[Congressional Record Volume 144, Number 17 (Friday, February 27, 1998)]
[Senate]
[Pages S1155-S1162]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. GORTON:
S. 1691. A bill to provide for Indian legal reform, and for other
purposes; to the Committee on Indian Affairs.
AMERICAN INDIAN EQUAL JUSTICE ACT
Mr. GORTON. Mr. President, I introduce the American Indian Equal
Justice Act and ask unanimous consent that the full text of the bill be
printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 1691
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; FINDINGS; PURPOSE.
(a) Short Title.--This Act may be cited as the ``American
Indian Equal Justice Act''.
(b) Findings.--Congress finds that--
(1) a universal principle of simple justice and accountable
government requires that all persons be afforded legal
remedies for violations of their legal rights;
(2) the fifth amendment of the Constitution builds upon
that principle by guaranteeing that ``. . . no person shall
be deprived of life, liberty, or property without due process
of law'';
(3) sovereign immunity, a legal doctrine that has its
origins in feudal England when it was policy that the ``King
could do no wrong'', affronts that principle and is
incompatible with the rule of law in democratic society;
(4) for more than a century, the Government of the United
States and the States have dramatically scaled back the
doctrine of sovereign immunity without impairing their
dignity, sovereignty, or ability to conduct valid government
policies;
(5) the only remaining governments in the United States
that maintain and assert the full scope of immunity from
lawsuits are Indian tribal governments;
(6) according to the 1990 decennial census conducted by the
Bureau of the Census, nearly half of the individuals residing
on Indian reservations are non-Indian;
(7) for the non-Indian individuals referred to in paragraph
(6) and the thousands of people of the United States, Indian
and non-Indian, who interact with tribal governments
everyday, the rights to due process and legal remedy are
constantly at risk because of tribal immunity;
(8) by providing a complete shield from legal claims, the
doctrine of sovereign immunity frustrates justice and
provokes social tensions and turmoil inimical to social
peace;
(9) the Supreme Court has affirmed that Congress has clear
and undoubted constitutional authority to define, limit, or
waive the immunity of Indian tribes; and
(10) it is necessary to address the issue referred to in
paragraph (9) in order to--
(A) secure the rights provided under the Constitution for
all persons; and
(B) uphold the principle that no government should be above
the law.
(c) Purpose.--The purpose of this Act is to assist in
ensuring due process and legal rights throughout the United
States and to strengthen the rule of law by making Indian
tribal governments subject to judicial review with respect to
certain civil matters.
SEC. 2. DEFINITIONS.
In this Act:
(1) Indian tribe.--The term ``Indian tribe'' means any
Indian tribe or band with a governing body duly recognized by
the Secretary of the Interior.
(2) Tribal immunity.--The term ``tribal immunity'' means
the immunity of an Indian tribe from jurisdiction of the
courts, judicial review of an action of that Indian tribe,
and other remedies.
SEC. 3. COLLECTION OF STATE TAXES.
Section 1362 of title 28, United States Code, is amended--
(1) by inserting ``(a)'' before ``The district courts'';
(2) by inserting ``(referred to in this section as an
`Indian tribe')'' after ``Interior''; and
(3) by adding at the end the following:
``(b)(1) An Indian tribe, tribal corporation, or member of
an Indian tribe, shall collect, and remit to a State, any
excise, use, or sales tax imposed by the State on nonmembers
of the Indian tribe as a consequence of the purchase of goods
or services by the nonmember from the Indian tribe, tribal
corporation, or member.
``(2) A State may bring an action in a district court of
the United States to enforce the requirements under paragraph
(1).
``(3) To the extent necessary to enforce this subsection
with respect to an Indian tribe, tribal corporation, or
member of an Indian tribe, the tribal immunity of that Indian
tribe, tribal corporation, or member is waived.''.
SEC. 4. INDIAN TRIBES AS DEFENDANTS.
(a) Provisions To Parallel the Provisions That Are
Popularly Known as the Tucker Act.--Section 1362 of title 28,
United States Code, as amended by section 3, is further
amended by adding at the end the following:
``(c)(1) The district courts of the United States shall
have original jurisdiction in any
[[Page S1156]]
civil action or claim against an Indian tribe, with respect
to which the matter in controversy arises under the
Constitution, laws, or treaties of the United States.
``(2) The district courts shall have jurisdiction of any
civil action or claim against an Indian tribe for liquidated
or unliquidated damages for cases not sounding in tort that
involve any contract made by the governing body of the Indian
tribe or on behalf of an Indian tribe.
``(d) Subject to the provisions of chapter 171A, the
district courts shall have jurisdiction of civil actions in
claims against an Indian tribe for money damages, accruing on
or after the date of enactment of the American Indian Equal
Justice Act for injury or loss of property, personal injury,
or death caused by the negligent or wrongful act or omission
of an Indian tribe under circumstances in which the Indian
tribe, if a private individual or corporation would be liable
to the claimant in accordance with the law of the State where
the act or omission occurred.
``(e) To the extent necessary to enforce this section, the
tribal immunity (as that term is defined in section 2 of the
American Indian Equal Justice Act) of the Indian tribe (as
that term is defined in such section 2) involved is
waived.''.
SEC. 5. TORT CLAIMS PROCEDURE.
(a) In General.--Part 6 of title 28, United States Code, is
amended by inserting after chapter 171 the following:
``CHAPTER 171A--INDIAN TORT CLAIMS PROCEDURE
``Sec.
``2691. Definitions.
``2692. Liability of Indian tribes.
``2693. Compromise.
``2694. Exceptions; waiver.
``Sec. 2691. Definitions
``In this chapter:
``(1)(A) Subject to subparagraph (B), the term `employee of
an Indian tribe' includes--
``(i) an officer or employee of an Indian tribe; and
``(ii) any person acting on behalf of an Indian tribe in an
official capacity, temporarily or permanently, whether with
or without compensation (other than an employee of the
Federal Government or the government of a State or political
subdivision thereof who is acting within the scope of the
employment of that individual).
``(B) The term includes an individual who is employed by an
Indian tribe to carry out a self-determination contract (as
that term is defined in section 4(j) of the Indian Self-
Determination and Education Assistance Act (25 U.S.C.
450b(j))).
``(2) The term `Indian tribe' means any Indian tribe or
band with a governing body duly recognized by the Secretary
of the Interior.
``Sec. 2692. Liability of Indian tribes
``(a) An Indian tribe shall be liable, relating to tort
claims, in the same manner and to the same extent, as a
private individual or corporation under like circumstances,
but shall not be liable for interest before judgment or for
punitive damages.
``(b) In any case described in subsection (a) in which a
death was caused and the law of the State where the act or
omission complained of occurred provides for punitive
damages, the Indian tribe shall, in lieu of being liable for
punitive damages, be liable for actual or compensatory
damages resulting from that death to each person on behalf of
whom action was brought.
``Sec. 2693. Compromise
``The governing body of an Indian tribe or a designee of
that governing body may arbitrate, compromise, or settle any
claim cognizable under section 1362(d).
``Sec. 2694. Exceptions; waiver
``(a) The provisions of this chapter and section 1362(d)
shall not apply to any case relating to a controversy
relating to membership in an Indian tribe.
``(b) With respect to an Indian tribe, to the extent
necessary to carry out this chapter, the tribal immunity (as
that term is defined in section 2 of the American Indian
Equal Justice Act) of that Indian tribe is waived.''.
(b) Clerical Amendment.--The table of chapters for title
28, United States Code, is amended by inserting after the
item relating to chapter 171 the following:
``171A. Indian Tort Claims Procedure........................2691''.....
SEC. 6. INDIAN TRIBES AS DEFENDANTS IN STATE COURTS.
(a) Consent to Suit in State Court.--Consent is hereby
given to institute a civil cause of action against an Indian
tribe in a court of general jurisdiction of the State, on a
claim arising within the State, including a claim arising on
an Indian reservation or Indian country, in any case in which
the cause of action--
(1) arises under Federal law or the law of a State; and
(2) relates to--
(A) tort claims; or
(B) claims for cases not sounding in tort that involve any
contract made by the governing body of an Indian tribe or on
behalf of an Indian tribe.
(b) Tort Claims.--In any action brought in a State court
for a tort claim against an Indian tribe, that Indian tribe
shall be liable to the same extent as a private individual or
corporation under like circumstances, but shall not be liable
for interest prior to judgment or for punitive damages.
(c) Federal Consent.--Notwithstanding the provisions of the
Act of August 15, 1953 (67 Stat 588 et seq., chapter 505),
section 1360 of title 28, United States Code, and sections
401 through 404 of the Civil Rights Act of 1968 (25 U.S.C.
1321 through 1324) and section 406 of such Act (25 U.S.C.
1326) that require the consent of an Indian tribe for a State
to assume jurisdiction over matters of civil law, this
section constitutes full and complete consent by the United
States for a State court to exercise jurisdiction over any
claim referred to in subsection (a).
(d) Removal.--An action brought under this section--
(1) shall not be removable under section 1441 of title 28,
United States Code; and
(2) shall be considered to meet the requirements for an
exception under section 1441(a) of title 28, United States
Code.
SEC. 7. INDIAN CIVIL RIGHTS.
Title II of the Civil Rights Act of 1968 (commonly known as
the ``Indian Civil Rights Act'') (25 U.S.C. 1301 et seq.) is
amended by adding at the end the following:
``SEC. 204. ENFORCEMENT.
``The district courts of the United States shall have
jurisdiction in any civil rights action alleging a failure to
comply with rights secured by the requirements under this
title. With respect to an Indian tribe, to the extent
necessary to enforce this title, the tribal immunity of that
Indian tribe (as that term is defined in section 2 of the
American Indian Equal Justice Act) is waived.''.
SEC. 8. APPLICABILITY.
This Act and the amendments made under this Act shall apply
to cases commenced against an Indian tribe on or after the
date of enactment of this Act.
______
By Mr. NICKLES (for himself, Mr. Baucus, Mrs. Hutchison, and Mr.
Murkowski):
S. 1692. A bill to amend the Internal Revenue Code of 1986 to provide
software trade secrets protection; to the Committee on Finance.
Software Trade Secrets Protection Act
Mr. NICKLES. Mr. President, recent Congressional oversight of the
Internal Revenue Service has revealed an agency which has virtually
limitless power to enforce the tax code. One aspect of this power is
the ability of the IRS to use its summons authority to force taxpayers
to turn over books, papers, records, or other data in the course of an
audit.
Recently, the IRS has started to use its administrative summons power
to gain access to the source code for computer software products.
Source code for software is a human-readable form of computer language
written by software programmers, and it contains all the ``tricks of
the trade'' which a programmer uses to ultimately make the software
product do its job. After a programmer writes the source code, it is
``compiled'' into machine-readable form called executable code or
object code. If the software is being sold or otherwise distributed to
customers, the executable code is copied onto diskettes or CD-ROM's for
the customers' use.
The IRS has used its summons power to obtain computer software source
code in several different audit situations. The IRS has sought the
source code for the software used to produce the tax return from the
vendor of the software.
The IRS has sought the source code for a software product in
connection with a Section 482 transfer pricing audit with respect to a
license for the software product to a foreign subsidiary, and the IRS
has summoned the source code for software developed by a computer
service company in the course of an audit of the firm's research and
experimentation credit. The IRS has summoned the executable code of
taxpayer's tax preparation software in order to run ``what-if''
scenarios based on the taxpayer's records during an audit.
The primary problem with complying with these summons is that, in
each instance the IRS would need to hire an outside consultant in order
to make any meaningful use of the source code. Such outside consultants
likely would be competitors or potential competitors of the software
company. A skilled computer programmer can discern the software
company's trade secrets from an examination of the source code, whereas
trade secrets cannot readily be discerned from an examination of the
executable code.
Further, problems can also arise when the IRS issues a summons to a
computer software company in connection with an audit of one of their
customers. This requires the software publisher to look through its
own, not the taxpayer's, voluminous records for the relevant versions
of the programs in
[[Page S1157]]
question. This can place an undue burden on the software publisher by
requiring their key technical personnel to be diverted from their
regular work to help with the tax audit of a customer.
Finally, if the IRS is allowed to use a taxpayer's tax preparation
software and records to run ``what-if'' scenarios during an audit, the
taxpayer will be forced to justify a tax return they did not file.
In several of these situations, Mr. President, the owner of the
computer software source code has objected to the summons in order to
protect their trade secrets. Unfortunately, because the IRS summons
authority is so broad, the courts have been constrained to side with
the IRS in most cases, leaving computer software companies with
inadequate protection for their trade secrets.
Perhaps a better way to explain the issue, Mr. President, is with the
following analogy. Imagine that during an audit of the Coca-Cola
Company, the IRS issues a summons for the secret recipe for Coke. Even
though the IRS can see the Coke, taste it, and read the ingredients on
the side of the can, they still insist on examining the secret recipe.
Now, imagine further than the IRS admits that since they employ no one
with expertise in this area, they will have to contract with experts
from Pepsi to examine Coke's secret recipe. This is the dilemma facing
the computer software industry.
For these reasons, Mr. President, I am introducing the Software Trade
Secrets Protection Act. This legislation is similar to a bill
introduced in the House of Representatives by Congressman Sam Johnson,
and the section 344 of H.R. 2676, the House-passed IRS reform bill.
The Software Trade Secrets Protection Act provides a general
prohibition on the IRS using summons authority to obtain computer
software source code. The bill then sets out three exceptions to the
general prohibition: (1) cases where the Secretary can demonstrate
need, (2) criminal investigations, and (3) internally developed
software where competitive issues are not implicated.
In the first exception, the Secretary has the burden of showing that
the need for the source code outweighs the burdens placed on the
summoned person and the danger that its trade secrets might be exposed.
The bill further provides a series of protections for both source code
and executable code if it is eventually examined by the IRS, including
provisions intended to prevent the IRS from using a taxpayer's software
and data to run ``what-if'' scenarios during an audit.
Mr. President, the U.S. software industry leads the world in the
development of innovative products and cutting-edge technology. They
are one of the fastest growing and most competitive industries in the
nation, and their products are unique and ofttimes require special
consideration. I believe Congressional hearings have shown what the IRS
can and will do if its power is unrestrained. The Software Trade
Secrets Protection Act creates good, common-sense restrictions on that
power.
I look forward to working with my colleagues on the Senate Finance
Committee to include this legislation in IRS reform legislation this
year.
Mr. President, I ask unanimous consent that additional material be
printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
S. 1692
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Software Trade Secrets
Protection Act''.
SEC. 2. SOFTWARE TRADE SECRETS PROTECTION.
(a) In General.--Subchapter A of chapter 78 of the Internal
Revenue Code of 1986 (relating to examination and inspection)
is amended by redesignating section 7612 as section 7613 and
by inserting after 7611 the following:
``SEC. 7612. SPECIAL PROCEDURES FOR SUMMONSES FOR COMPUTER
SOFTWARE.
``(a) Limitation on Authority to Require Production of
Computer Software Source Code.--
``(1) In general.--No summons may be issued under this
title, and the Secretary may not begin any action under
section 7604 to enforce any summons, to produce or examine
any computer software source code or related customer
communications, and training materials.
``(2) Exception where information not otherwise available
to verify correctness of item on return.--Paragraph (1) shall
not apply to any portion, item, or component of computer
software source code if--
``(A) the Secretary, without examining the computer
software source code, is unable to otherwise ascertain with
reasonable accuracy the correctness of any item on a return
after employing auditing procedures and practices otherwise
used pursuant to this title,
``(B) the Secretary identifies with reasonable specificity
the portion, item, or component of such code needed to verify
the correctness of such item on the return, and
``(C) the Secretary demonstrates that with respect to the
issue under examination the need for the portion, item, or
component of the computer software source code requested
outweighs the burdens of production imposed on the summoned
person and the risks of disclosure of trade secrets.
``(3) Other exceptions.--Paragraph (1) shall not apply to--
``(A) any inquiry into any offense connected with the
administration or enforcement of the internal revenue laws,
and
``(B) any computer software developed by the taxpayer or a
related person (within the meaning of section 267 or 707(b))
for internal use by the taxpayer or such person and not for
commercial purposes.
``(4) Enforcement proceeding.--In any proceeding brought
under section 7604 to enforce a summons issued under this
section, the court shall hold a hearing to determine whether
the Secretary has met the requirements of paragraph (2).
``(5) Compliance with summons for computer software source
code.--Any person to whom a summons for a portion, item, or
component of computer software source code is issued shall be
deemed to have complied with such summons by producing a
hard-copy printout of such code.
``(b) Protection of Trade Secrets and Other Confidential
Information.--
``(1) Entry of protective order.--In any court proceeding
to enforce a summons for any portion of software, the court
may receive evidence and issue any order necessary to prevent
undue burdens or the disclosure of trade secrets or other
confidential information with respect to such software,
including providing that any information be placed under seal
to be opened only as directed by the court.
``(2) Protection of software.--Notwithstanding any other
provision of this section, and in addition to any protections
ordered pursuant to paragraph (1), in the case of software
that comes into the possession or control of the Secretary in
the course of any examination with respect to any taxpayer--
``(A) the software may be examined only in connection with
the examination of such taxpayer's return,
``(B) the software may be disclosed only to persons
conducting such examination whose duties or responsibilities
require access to the software,
``(C) the software shall be maintained in a secure area or
place, and, in the case of computer software source code and
related documents, shall not be removed from the owner's
place of business,
``(D) the software may not be copied except as necessary to
perform such examination,
``(E) at the end of the examination (and any judicial
review of the summons issued under this section), the
software and all copies thereof shall be returned to the
person from whom they were obtained and any copies thereof
made under subparagraph (D) on the hard drive of a machine or
other mass storage device shall be permanently deleted and
any notes or other memoranda made with regard to such
software shall be destroyed,
``(F) the software may not be decompiled, disassembled, or
reverse engineered, and
``(G) the Secretary shall provide to the taxpayer and the
owner of any interest in such software, as the case may be, a
written agreement between the Secretary and any person who
will examine or otherwise have access to such software, in
which such person agrees--
``(i) not to disclose such software to any person other
than authorized employees or agents of the Secretary during
and after employment by the Secretary, and
``(ii) not to compete with the owner of the software for a
period of 2 years after disclosure to such person of such
software.
``The owner of any interest in the software shall be
considered a party to any agreement described in subparagraph
(G).
``(c) Compliance With Summons for Certain Computer Software
Executable Code.--Any taxpayer to whom is issued a summons
for commercially available computer software executable code
used to prepare such taxpayer's return or to account for the
taxpayer's transactions with others shall be deemed to have
complied with such summons by producing a read-only version
of such code.
``(d) Definitions.--For purposes of this section--
``(1) Software.--The term `software' includes computer
software source code and computer software executable code.
``(2) Computer software source code.--The term `computer
software source code' means--
[[Page S1158]]
``(A) the code written by a programmer using a programming
language which is comprehensible to appropriately trained
persons, is not machine readable, and is not capable of
directly being used to give instructions to a computer, and
``(B) related programmers' notes, design documents,
memoranda, and similar documentation, excluding customer
communications and training materials.
``(3) Computer software executable code.--The term
`computer software executable code' means--
``(A) any object code, machine code, or other code readable
by a computer when loaded into its memory and used directly
by such computer to execute instructions, and
``(B) any related user manuals.''.
(b) Unauthorized Disclosure of Software.--Section 7213 of
the Internal Revenue Code of 1986 (relating to unauthorized
disclosure of information) is amended by redesignating
subsection (d) as subsection (e) and by inserting after
subsection (c) the following:
``(d) Disclosure of Software.--Any person who divulges or
makes known in any manner whatever not provided under section
7612 to any other person software (as defined in section
7612(d)(1)) shall be guilty of a felony and, upon conviction
thereof, shall be fined not more than $5,000, or imprisoned
not more than 5 years, or both, together with the costs of
prosecution.''.
(c) Conforming Amendment.--The table of sections for
subchapter A of chapter 78 of the Internal Revenue Code of
1986 is amended by striking the item relating to section 7612
and by inserting the following:
``Sec. 7612. Special procedures for summonses for computer software.
``Sec. 7613. Cross references.''.
(d) Effective Date.--The amendments made by this section
shall take effect on the date of enactment of this Act.
____
Software Trade Secrets Protection Act--Section-by-Section Analysis
1. factual scenarios
Recently, the Internal Revenue Service has started to use
its administrative summons power to gain access to the source
code for computer software products. The use of the summons
power to compel production of computer software source code
has come up in three situations. First, in connection with
the audit of certain taxpayers under the Coordinated
Examination Program, the IRS has sought the source code for
the software used to produce the tax return from the vendor
of the software. In other cases, IRS has sought the source
code for a software production in connection with a Section
482 transfer pricing audit. In the third class of cases, IRS
has summoned the source code for software developed by a
computer service company in the course of an audit of the
firm's research and experimentation credit. In each instance,
the IRS has signaled its intention to hire outside
consultants in order to make any meaningful use of the source
code. Such outside consultants likely would be competitors or
potential competitors of the software company.
The source code for computer software is the human readable
form prepared by software programmers. After the source code
is prepared, it is then ``compiled'' into machine-readable
form called executable code or object code. The executable
code is then copied onto diskettes or CD-ROM's for
distribution to customers. A skilled computer programmer can
discern the software company's trade secrets from an
examination of the source code. Trade secrets cannot readily
be discerned from an examination of the executable code.
The ease of misappropriating software trade secrets and
capitalizing on such secrets is unparalleled, especially
given advances in computer and communications technology.
Computer software products undergo nearly continuous
change. Many times, it is not possible to match a particular
version of a product in the hands of a customer with a
discrete source code version. Software companies continually
revise their products and issue new versions. Within a
particular version, companies frequently issue updates and
corrections after a product is released. These interim
changes must first be made to the source code before the
machine-readable versions are released. Software companies
make such bug-fixes and patches available to their customers,
but typically the vendor does not know whether the customer
has installed them or not.
Summonses issued to third-party record keepers typically
require the recordkeeper to identify and turn over to the IRS
documents regarding the taxpayer's financial transactions. By
contrast, a summons for source code could require a software
publisher to look through its own, not the taxpayer's,
voluminous records for the relevant versions of the programs
in question. Further, this would require programmers to
divert attention from programming to search for the summoned
code. Merely complying with a summons for source code could
cause competitive damage to a software company because key
technical personnel will be diverted to help with the tax
audit of a customer. This could be especially damaging to
small or medium-sized companies.
2. trade secret law
The law of trade secrets provides an effective and
efficient method to protect commercially sensitive and
important business information. For many companies the law of
trade secrets is the method of choice for protecting valuable
business information. Trade secret law arises from state law.
Unlike patent, copyright and trademark law there is no
federal scheme for trade secret protection. The law of trade
secrets, depending upon the state, derives either from the
common law or the Uniform Trade Secrets Act. A slight
majority of states use the uniform act. The common law, as
set forth in the Restatement of Torts, Sec. 757, defines a
trade secret as follows:
``A trade secret may consist of a formula, pattern, device
or compilation of information which is used in one's
business, and which gives him an opportunity to obtain an
advantage over competitors who do not know it or use it. It
may be a formula for a chemical compound, a process of
manufacturing, treating or preserving materials, a patter for
a machine or other device, or a list of customers.''
The Supreme Court has relied upon this definition to
require that for information to constitute a trade secret, it
must (1) be used in one's business, (2) provide a competitive
advantage, and (3) be secret.
Under the Uniform Trade Secrets Act (Sec. 1(4)), a trade
secret is defined as follows:
``trade secret means information, including a formula,
pattern, compilation, device method, technique, or process
that:
``(1) derives independent economic value, actual or
potential, from not being generally known to, and not readily
ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use, and
``(2) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.''
The cornerstone of both definitions, whether common law or
statutory, is that the information must be kept secret. The
standard for secrecy for a trade secret comprises a two-
pronged test: (1) whether the information alleged to be a
trade secret is generally known or available, and (2) whether
the trade secret owner takes affirmative steps to safeguard
the confidentiality of the information.
Trade secret owners may protect information from
unauthorized disclosures by entering into contracts with
those to whom the confidential information is disclosed. Such
contracts typically take two forms. First, a trade secret
owner may require such a person to enter into a
``nondisclosure agreement'' under which the individual
promises not to disclose or use trade secret information
without first obtaining the permission of the owner.
The second type of contract is a post-employment ``non-
competition agreement.'' Under this type of contract, an
employee or outside consultant agrees not to compete with the
present employer or client or become employed by a competitor
of the employer or client after termination of the current
relationship.
Both types of agreements are widely used in the software
industry to protect trade secrets that might exist in
software source code.
3. IRC Section 6103
Internal Revenue Code Section 6103 generally prohibits
Internal Revenue Service employees from disclosing tax
returns and ``tax return information.'' the United States and
its agents can be held liable for improper disclosures of tax
returns and tax return information. See I.R.C. Sec. 7431.
However, Section 6103 does not protect software source code
regardless of whether it is owned by the taxpayer or a third-
party software vendor. Section 6103 expressly excludes from
the definition of ``return information'' ``data which is in a
form which cannot be associated with or otherwise identify,
directly or indirectly, a particular taxpayer.'' Generally
speaking, source code would not identify, either directly or
indirectly, the taxpayer and thus would not qualify as
``return information.''
In addition, were computer source code to be treated as
``return information,'' Section 6103 contains numerous
provisions that actually authorize disclosure of return
information. Section 6103(n) permits disclosure of return
information to IRS contractors working on programming IRS
computers. Thus, defining computer source code as ``return
information'' actually would expose it to disclosure to
potential competitors of the software owner.
4. Overview of the Bill
The bill reflects the basic premise that the subject matter
(computer software) is unique and justifies all relevant
provisions being collected in one section. The House bill, on
the other hand, attempts to address the problem by amending
several code sections in patchwork fashion.
The general rule of the bill is a blanket prohibition on
the IRS using the summons authority to obtain computer source
code and related customer communications. It also prohibits a
summons for training materials. It then sets out three
significant exceptions to the prohibition: (1) cases where
the Secretary can demonstrate need, (2) criminal
investigations, and (3) cases involving internally developed
software where competitive issues are not implicated.
Under the first exception, before a summons can be issued
for source code, the Secretary has the burden of
demonstrating that the need for the source code outweighs the
burdens placed on the summoned person and the danger that its
trade secrets might be exposed. The bill also sets out a
series of protections for both source code and executable
code in the hands of the IRS. These protections are in lieu
of whatever protections might be afforded by Section 6103.
[[Page S1159]]
5. Detailed Analysis
Section (a)(1):
This section establishes the general rule that no summons
may be issued, and no enforcement proceeding may be
commenced, for computer software source code and related
customer communications or training materials. This general
rule with respect to source code is subject to three
exceptions.
Section (a)(2):
The first exception is for cases where the Secretary can
establish that he cannot perform an accurate audit without a
review of computer software source code.
The provision for a needs-based test recognizes that
questions may arise during an audit that can only be answered
with reference to the source code. It is intended that such a
summons might be issued only as a last resort and only
after traditional audit techniques have been exhausted. In
these circumstances, it is contemplated that the audit has
become focused on a particular issue or set of issues. The
Secretary may have had access to an executable version of
the software loaded with the taxpayer's financial data. At
some point in the audit, the Secretary and the taxpayer
may have been unable to verify the correctness of the
computation of an entry on the tax return under audit.
Further, in such a case, it is contemplated that the
Secretary will have asked the software publisher for
assistance in resolving this issue but been unable to
obtain a satisfactory answer. After the Secretary has
sufficiently identified the specific item on the return
for which source code is sought a summons can be issued
only for that portion of the source code that relates to
the specific entry on the tax return.
In deciding whether a summons has been properly issued, a
balancing test is established in lieu of the current
standard. Under current law, all that the Secretary needs to
show is that the summoned material ``might shed some light''
on the accuracy of the tax return. See United States v.
Powell, 379 U.S. 48 (1964). This standard was developed well
before the computer revolution and the proliferation of
software in the United States economy. It provides
considerably less protection that the standard applied by
most other federal agencies in similar cases. Despite having
written administrative policies acknowledging the importance
of protecting trade secrets, the Secretary has not, in
practice, honored those policies by showing adequate
sensitivity to the legitimate concerns of software
publishers.
The bill replaces the Powell standard with a new balancing
test. To meet the balancing test, the Secretary, and any
court conducting a review, must determine whether the need
for the source code outweighs the burden on the owner of the
source code in complying with the summons and the danger that
its trade secrets might be exposed to a competitor.
The initial threshold requires that the Secretary
demonstrate some need for the portion of the source code that
is sought. To meet this test, the Secretary must show that he
is unable to verify the correctness of the item without a
review of the source code. Ordinarily, the audit process
focuses on the taxpayer's financial records to determine
whether the tax return reflects a proper application of the
internal revenue laws to the facts. Importantly, traditional
computer audit techniques used to verify data in an efficient
manner are a part of this process and are not effected by the
bill. Such a process does not require the source code for the
software that might have been used to prepare the return.
However, in cases involving tax issues related to software
products, it is anticipated that very little if any probative
evidence could be gleaned from the source code.
In assessing the burdens imposed on the owner of software
in complying with a summons issued under this section, it is
anticipated that the Secretary, and the courts, will focus on
a variety of issues. The chief factor to consider is the
degree of business interruption that would be caused by
compliance with the summons. Other factors to consider
include: (1) whether the software was initially developed by
the current owner of the software source code, (2) whether
the source code was developed by former employees, (3) the
degree to which the source code has changed since the
software was first developed and (4) whether the software
owner itself has put into issue the use or content of the
source code.
The danger of trade of trade secret disclosure exists
anytime non-employees of the trade secret owner are allowed
access to confidential information. In weighting the risks of
trade secret disclosure, a factor to consider is the ability
to impose safeguards on such disclosure, including the
statutory protections available under subsection (b) of this
section.
Section (a)(3), Other Exceptions:
The general prohibition on issuing a summons or computer
source code does not apply to a summons issued in furtherance
of an inquiry into any criminal offense or with respect to
software developed by the taxpayer for its own internal use
and not for commercial purposes. The exception for internal
use software is to be applied to situations where the
taxpayer-developed software is used to process the taxpayer's
own financial transactions, provide internal accounting
functions, or to prepare such taxpayer's own tax return. It
is not to be applied to situations where a taxpayer develops
software that is used by it to provide a service to its
unrelated customers.
Section (a)(4), Enforcement proceedings:
Currently, the Secretary and the Court handle summons
enforcement proceedings in a summary fashion. Because the
burden on the Secretary is so low, the Secretary merely files
the affidavit of the Revenue Agent conducting the affidavit.
This shifts the burden to the summoned person to show cause
why the summons should not be enforced. This burden is a
heavy one and the summoned person often is not allowed
discovery for evidence that bears on such issues.
Any time the Secretary brings an action to enforce a
summons issued under this section, the Court would be
required to conduct a hearing to determine whether the
Secretary has met the requirements of paragraph (2). The
courts shall allow the summoned party to conduct discovery so
that a proper defense can be presented. When a summons is
issued under this section for source code in the hands of a
third-party software publisher, the summoned person
ordinarily will have no independent knowledge of the facts
and issues surrounding the audit of the taxpayer. The Court
can enter such protective orders that are necessary to
prevent widespread disclosures of returns and return
information.
Section (a)(5), Compliance with Summons for Source Code:
A person in receipt of a summons for computer software
source code may comply with such a summons by producing a
hard copy printout of the portion of the source code
identified in the summons. If a person were required to
produce a digital copy of source code, the danger of multiple
copies being generated and transmitted outside the owner's
premises is heightened.
Section (b), Other Protections:
(1) Court Ordered Protections: Under current law, there is
a split among the courts of appeal over the authority of
district courts to conditionally enforce IRS summonses. The
Fifth Circuit and the Ninth Circuit hold that the court's
authority is limited and may issue only two types of orders:
(1) an order enforcing the summons in full, or (2) an order
quashing the summons in full. In the Eighth Circuit, the
courts have discretion to issue orders limiting the scope of
the summons and can place restrictions on the Secretary's use
of information obtained with a summons. With regard to
summonses issued under this section, the district courts are
given express statutory authority to issue such orders that
are necessary or appropriate to prevent disclosures of trade
secrets or other confidential information or to prevent undue
hardship on the summoned person. With respect to summonses
issued under this section, United States v. Barrett, 837 F.2d
1341 (5th Cir. 1988), is overruled. This provision has no
effect on the authority of the district courts with regard to
other types of summonses.
(2) Protection of Computer Software Code: The provisions of
this subsection apply to both source code and executable code
in the possession of the IRS, and apply whether or not an
enforcement proceeding is commenced. The provisions of this
section are in lieu of any protections that might be afforded
or disclosures that might be permitted under Section 6103.
These provisions are designed to: (1) limit the examination
of computer software code by the Secretary, (2) limit the
number of IRS employees who might be permitted access to such
computer code, (3) ensure that no unauthorized copies are
made, (4) require that all copies be returned or destroyed at
the end of the audit, and (5) bind any person who might be
exposed to such computer software code to the same or similar
restrictions on disclosure and competition that might be
imposed on its employees by the owner of such computer
software code. With regard to computer source code, the bill
permits the owner of such code to insist that it not be
removed from its business premises. Because the software
publisher will not be in direct privity of contract with
the IRS employee or outside consultant who will have
access to such code, the provision treats such owner as if
it were a party to the agreement. Thus, the software
publisher will have statutory standing to directly enforce
the terms of such agreements to prevent disclosures or
uses of trade secrets obtained in the course of an
examination.
The list of protections in the bill is not intended to be
exhaustive. The Secretary and the trade secret owner may
agree to other protective measures in a particular case. For
the avoidance of doubt, a district court in fashioning a
protective order is not limited to the list of protective
measures set forth in the statute.
Sec. (b), Compliance with Summons for Executable Code:
This section describes the circumstances under which a
taxpayer will be deemed to have complied with a summons
issued for certain computer software executable code. This
section only applies to commercially available computer
software executable code that is used by the taxpayer to
produce the tax return under examination or accounting
software that is used by the taxpayer to process
transactional data. A taxpayer will be deemed to have
satisfied a summons for such software upon production to the
Secretary of a read-only version of such software or a run-
time module containing data files produced by such software.
The Secretary shall not be entitled to a fully executable
version of such computer software executable code. However,
the version of the computer software executable code provided
by the taxpayer must allow the Secretary to
[[Page S1160]]
access such interim data files as might be produced by the
fully executable software. Such data files must be in a fully
readable mode.
Section (d), Definitions:
The term ``software'' is defined to include both computer
software source code and computer software executable code.
The general prohibition on issuance of a summons applies only
to a summons for computer software source code. The
additional protections apply to summons for software which
will include both source code and executable code.
This section adopts the common definitions of source code
and executable or ``object'' code.
``The source code for a computer program is the series of
instructions to the computer for carrying out the various
tasks that are performed by the program, expressed in a
programming language which is easily comprehensible to
appropriately trained human beings. The source code serves
two functions. First, it can be treated as comparable to text
material, and in that respect can be printed out, read and
studied, and loaded into a computer's memory, in much the
same way that documents are loaded into word processing
equipment. Second, the source code can be used to cause the
computer to execute the program. To accomplish this, the
source code is ``compiled.'' This involves an automatic
process performed by the computer under the control of a
program called a ``compiler'' which translates the source
code into ``object code'' which is very difficult to
comprehend by human beings. The object code version of a
program is then loaded into the computer's memory and causes
the computer to carry out the program function.''--See, SAS
Institute, Inc. v. S & H Computer Systems, Inc., 605 F. Supp.
816, 818 (M.D. Tenn. 1985).
Machine language, on the other hand, which is most commonly
referred to as executable code or ``object'' code, is the
only language that a computer can actually understand. All
computer programs must be converted into machine language if
the computer is to be able to execute the instructions in the
program. Machine language is usually a binary language using
two sybols, 0 and 1, to indicate an open or closed switch.
Theoretically, computer programs can be written by
programmers in machine language, and at one point, they
actually were. But it is extremely difficult for humans to
think and write operational instructions in the form of
binary code.
Section (b), Criminal Actions:
This section amends Section 7213 to provide that
disclosures of the types of information dealt with under this
section would be punishable in the same manner as disclosures
of returns and return information.
Effective date:
The amendments made by this section shall take effect on
the date of enactment of this Act.
______
By Mr. THOMAS (for himself and Mr. Abraham):
S. 1693. A bill to renew, reform, reinvigorate, and protect the
National Park System; to the Committee on Energy and Natural Resources.
vision 2020 national parks restoration act
Mr. THOMAS. Mr. President, there are many issues in the Congress that
divide us. We come from different areas. We come from different
philosophies. Today I come to the floor with a bill that is an
opportunity to come together collectively, introducing a bill on one of
the uniquely American priorities that does, in fact, bind us together--
our national parks.
If you have felt the Earth shake and experienced the thunder of Old
Faithful in Yellowstone or contemplated the patriotic enigma at
Gettysburg, you can well understand my passion for support of these
areas so important to our national identity. The value of national
parks is clearly one of the cultural constants for Americans. As the
chairman of the Subcommittee on National Parks, I can tell you each and
every Senator needs to look at the perilous state of the parks today
and act with me in developing some long-term solutions.
The bill I introduce today, Vision 2020, the National Parks
Restoration Act, is a result of a quite lengthy process of inquiry and
of study. Over the last year, the subcommittee has had more than 15
park-related hearings. We have spoken to dozens of park experts--
environmental groups and user groups. We have listened to the
suggestions as well as the criticisms from our colleagues and have
attracted activity in the House. Our purpose is and was to carefully
review the state of national parks and to evaluate areas for
improvement within the agencies.
We have found that there is a system of parks tremendously popular
with the public but afflicted by problems that the public sometimes
only vaguely recognizes. Let me share some of the findings. Our system
of national parks stands at 376 units, including over 83 million acres
of the most treasured landscapes and historical sites of our national
possessions. The National Park Service is charged by law with a
distinctly unique mission--to protect its natural and cultural
resources unimpaired for the enjoyment of current and future
generations. It is a charge and responsibility that is hard to handle
in the best of times. In times of fiscal constraint, that mandate
requires a broad range of innovative approaches to get that job done.
Each year, over 250 million recreational users enjoy our parks. Our
hearings revealed that each year 12 million visitors are from foreign
lands, with their visitations contributing significantly, of course, to
America's $22 billion international travel trade surplus. This
explosive popularity directly stimulates over $10 billion in annual
economies locally and supports 230,000 tourism-related jobs.
However, the parks face many problems. One of the most pressing
problems facing the agency is the ``thinning of the blood,'' explained
in one of our hearings by previous Park Service Director Jim Ridenour.
At the same time, new parks have been added to the system without
appropriations to care for them. The agency has been saddled with new
responsibilities at the same time the resources have not been available
for the parks already there. Collectively, the shortfall between where
the Park Service is and where it should be in terms of maintenance,
construction, staffing and resource protection is approximately $5 to
$8 billion in arrears. Another problem is the wear and tear on roads,
bridges, campgrounds and other facilities, leaving critics to observe
that the parks have been ``loved to death.''
As visiting populations grow, facilities that were often built
decades ago cannot stand the strain. It has become clear through our
oversight process that park managers are hobbled in their ability to
assess the inventory of natural and cultural resources, probably one of
the primary functions of the park and the park management. The funding
and cooperative cost sharing have simply not existed to catalog the
resources that the parks must protect. At a time when we need the best
from the Park Service managers, rangers, maintenance, scientific and
administrative staff, we find there is less to offer them in terms of
professional development.
Probably as serious as any of these conditions is the problem of the
public apathy. Don't get me wrong, the Americans truly like their
parks. They love their parks. But as of yet, that has not really
translated into a definitive call for action from the Congress or the
administration.
In my local park of Yellowstone, there has been some increase in
appropriations each year, but the required changes in terms of
retirement, in terms of staffing and in terms of inflation have been
more than eaten up in the increase in the appropriations to where the
expendable income has, in fact, gone down.
Probably as serious as any of these conditions, as I said, is public
apathy. I can tell you, the day is coming when we will have increasing
problems, and I hope that we will be ahead of that game. I propose we
mobilize ourselves to address these problems before we are in a crisis
and have to close parks and take more costly measures.
I continue to say if we are to have these resources in the future for
our kids and our future generations, then we are going to have to do
something soon, the sooner the better, in terms of coming to a
solution. If we continue to do what we have been doing, we can't expect
better results in the future.
So Vision 2020 provides a broad, systematic approach to addressing
the needs of the National Park Service. The restoration bill takes a
broad approach, with 11 titles covering key areas of concern. Vision
2020 will enhance resource protection by extending the fee base that
goes directly to park programs. This will be accomplished by expanding,
extending and dedicating to the park increased demonstration projects
fees that were approved last year and that have been in effect 1 year.
We want to put them in all the parks where it is practical and lawful
to collect those fees. We now have them in about 100 parks out of 376
that can be expanded.
We need to harness the enthusiasm of voluntarism, and also
philanthropic donations. Voluntarism is alive and well
[[Page S1161]]
in many parks. At Golden Gate Recreation Area, 8,400 residents of the
Bay Area donate time each year to support the park in a variety of
ways--volunteer time and philanthropic donations can be improved by
orders of magnitude to add to the solvency and expertise and the work
power of parks. We need to tap the power of individual donors for local
causes.
At our hearing in Denver, I learned the charitable contributions are
most successfully subscribed from individual donors on a local basis,
those that visit or those that live, or those who are familiar with the
park that is closest to them, where they can help monitor the direct
results. As a result, we also ask the National Park Foundation to
develop a formal program of orientation, strengthening, guidance, and
ongoing assistance for park locales interested in developing friends
and groups that are interested in supporting their local park. There
are many in almost every park. We were in Gettysburg last week.
Gettysburg has several groups supportive of their own park.
We need to find ways to enhance the contribution of concessionaires.
Park funding levels will be directly enhanced by asking the
concessionaire to help to shoulder a more realistic portion of the
park's expenses through a fee structure that closely tracks their
earnings in particular parks. At present, fee schedules vary widely.
Face it, people do travel in parks. They do require lodging, meals and
facilities. Remember the purpose of the park? To preserve the resource
and provide a pleasant and quality visit. That is what these
concessions do. Many concessionaires operate in an almost
noncompetitive market where the business is virtually assured. We are
striving for a fee system that maximizes revenues for these businesses
privileged to operate in parks--of course, recognizing the need for
them to make a profit in order to be there.
We need to improve park concession management performance. In
fairness to concessionaires and park visitors who rely on their
services, a dramatic change is proposed in the way concessions are
managed by the Park Service in this legislation. We think the parks
should utilize more of the private sector expertise in these activities
that are totally commercial in nature and we would utilize a private
industry asset manager to support many aspects of developing, bidding,
developing prospectus and rewarding management of commercial contracts.
An advisory board, made up of the agency and industry experts, would
guide the director. This would be a board of three agency people, three
private sector people, chaired by the Secretary of the Interior,
controlled, obviously, by the agencies, to ensure that whatever is done
in the commercial sector does not, in fact, damage the resource
protection purpose of the park.
In addition to that, we are going to ask that our Hollywood friends
share some in the cost of maintaining parks. Hollywood will be asked to
do their part through a provision that ties filming fees to a small
percentage of the commercial production costs. You would be surprised
how many movies are made in parks. We think that is fine, but there
ought to be some contribution. We are not asking much from Hollywood,
but the American public expects some return for the use of those public
facilities.
We are developing a Passport to Adventure to garner members. A park
``passport system'' would be created featuring annually issued
collectible stamps similar to the successful duck stamp series, raising
revenues which would encourage people to contribute something to their
park; or perhaps a tax refund contribution. We thought we would make it
easy for people to make a contribution, a unique opportunity for
American taxpayers who want to not only talk the talk but will, as a
result, have an option of dedicating part of their tax refund to the
National Park Resource Protection programs by simply checking it off on
their tax form.
Promoting agency professionalism. One title of the bill concentrates
on the strategy for developing more expertise among National Park
Service employees. By the way, let me say that my experience personally
with parks over the last year or two leads me to believe or feel that
there is a great deal of loyalty among park agency employees. I don't
know of an agency in the Federal Government where people are more
committed or more loyal to what they do than the employees of the Park
Service. Of course, to be able to do that, they do need the additional
ability to have training as well as defining a system of recruitment.
Future park superintendents and senior managers need to have an
opportunity to become as professional as possible.
We are interested in making sure that science is there as a
foundation for the management of these resources. Vision 2020 directs
support for the science necessary to guide that important work by
making some shifts in the program.
The Park Police are important. I guess I didn't realize myself until
recently what a significant contribution the Park Police make,
particularly here in Washington where there are over 400 Park Police to
take care of the parkways, the parks, the rivers, and all of the things
here, as well as in New York City. This aspect of the Park Service has
often been overlooked. We are asking that there be some studies to
assure that they have the resources to do the kinds of things that they
are obliged to do.
Finally, we are going to talk about an innovative area of park
resources. Almost all of the large parks have the same kinds of things
that small towns have. They have sewers, streets, buildings, all of
which are very difficult to maintain on an annual budget. So we are
going to seek to put into play, at least as a demonstration program, a
bonding program where large parks like Yosemite could have an
opportunity to issue bonds of $10 million--and, in fact, that will be
the limit for any park--to do some kind of facility restructuring that
can't come out of annual budgets, direct a stream of repayment revenue
from the demonstration project so that maybe over 5 or 10 years those
bonds would be retired--similar to what almost every government agency
does in the whole world when they have facilities to build.
This won't be easy. It is not customary for the Federal Government to
have bonding programs. It's also, frankly, sometimes uncustomary for
the Government to do anything they haven't been doing for a hundred
years. So there will be some difficulty in causing that to happen. But
we think it's important, and we think it will be useful.
Basically, what we are seeking to do, Mr. President, is to recognize
how important parks are, to recognize the difficulty parks have had,
and are continuing to have, in maintaining those resources, to deal
with some opportunities to supplement the taxpayers' appropriation
support for parks by having some outside methods of raising funds that
can be used in the parks.
With those additional funds will go some requirements for additional
and strengthened management, so that there is accountability for how
those dollars are spent. There will be a vision plan over a period of
time for the agency, with vision plans coming from each park, with
measurable results in the plan. The GAO, the Government auditing
office, says often we have plans and we even have appropriations where
the plan is not implemented and we want to cause that to happen. And
then, in addition to that, of course, we want to help strengthen the
management through professionalism and do some things, such as bonding.
So, in conclusion, I want to ask you to consider for a moment an
America without national parks. How would we feel without Yosemite,
Independence Hall, or Grand Canyon protected for public enjoyment? How
much of our national identity is reflected in these icons--the Statue
of Liberty, Yellowstone, the National Capital Mall, or Old Faithful?
How much of the rugged, adventurous American spirit is still revisited
by hiking the back country of Glacier or mountaineering in Alaska's
Denali? What would America be without protecting habitat for bison,
moose, and bighorn sheep? These are the kinds of things we have
available. These are the kinds of things that challenge us to protect.
As Americans, what would we leave our children and grandchildren if
not these wild and historic places to reflect, recreate and pause for
some spiritual renewal? It seems to me that we all have an obligation
to a measure of national service directed at strengthening our proud
system of parks--the
[[Page S1162]]
first such system in the world--the system that over 100 other nations
have modeled after around the world.
So I am asking for the support of my colleagues for Vision 2020--not
only your vote, but also your review and constructive commentary. We
worked very hard to put together the bill. We don't suggest that it is
perfect. We will have hearings, and there will be an opportunity to
evaluate how we achieve success. That is the key. These words are not
unchangeable, but the goal is to preserve the parks.
I believe that together we can accomplish constructive changes. We
have an opportunity to bring the National Park Service and our national
parks into the 21st century, alive, vibrant, effective and efficient. I
think the public expects us to seize upon that opportunity so that our
parks will be healthy and available for them to enjoy for a very long
time in the future.
So, Mr. President, I will submit this bill. First of all, I will add
Senator Spencer Abraham as an original sponsor. I submit the bill for
introduction.
____________________