our comments into the 
record. If you need more information on our study or these two cases, 
please feel free to contact SIIA Intellectual Property Counsel, Keith 
Kupferschmid by e-mail at [email protected] or by phone at (202) 789-
4442.

            Sincerely,

                                                  Ken Wasch
                                                          President

                                   - 
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