Private standards in public law: copyright, lawmaking and the case of accounting.

• Author: Cunningham, Lawrence A.

TABLE OF CONTENTS INTRODUCTION I. THREE-PART FRAMEWORK A. Ancient Concepts B. Modern Standards C. Judicial Doctrine 1. BOCA (1st Circuit 1980) 2. CCC (2d Circuit 1994) 3. Practice Management (9th Circuit 1997) 4. Veeck (5th Circuit 2002) 5. County of Suffolk (Variation) D. Protective Scope E. Utilitarian Theory II. CASE STUDY A. Strong Form: PCAOB 1. Government Works 2. Independent Contractor 3. Incentives B. Weak Form: AICPA 1. Legal References 2. Incentives 3. Qualifying Conventions C. Semi-Strong Form: FASB 1. Public Domain 2. Economic Incentives 3. Non-Economic Incentives 4. Standard Setter Independence 5. Standards Quality 6. Secondary Incentives: GASB III. GOVERNMENTAL STRATEGY A. Strong Form B. Weak Form C. Semi-Strong Form D. Administration E. Loose Ends CONCLUSION INTRODUCTION

Government increasingly leverages its regulatory function by embodying in law standards that are promulgated and copyrighted by nongovernmental organizations. Departures from such standards expose citizens to criminal, civil, and administrative sanctions, yet private actors generate, control, and limit access to them. Despite governmental ambitions, no one is responsible for evaluating the legitimacy of this approach ex ante and no framework exists to facilitate analysis. This Article contributes an analytical framework and proposes institutional mechanisms to implement it.

The lack of a comprehensive framework for evaluating copyright to standards embodied in law is surprising because the range of standards potentially affected is large and growing. (1) It includes standards relating to accounting, consumer product safety, energy, government contracting, insurance, medicine, and telecommunications; codes for buildings, corporations, and legal ethics; and manuals for stock exchange listings and scores of others. (2)

To illustrate, it is a violation of federal law for any person to file required financial statements with the Securities and Exchange Commission ("SEC") that are not in conformity with generally accepted accounting principles ("GAAP") (3) or for auditors to attest to such financial statements unless audited in accordance with generally accepted auditing standards ("GAAS"). The SEC has enforced these laws in thousands of administrative proceedings and hundreds of federal court cases asserting violations of GAAP or GAAS or both. (4) Yet these accounting standards are not freely available to the public or to prosecuted persons. Instead, they are claimed to be copyrighted by the so-called "private" standard setters the SEC or Congress anoints to establish them.

This Article develops a three-part classification scheme to facilitate analysis of the copyright eligibility of such works based on how privately generated standards are embodied in public law. Otherwise copyright-eligible works can assume attributes of law potentially ineligible for copyright through three routes: by passing reference in legal materials (weak form), by incorporation into law after creation (semi-strong form), or by ex ante governmental designation of the standard setter as an officially recognized body (strong form). This Article's framework facilitates analysis of all private standards embodied in public law; its case study of accounting standards is especially useful because their complex generation process provides illustrations of each class in this scheme.

Specifically, (a) contemporary auditing standards are generated by a recent congressionally created and publicly funded body (the Public Company Accounting Oversight Board, "PCAOB") (strong form route); (5) (b) contemporary accounting principles are generated by a single SEC-recognized and publicly funded body (the Financial Accounting Standards Board, "FASB") whose standards for three decades have been incorporated by the SEC (semi-strong form route); (6) and (c) auditing and accounting standards were set before these bodies were created by a private not-for-profit professional association (the American Institute of Certified Public Accountants, "AICPA") whose standards were given the SEC's imprimatur by reference (weak form route). (7)

Generally, under the framework this Article proposes, copyright is (a) not recognized in the strong form route; (b) recognized and generally continued in the weak form route (subject to qualifying conventions such as compulsory licensing and broadened fair use); and (c) derecognized in the semi-strong form route when factors concerning the author, the work, the copier, and the governmental relation to each bear features more akin to the strong form than to the weak form. For accounting standards, this means that PCAOB work cannot be copyrighted; AICPA work retains copyright, subject to some qualifying conventions; and most FASB work becomes ineligible for copyright.

These copyright adjustments are necessary to provide requisite access to standards. Otherwise, persons seeking access face considerable obstacles. In the case of accounting standards, only the most straightforward portions are available without charge on the Internet; (8) others must be purchased from standard setters. Those wishing to copy materials must apply for permission and pay fees, which can require numerous inquiries of the standard setters and consume months of diligent effort. Copiers must pay or risk lawsuits, with nothing to rely upon but notoriously uncertain defenses to copyright infringement claims. (9)

Neither the laborious and costly processes nor related litigation uncertainty fit professional or legal needs of affected citizens. These systemic infirmities also frustrate the work of later generators of standards seeking to build upon predecessor works. In the case of accounting standards, moreover, none of these burdens is necessary because in 2002 Congress passed the Sarbanes-Oxley Act that provided PCAOB and FASB with funding for 100% of their respective budgets and stripped AICPA of power to produce accounting standards for entities over which the SEC has jurisdiction. (10)

These changes and the importance of accounting standards in governing the legal position of millions of persons make examination of their copyright status timely. Moreover, given that accounting standards illustrate a larger class of standards embodied in law, and that this class grows steadily, the analysis is useful to resolve complex public policy trade-offs in the innumerable contexts in which privately promulgated standards are embodied in public law.

Two matters of administrative law arise that this Article's framework also helps to analyze. First, embodying private standards in public law can amount to abdication of lawmaking functions, violating traditional principles limiting lawmaker power to delegate this function to private parties. Delegation risks should be insignificant in the weak form route because embodiment is limited and insignificant in the strong form route because the promulgator is a recognized lawmaker. Delegation risks may be considerable in the semi-strong form route, however. Second, federal governmental agencies may incorporate by reference private standards in public law without following requisite rulemaking procedures or publication requirements, likely posing issues in semi-strong form cases but not in weak or strong form circumstances.

For the federal government, this Article proposes to require the Director of the Federal Register to classify standards embodied in law according to this Article's three-part framework and to administer related copyright effects. It also contemplates that the Director would police impermissible delegation of lawmaking functions to private actors and ensure federal government entity compliance with publication requirements. The proposed regulatory approach to copyright consequences is necessary because of institutional limitations on the federal judiciary's competence to provide a comprehensive ex ante framework. Short of the regulatory solution, however, guidance developed in this Article should aid courts in resolving disputes.

1. THREE-PART FRAMEWORK

   Underlying aspects of the problem of copyright to standards embodied in law are clear: legal materials are ineligible for copyright. Far less clear are the more manifest aspects of the problem: legal doctrine governing copyright to such standards is sparse, conflicting, and ad hoc.

   1. Ancient Concepts

      Since Roman times, a central feature of a law-based civilization has been public access to legal materials. (11) The ancient concepts were adopted early in U.S. history when the Supreme Court announced in the classic cases of Wheaton v. Peters (12) and Banks v. Manchester (13) that judicial opinions cannot be protected by copyright. A critical rationale is that these opinions bind all citizens and so must be "free for publication to all" (what might somewhat simply be called the public domain rationale). (14) A related rationale is that judges need no incentives to generate written legal opinions because this production function is an essential component of their work assignment (call this the incentives rationale). (15) The same rationales apply to legislative enactments, making these likewise ineligible for copyright. (16) These principles apply to all judicial opinions and statutes constituting law, both federal and state. (17) They encompass regulations and rules of administrative bodies (18) and local governmental entities. (19)

      In the Copyright Act of 1976, Congress furthered these ancient concepts by extending relinquishment of claims to copyright for any work of the U.S. government. (20) Relinquishment does not reach works of other governmental entities (21) nor does it automatically extend to work that federal agencies commission from independent contractors. In the latter context, the Copyright Act's legislative history provides guidance to federal agencies. It suggests that copyright would be (a) inappropriate when the independent contractor produces work the agency...