Report on Computer Software Rental Act

Report on Computer Software Rental Act
                 THE COMPUTER SOFTWARE RENTAL AMENDMENTS ACT OF 1990:  
            THE NONPROFIT LIBRARY LENDING EXEMPTION TO THE "RENTAL RIGHT"

                               EXECUTIVE SUMMARY

INTRODUCTION

      On December 1, 1990, President Bush signed into law the "Computer
Software Rental Amendments Act," an amendment of section 109 of the copyright
law, prohibiting the rental, lease, or lending of a computer program for direct
or indirect commercial gain unless authorized by the owner of copyright in the
program.  Behind the amendment was a concern that commercial rental of computer
programs encourages illegal copying of the rented programs, depriving copyright
owners of a return on their investment and discouraging creation of new works.

      By granting copyright owners of computer programs a newly created "rental
right," Congress created an exception to the "first sale doctrine."  This
traditional copyright doctrine, which is codified in section 109 of the
Copyright Code, limits the copyright owner's exclusive right of distribution
by allowing the owner of a particular lawfully made copy of a work, or any
person authorized by that owner, to sell or otherwise dispose of possession of
that copy without authority of the copyright owner. 

      The 1990 amendment also includes a special provision permitting nonprofit
libraries to lend computer programs for nonprofit purposes, if the packaging
contains a prescribed warning of copyright.  This "library lending" provision
is an express exception to the new "rental right" which is itself an exception
to the basic "first sale doctrine."  In creating this exceptional prerogative
for nonprofit libraries, Congress was aware that, like commercial lending,
nonprofit library lending could trigger unauthorized copying.  For this reason,
the amendment asked the Register of Copyrights to make a three-year study and
prepare a report on the extent to which the exemption for nonprofit libraries
"has achieved its intended purpose of maintaining the integrity of the
copyright system while providing nonprofit libraries the capability to fulfill
their function," including any information or recommendations the Register
considers necessary to carry out the purposes of the subsection.  In carrying
out this mandate we published and circulated a notice of inquiry, and sponsored
a roundtable discussion.                                                     
                                                                             

      I.    BACKGROUND AND SCOPE OF THE AMENDMENT

      A model for the Software Rental Act of 1990 is found in earlier
legislation giving owners of copyright in sound recordings control over
commercial rental of phonorecords of their works.  The Record Rental Amendment
Act of 1984, which was the earliest statutory breach in the "first sale"
doctrine, was prompted by concern that commercial lending could encourage
unauthorized copying and displace sales, thereby diminishing the incentive for
creation of new sound recordings.  The same considerations, together with added
concerns for better international protection of computer programs, motivated
the 1990 software amendments.

      The software rental provisions permit owners of lawfully made copies of
computer programs acquired before December 1, 1990, to dispose of them without
copyright liability.  They also exempt from the new right of commercial
"rental, lease, or lending" any computer programs embodied in machines or
products (such as automobiles or calculators) where the program cannot be
copied during ordinary operation, and those embodied in limited purpose
computers designed primarily for playing video games.

      The rental right is currently scheduled to expire on October 1, 1997. 
However, this "sunset" provision may well be repealed, and the right extended
indefinitely, as part of 1994 legislation implementing the General Agreement
on Tariffs and Trade (GATT).


      II.   THE EXEMPTIONS FOR NONPROFIT LIBRARIES AND                       
            NONPROFIT EDUCATIONAL INSTITUTIONS

      Section 119 of the Copyright Code makes unauthorized "rental, lease, or
lending" of a computer program a copyright infringement if done for "purposes
of direct or indirect commercial advantage," but provides two specific
exemptions:  one covering lending "for nonprofit purposes by a nonprofit
library," and a second covering transfer of possession of a lawfully-made copy
from one "nonprofit educational institution" to another such institution or to
faculty, staff, and students.  The intended distinction between these two
exemptions is revealed by their legislative history.
      
      At the Senate hearings on the legislation in 1989, software
representatives testified that their primary concern was about commercial
rental of software, not noncommercial lending by nonprofit libraries.  Language
exempting nonprofit library lending was added to the bill.  However, software
interests were opposed to an exemption for educational institutions, pointing
out that they constitute a major software market, and that many software
companies already make accommodations for educational customers such as
discounts and special services.  The educational community submitted written
statements suggesting that, without an exemption, the software bill might
impede legitimate testing and evaluation practices, especially in computer
centers and laboratories.
      
      Late in 1989, representatives from the software and educational
communities reached a compromise outlined in a letter to Senators DeConcini and
Hatch.  In the joint letter, the parties offered a draft amendment exempting
"transfer of possession of a lawfully made copy of a computer program by a
nonprofit educational institution to another nonprofit educational institution
and among faculty, staff and students."  At 1990 House hearings, the spokesman
for the software interests stressed that the aim of the legislation was to
control commercial practices that directly result in unauthorized copying, and
that legitimate nonprofit practices were not the target.  When, later in 1990,
the bill passed both Houses its language relating to educational institutions
was virtually identical to that proposed in the joint letter.


      III.  COPYRIGHT OFFICE RESPONSIBILITIES
      
      The 1990 amendments gave the Copyright Office two responsibilities: 
first, we were to issue regulations governing a required warning of copyright
that must be placed on each copy of a program lent by a library; and second,
we were asked to prepare a report on the extent to which the exemption for
nonprofit libraries had achieved its intended purpose.  A regulation specifying
a copyright warning was issued on February 26, 1991.  On July 13, 1993, we
issued a Notice of Inquiry requesting comments and information to help in
evaluating how the nonprofit lending provision is working.  Included in the
Notice were seven questions directed at issues of concern to copyright owners,
libraries, and library patrons.  We sent copies of the Notice of Inquiry
directly to library and software associations and individuals identified as
interested parties.  After examining the comments received, we also held a
roundtable discussion inviting interested parties to comment more fully.
      

      IV.   SUMMARY AND ANALYSIS OF THE PUBLIC COMMENTS

A.  FULFILLING THE LIBRARY FUNCTION: DOES THE LENDING EXEMPTION TO THE RENTAL 
    RIGHT PROVIDE NONPROFIT LIBRARIES THE CAPABILITY TO FULFILL THEIR FUNCTION?

      Of the library associations and individual librarians responding to our
inquiry, most, but not all, reported that they are currently meeting patron
needs and fulfilling their function as a library with respect to computer
software.  Most expressed strong support for the library lending exemption to
the rental right.  Ten commentators -- including representatives of three
library associations, staff in two public libraries and four educational
institutions, and one library patron -- stressed the importance of the
exemption to the rental right in fulfilling patrons' requests for access to
software.  Nine of the responding library and educational institutions reported
they are meeting patrons' requests for software loans, while three indicated
that they are not.  Several of the comments raised questions indicating that
librarians who are dissatisfied with the law may not be sure what the Computer
Software Rental Amendments Act permits them to do or how their prerogatives may
be affected by "shrink wrap" licensing agreements.


B.  FREQUENCY OF LENDING:  HOW OFTEN ARE COPIES OF COMPUTER PROGRAMS LENT?
      
      The responses to this question fail to provide enough evidence on the
extent of lending of computer programs by libraries to draw any firm
conclusions.  The comments revealed that some software lending is going on and
that practices vary from library to library, but we were not given information
that would allow quantification of how many libraries are lending programs or
the general volume of lending at present.  The Business Software Alliance
reported that it lacks adequate knowledge of library lending practices, adding
that it would be interested in obtaining information about the type and volume
of software lent to library patrons to help in determining the scope of
software piracy.  Some libraries pointed to the need for money to acquire
software for lending and for more information about what the amendment permits,
while others seemed unaware that the law gives them the prerogative of lending
copies of computer programs for their patrons' home use.
      
      The limited and general nature of the responses suggests that eventually
we should try to elicit detailed statistical information about frequency of
library lending, but that there may not yet be enough experience from which to
draw meaningful data.  Questions that need to be addressed include the reasons
why libraries seem to be reluctant to lend software, and how to clear up
confusion and misunderstandings about their prerogatives under the statute.


C.  DO THE REGULATIONS REQUIRING A WARNING OF COPYRIGHT REPRESENT AN ONEROUS 
    BURDEN?

      This question was directed at the statutory requirement that the
packaging of each copy of a program lent by a library contain a warning of
copyright conforming to Copyright Office regulations.  Most, though not all,
of the responding libraries or associations reported that they did not find the
requirement an undue burden.  Some commentators considered the requirement an
administrative and budgetary burden, and others raised the difficulty of
providing a copyright warning where copies of computer programs are transmitted
electronically.  
      
      The responses raised some important questions which Congress or the
Copyright Office should address:  Are nonprofit educational institutions
transferring possession of copies of computer programs under section 119
obliged to provide a warning?  How should warning notices for electronic
transmissions be handled?  Should the wording of the warning for software
packages be shortened or simplified?

D.  IS UNAUTHORIZED COPYING, ADAPTATION, REDISTRIBUTION, PUBLIC PERFORMANCE OR 
    DISPLAY OF COMPUTER PROGRAMS TAKING PLACE?  IS THERE EVIDENCE OF         
    UNAUTHORIZED COPYING?

      The first of these questions was supposed to find out what people thought
was happening, and the second was aimed at eliciting any direct evidence.  The
answers, which were speculative and inconclusive at best, suggest that there
is little or no direct evidence, and that suppositions are based on conviction,
not fact.
      
      In general, software representatives asserted that unauthorized copying
is taking place; library representatives said that librarians are making every
effort to ensure that the law is followed and that there is no evidence of
unauthorized copying; and individual commentators responded with a variety of
positions.
      
      More than anything else, responses to two related questions indicate how
difficult it is to get specific evidence on whether unauthorized copying is
occurring in the privacy of the borrower's home.  Questions that arose include
whether there is any practical way to ascertain if nonprofit lending results
in unauthorized copying and whether a survey or experiment could be developed
to investigate the issue.  


E.  IS THE 109(A) EXEMPTION HARMFUL TO THE INTEREST AND INCOME OF COPYRIGHT  
    OWNERS?
      
      On the general question of whether the exemptions harm copyright owners,
the software publishers drew an economic distinction between loans by nonprofit
libraries and loans or other transfers by educational institutions.  With
respect to the latter, they stressed the great importance to them of the
educational market, and that they are already offering a variety of licensing
programs permitting educational institutions to make multiple copies.  They
also asserted that loans by nonprofit libraries hurt software owners because
unauthorized copying by patrons inevitably occurs, which in turn results in
lost sales, a problem that will increase with the expansion of digital storage.
      
      For their part, the librarians and library representatives took the
position that the benefits of software lending to copyright owners outweigh any
harm from copying by patrons.  Without denying that some unauthorized
reproduction is taking place, they emphasized that the total amount of library
lending is small, that a prohibition against lending would reduce sales to
libraries, and that lending actually enhances the market for software generally
and increases the sales of particular programs or updates.  Their point, which
they emphasized strongly, was that there is a real connection between trial and
purchase of a product -- that permitting software to be available for
evaluation by potential buyers realistically increases the likelihood of sale. 
In light of these arguments, additional questions to explore are whether there
is a quantifiable nexus between software trial and purchase, and whether a
survey could document such a link.   


F.  REQUESTS FOR LEGISLATIVE CHANGES OR CLARIFICATION

      In responding to the Office's question as to whether new legislation is
needed to clarify existing law or to rectify imbalances between owners and
users, the Software Publishers Association took the position that changes
should be made.  First, they argued that libraries should be required to treat
computer programs as they now do reference books, limiting patrons to on-site
use and forbidding removal from the library premises.  In addition, they urged
that a clear warning, stating that it is illegal to copy computer programs
without permission of the copyright owner, should be required to be affixed to
each computer available for use, and that this warning should specify the civil
and criminal penalties for unauthorized copying.  The SPA asked the Copyright
Office to join in its recommendations or, alternatively, to review the question
within one year to assess the impact of new optical storage media such as
compact disks on the needs of libraries and the commercial impact on software
publishers.  Finally, the software publishers encouraged the Office to review
the denial of rental rights to computer programs "embodied in or used in
connection with a limited purpose computer that is designed for playing video
games and may be designed for other purposes."
      
      The comments of library associations took the position that no statutory
amendments were necessary to clarify existing legislation or to rectify any
imbalance between the rights of owners and the needs of users.  There were,
however, some individual comments from the library community suggesting the
need for clarification of the law.  One public library proposed an amendment
making clear that the exemption applies in all cases, regardless of whether the
library is the owner of the physical object embodying the computer program, or
holds a license from the copyright owner of the program, or is otherwise
lawfully in possession of the copy of the program.  It also sought a second
amendment making clear that the lending exemption prevails over any private
agreement between a library and a software company because "as long as software
companies can prohibit the library's circulation by private agreement, any
protection under the Act is vitiated."  The director of a university library,
noting that recent technological and institutional changes raise questions
about the ability of libraries to lend software, asked for statutory
clarification of the status of lending in various networking situations and the
meaning of the terms "software" and "library."  A specific question was whether
lending occurs when a workstation permits off-site location access or
simultaneous use of one program on different computers at different times.


      V.    HAS THE COMPUTER SOFTWARE LENDING EXEMPTION                      
            FOR NONPROFIT LIBRARIES ACHIEVED ITS PURPOSE?

      The specific question that Congress asked the Copyright Office to study
was whether the nonprofit library lending exemption to the rental right for
computer programs has succeeded in achieving its purpose during its first three
years.  Our mandate was to determine whether the exemption provides libraries
the capability to fulfill their function, and to determine whether it hurts
copyright owners of computer programs by displacing sales.  In response to this
mandate we tried to obtain from the broadest possible community of owners and
users the most relevant information available.
      
      The results of our efforts were, on the whole, inconclusive and somewhat
disappointing.  The only honest conclusion we can reach at present is that
there is as yet no body of facts on which informed judgments and
recommendations can be based, and that more study and analysis will be needed
as patterns of software lending by libraries eventually emerge.

      
      VI.   QUESTIONS OF INTERPRETATION PRESENTED BY THE STUDY

      Although the Copyright Office has been unable to quantify the impact of
the section 109 exemption on libraries and their users on the basis of the
responses to our inquires, we have identified certain questions of legal
interpretation that deserve analysis.  These can be grouped under four
headings:  (a) what constitutes infringing "copying" in various situations? (b)
what is a "computer program"? (c) what is a "nonprofit library"? and (d) what
constitutes "nonprofit lending"?


A.  WHAT CONSTITUTES INFRINGING "COPYING"?

      Under section 106(1) of the Copyright Code, a basic exclusive right of
the copyright owner is "to reproduce the copyright work in copies or
phonorecords" (or, as it is known loosely, the "copying" right).  The 1990
Software Rental Act amended section 109 to give the copyright owner of a
computer program exclusive rights with respect to "rental, lease, or lending"
and made certain exceptions to these rights for the benefit of nonprofit
libraries and educational institutions.  There is nothing in the text of
section 109 to suggest that unauthorized "copying" is either forbidden or
permitted under that section; with respect to copying, the exclusive rights of
the copyright owner and the prerogatives of users are governed by other
provisions of the Code, notably sections 107 (fair use), 108 (library
reproductions), and 117 (rights in computer programs).  The legislative history
of section 109 makes clear that, unless the use is licensed or covered by one
of the statutory limitations, there is nothing in the 1990 amendment to
authorize any copying.
      
      Nevertheless, two basic situations arise under the lending exemptions of
section 109 which may involve unauthorized copying:  (1) activities of
individual library patrons and educational users; and (2) activities of the
libraries and educational institutions themselves.

1.    Copying by Library Patrons or Transferees.
      
      Whenever a computer program is put to routine use, the act of
reproduction in copies, or "copying," can occur at any or all of several
stages, including storage in RAM, ROM, and floppy disk, transfer to a file
server or another computer, and so on.  While RAM can be erased by turning off
the computer, it cannot be assumed that no unauthorized copying has occurred;
there is judicial authority to the effect that RAM storage, even for a short
time, is "reproduction in copies."  Library patrons and borrowers cannot rely
on the section 117 "essential step" provisions when loading computer programs
into RAM or ROM because that section applies only to "the owner of a copy of
a computer program," and borrowers are not owners.
      
      Although loading a borrowed computer program into RAM is copying, the
mere act in itself probably would not be considered unauthorized copying under
the library lending exceptions.  Because it is impossible to use a borrowed
copy of a program without downloading the program into RAM, an implied license
would have to be inferred from section 109.  However, the same is not true for
permanent ROM storage.  As one commentator said, "The crime is not copying the
software, it is failing to delete it."  To what extent borrowers are making
further copies for hard-disk or external storage, for how long, and to what
extent the further copies are being erased are matters that can only be
answered by the borrowers.
      
2.    Copying by Libraries and Educational Institutions.
      
      Section 108 of the Copyright Code allows libraries and archives to make
copies of copyrighted works for their patrons and for other libraries under
certain narrowly-defined conditions.  To what extent section 108 applies to
computer programs is unclear, since it was drafted without computer programs
in mind and many of its provisions do not fit them.  
      
      A particularly difficult question involves interlibrary "loan" of
computer programs.  There are provisions in section 108 dealing with the
practice of "interlibrary loan" in which a library reproduces a copy -- usually
a journal article or a short excerpt from a work in its collections -- and
sends the reproduction to another library without expectation of return.  It
would be hard to stretch the provisions of section 108 dealing with this
practice to embrace making and distributing copies of computer programs.  We
recognize that the relationship of sections 108 and 109 merits much closer
study, but we believe that neither section authorizes a library to make a copy
of a computer program and transfer that copy -- electronically or otherwise --
to another library for a patron's use.
      
      What libraries may do under the "archival copy" provisions of sections
108 and 117 is another debatable question.  The library's prerogatives under
section 117 appear extremely limited:  the provision allows the owner of a copy
of a computer program to make a copy or an adaptation of the program for
archival purposes, or as an "essential step" in the use of a program, but any
exact copies so made may be leased, sold, or transferred "only as part of the
lease, or other transfer of all rights in the program."  Under section 108 a
library may make an archival copy for purposes of "preservation and security,"
but today it is usually the "archival copy" of a computer program that is being
lent, and the original that is being kept as backup.  This practice, while
sensible, may be contrary to the plain language of the statute. 


B.  WHAT IS A "COMPUTER PROGRAM"?

      The Copyright Code defines a "computer program" as "a set of statements
or instructions to be used directly or indirectly in a computer in order to
bring about a certain result."  What constitutes a "computer program" for
purposes of section 109 is an important and difficult question:  the text of
the 1990 amendment refers only to "computer programs" and the term "software"
(which may be broader than "computer program") appears only in the title of the
1990 Act.  As used in section 109, does "computer program" include
informational works and databases on CD-ROM, office applications, educational
materials, and multimedia works including interactive video programs?
      
      The status of CD-ROMs under section 109 is particularly difficult.  A CD-
ROM is not a computer program or copyrightable work, but an optical storage
medium considered a "copy" under copyright law.  Search and retrieval software,
however, is essential to gain access to material stored on a CD-ROM.  If the
search and retrieval program is such an integral part that the CD-ROM cannot
be lent without it, then a library would have to look to the terms of section
109 to determine its prerogatives.  As long as the lender and loan are
nonprofit in nature and a copyright warning is affixed to the packaging, a
library may lend a CD-ROM it owns, even if the CD-ROM incorporates a computer
program.  On the other hand, if the library does not own the CD-ROM but is
party to a negotiated license restricting lending, it would presumably be bound
by the terms of the license.


C.  WHAT IS A "NONPROFIT LIBRARY"?

      Confusion exists as to the criteria necessary to qualify as a "nonprofit
library" under the section 109 lending exemption.  The question is not so much
what is "nonprofit" but what is a "library" in various educational contexts. 
"Libraries" may lend to anyone, but educational institutions are limited in
those to whom they may make a "transfer of possession."  The scope of the term
"library" under section 109 is one that deserves more study and clarification.


D.  WHAT CONSTITUTES "NONPROFIT LIBRARY LENDING"?

1.    "Lending" and "Transfer of Possession."
      
      Under the section 109 exemptions libraries may "lend" and educational
institutions may "transfer possession," but "lending" is certainly a "transfer
of possession," and when educational institutions "transfer possession" in this
context the act is almost always a loan.  The real distinction involves the
organizational unit within an educational institution that does the "lending"
or "transferring."  If the unit is a library within the school, it may lend to
anyone as long as the packaging includes a copyright warning.  If the unit is
a curriculum center or other subdivision rather than a library, it need not
include the warning but is constrained as to the recipients of its
"transfers."      

2.    Lending and Access.
      
      Although the library exemption envisions "lending," which implies
circulation beyond library premises, a number of libraries indicated that their
software lending is for "on-premises" use only.  The Software Publishers
Association advocated limiting the practice of "lending" to on-premises use
only.
      
3.    Lending and On-line Transmission.
      Some libraries have extended services beyond lending a physical copy of
a program to one patron at a time.  They have developed network facilities that
permit multiple users simultaneous access to the same program, or that give
users access to a library's computer programs via a telephone line.  Librarians
also reported that electronic lending occurs by installing a program on a local
network file server or computer hard drive.  This practice requires the patron
to use the program on the library's premises, but it is not the purchased or
archival copy that is used.  Instead, a transmission of the program from the
host computer runs to the user's computer and a copy is loaded in the resident
random access memory of the user's computer.  The end result for the user may
be the same, but there is nothing in section 109 or elsewhere in the Copyright
Code sanctioning the unlicensed transmission of copies of copyrighted works by
nonprofit libraries or educational institutions.


E.  RECOMMENDATIONS FOR CHANGES IN LAW OR REGULATIONS.

1.    "Shrink Wrap" Licenses.
      
      Mass-marketing of computer programs means that individually negotiated,
signed license agreements are no longer feasible.  Software publishers have
responded by developing "shrink wrap," "break the seal," or "box top" licenses
to control the customer's use and further distribution of their programs.  With
many variations, this device involves including a printed license with the
sealed program package purporting to bind the purchaser to the terms of the
license if the package is opened.  While there are serious questions as to the
enforceability of these "licenses," one library declared that it is refraining
from lending computer programs because of the concern that shrink wrap licenses
may prohibit circulation, and urged that section 109 be amended to make clear
that its exemptions prevail over these "agreements."
      
      The questions of whether the language in some shrink wrap licenses
prohibiting rental or lending is enforceable, and whether such language
overrides the specific exemptions in section 109, are serious and need to be
discussed further.  It may be, however, that the problem can be resolved
without legislative action, since representatives of software publishers have
declared that their industry has no interest in asserting that shrink wrap
licenses override the section 109 exemptions.
      
2.    Warning of Copyright Required by Regulations.
      
      Section 109(b)(2)(A) requires nonprofit libraries to affix a warning of
copyright to each software package lent.  The warning must conform to
regulations prescribed by the Register of Copyrights in 37 C.F.R. 201.24. 
Most libraries reported that they are complying with the regulations and do not
find them to be an undue burden.  The question was raised, however, as to
whether the copyright warning can be simplified.  Some have difficulty affixing
the lengthy warning to a small space, or find the label expensive to create,
difficult to read, and an administrative and budgetary burden.  The Office
recognizes the regulation as unnecessarily long and plans to simplify it.
      
      Some nonprofit educational institutions stated that they affix the
copyright warning when lending copies of computer programs, but this does not
appear to be a statutory requirement.  The language of section 109 relating to
"transfers" is separate from that governing the lending exemption and notice
requirements.  The National School Boards Association noted that during
development of the amendments educational interests specifically asked that
their activities not be covered by the library language.  
      
      As the law is now written, the warning of copyright need only appear on
the packaging of copies of computer programs lent by a nonprofit library
(including a library in an educational institution).  There are other
situations in which a copyright warning could be useful:  warnings in
connection with exchanges of copies among computer centers, laboratories, media
centers, and the like; warnings affixed directly to computers used by patrons;
warnings on screen when a program is loaded on a user's hard drive; warnings
in connection with electronic transmissions; and so on.  The Software
Publishers Association proposed an amendment requiring libraries to post a
clear warning on every computer in a library available to use by patrons,
stating clearly that it is illegal to copy computer software without permission
of the copyright owners, and that violators are subject to civil and criminal
penalties.
      
      The Copyright Office is impressed by the vulnerability of computer
programs to the kind of copying that displaces sales.  In the absence of
legislation, we urge libraries and educators to work with copyright owners to
develop standard warning language for voluntary use in various situations.  For
their part, we think that copyright proprietors should provide clear guidelines
delineating what they expect of their licensees when copies of computer
programs are lent or transferred under license rather than section 109.
      
3.    Limitation to On-Premises Use.
      
      Both software proprietors and libraries understand that lending software
to patrons for off-premises use is within the meaning of the present exemption,
but the Software Publishers Association recommended that this exemption be
narrowed.  SPA argued that treating programs as reference materials would
discourage unauthorized copying while permitting patron access, and urged that
the statute be amended to allow libraries to make computer programs available
for use by patrons within the premises but not for check-out.
      
      Some libraries countered that the ability to lend software is vital to
a library's role in making information accessible to everyone, that there is
no proof that lending has resulted in unauthorized copying, and that home use
promotes sales since most people do not purchase software without reviewing it. 
Even so, a significant number of libraries have restricted their software to
on-site use; among the reasons for their caution is uncertainty as to what the
law permits and, notably, lack of funds to establish full-scale lending
programs.
      
      Given the clear statutory intention to allow circulation of programs, we
believe that there is insufficient justification at this point to recommend
narrowing the lending right.  At the same time, we concur with SPA's request
to review our decision in the future in order to assess the impact of new
optical storage media on the needs of library patrons and its commercial impact
on software publishers.  We believe that this subject would benefit from
further exploration and discussion among all parties affected, including
library patrons.


F.  EXTENSION OF RENTAL RIGHT TO VIDEO GAMES

      The Software Publishers Association also favored extension of the rental
right to video games and encouraged the Office to review the denial of rental
rights to certain video games under section 109(b)(1)(B)(ii).  This issue, an
important one, is beyond the scope of this report, but we agree that it should
be raised with the appropriate Congressional committees either separately or
as part of legislation aimed at implementing the General Agreement on Tariffs
and Trade (GATT).


CONCLUSION

      Although we recommend no legislative changes to the 1990 Computer
Software Rental Amendments Act at this time, we hope that this initial study
will serve as a catalyst for further investigation.  The Copyright Office is
pledged to continue this study and will work with the interested parties to
develop more specific information.  Specifically, we believe that in the coming
months we need to work with libraries and their associations, and with computer
software owners and their representatives, to develop methodologies for
determining and measuring what is actually happening with respect to software
lending, copying by libraries and their patrons, and patterns in local
networking and electronic transmission of software.  We need to know more about
practices within schools and other educational institutions, uses of optical
storage media, and the perceived link between trial of software in the home and
ultimate sales.  A focal point of our efforts should be to develop
understandings on all sides of what the current law permits and forbids, and
how better and more widely used warnings of copyright could benefit libraries,
schools, and copyright owners alike.
      
      We are acutely aware that the entire structure of the world of
communications and information transfer is undergoing fundamental and rapid
change, and that library services are at the center of this revolution.  It is
safe to predict that the questions and answers reviewed in this report will be
entirely different a few years from now, and that urgent new problems will
arise to confront us.  Recognizing this, Congress added to its direction for
a three-year study a mandate for further studies "at such times thereafter as
the Register of Copyrights considers appropriate."  It is our hope that the
present report will serve as a starting point in what must necessarily be a
continuing evaluation of the problem, and that meanwhile, the information it
contains can prevent mistakes and provide a better understanding of what the
law is and what it may become.

***9-15-94 (er)***