Finding a Balance: Computer Software,

Intellectual Property and the Challenge of

Technological Change

May 1992

OTA-TCT-527

NTIS order #PB92-169242
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Finding a Balance: Computer Software,

Intellectual Property, and the Challenge of Technological Change, OTA-TCT-527 (Washington, DC: U.S. Government Printing Office, May 1992).

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Foreword

Our Nation’s intellectual property system is intended to strike a balance between private

incentives and protections of public interest. This report examines the rapid and complex

technological changes and trends in computer software technologies and their possible effects

on the Nation’s intellectual property system. An effective policy must foster technological

innovation to preserve economic competitiveness of the U.S. software industry in the face of

changing technologies and markets.

The report identifies three policy issues: 1) the appropriate scope of copyright protection

for computer software; 2) patent protection for software-related inventions and algorithms,

and how the U.S. Patent and Trademark Office will handle these types of applications; and 3)

complications facing libraries and commercial and private producers and users of digital

information, including computer-based mixed media products.

This report was prepared in response to a request from the House Committee on the

Judiciary. OTA drew upon work by staff and contractors and the comments of participants at

six workshops. OTA received valuable assistance from members of the study’s advisory panel,

officials of the U.S. Copyright Office, U.S. Patent and Trademark Office, Congressional

Research Service, Library of Congress, U.S. International Trade Commission, U.S.

Department of Commerce, U.S. Department of Energy, U.S. Department of Defense, Office

of the U.S. Trade Representative, and European Economic Community, as well as a broad

range of individuals from law firms, trade associations, public interest groups, industry, and

academia in the United States and abroad.

OTA appreciates the participation of the advisory panelists, workshop participants,

Federal agency officials, and interested citizens, without whose help this report would not

have been possible. The report itself, however, is the sole responsibility of OTA.

w Director

. . .

///
Finding a Balance: Computer Software, Intellectual Property,

and the Challenge of Technological Change

Advisory Panel

Michael S. Mahoney, Chairman

Professor of History, Princeton University

F. Christian Byrnes

Vice President, Product Planning

Landmark Systems Corp.

Dana E. Cartwright III

Director, Academic Computing Service

Syracuse University

Bill Curtis

Director, Software Process Program

Software Engineering Institute

Randall Davis

Associate Director, Artficial Intelligence

Laboratory

Massachusetts Institute of Technology

Walter J. Doherty

Program Manager, Scientific Systems Support

Laboratory

Computing Systems Department

IBM T.J. Watson Research Center

Carol Edwards

(formerly) Project Director

Southern Coalition for Educational Equity

Nick A. Farmer

Director of Information Systems

Chemical Abstracts Service

John Gage

Director of Science Office

Sun Microsystems

Morton David Goldberg

Partner

Schwab Goldberg Price & Dannay

Robbie Hardy

Senior Principal

American Management Systems, Inc.

Mitchell D. Kapor

chairman

ON Technology, Inc.

Ronald S. Laurie

Partner

Weil, Gotshal & Manges

Clifford A. Lynch

Director of Library Automation

University of California

Anita Mergener

Director, Product Design

Kelly Services

Jerome H. Reichman

Professor of Law

Vanderbilt University

Richard Rubinstein

Manager, Technology Assessment and Planning

Digital Equipment Corp.

Robert Schware

Senior Information Technology Specialist

The World Bank

Mary Shaw

Professor of Computer Science

Carnegie Mellon University

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members.

The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the

report and the accuracy of its contents.

iv
Finding a Balance: Computer Software, Intellectual Property,

and the Challenge of Technological Change

OTA Project Staff

John Andelin, Assistant Director, OTA

Science, Information, and Natural Resources Division

James W. Curlin, Telecommunication and Computing

Project Staff

Technologies Program Manager

Joan D. Winston, Project Director

Karen G. Bandy, Senior Analyst

Paula J. Bruening, Analyst

Alan Buzacott, Analyst

Ann M. Hironaka, Research Assistant1

Mark D. Johnson, Legal Intern2

Administrative Staff

Liz Emanuel, Office Administrator

Karolyn St. Clair, PC Specialist

JoAnne Young, Secretary

Other OTA Contributors

Linda Roberts, Senior Associate (SET Program)

Chair, Workshop on Public Interest Issues

Kevin O’Connor, Senior Analyst (BA Program)

Chair, Workshop on Patent, Copyright, and Trade Secret Law

Contractors

Frank W. Connolly, EDUCOM

Robert Echols, Consultant

Steven W. Gilbert, EDUCOM

Paul C.B. Liu, University of Washington

1Until August 1990.

2Catholic University of America (fall semester, 1990).
Page

Chapter 1.Summary, Issues, and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 2. The Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 3. The International Arena . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 4. Software Technology and the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5. Digital Information and Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 6. Economics, Intellectual Property, and Software .,... . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix A. Selected Computer Hardware and Software Initiatives Overseas . . . . . . . . . . . . .

Appendix B.The European Economic Community Treaty: Structure and Function . . . . . . . . .

Appendix C. Workshop Participants and Reviewers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

39

93

125

161

183

205

213

216

223
Chapter 1

Summary, Issues, and Options
Contents

Page

summary . . . . . . . !! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Background and Study Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

The International Arena . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Software Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Digital Information and Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Economic Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Issues and Options . . . . . . . ..*...., . . . . . . . . . . . . . . . . . . . . . . . . . . ● *..... . . . . . . . . . . . . . . . 22

Technological Challenges for Copyright Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Technological and Institutional Challenges for the Patent System and PRO . . . . . . . . . . 23

International Dimensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 25

Digital Information and Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Software Technology, Industry Structure, and the Future . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Policy Choices and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 28

Preparing for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Boxes

Box Page

l-A.Recompilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

l-B. Patent Problem of Prior Art . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

l-C. Patent Examination Quality and Speed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

l-D.The Software Debate: Some Stakeholder Groups and Their Concerns . . . . . . . . . . . . . 10
Chapter 1

Summary, Issues, and Options

Summary

Background and Study Approach

When a new technology impinges upon the

intellectual property system, questions arise concerning both the scope and appropriateness of its

protection and the effectiveness of the system in

promoting “the Progress of Science and useful

Arts. ’ 1 A series of OTA reports has explored the

intellectual property challenges presented by new

information technologies—particularly by the move

to electronic representation of information and the

proliferation of digital means of transmission, adaptation, and copying-and by biotechnology. Looking across these challenges, it would appear that,

although the technological, economic, social, and

industrial particulars differ, many of the tensions and

issues that arise are general, rather than technologyspecific.

In 1984, the House and Senate Committees on the

Judiciary requested that OTA examine the impact of

recent and future advances in communication and

information technologies on the intellectual property system. In response, OTA prepared the 1986

report, Intellectual Property Rights in an Age of

Electronics and Information.2 That report found that

technological changes in information technologies

offer opportunities for social and private gain, but at

the same time challenge existing business practices

and legal doctrines. It examined the impact of new

technologies on the effectiveness of intellectual

property rights, including the right to control reproduction of copyrighted works, the right to control

publication and performance of works, and the right

to control the making of derivative works.3 The

report identified three types of information-based

products—work of art, works offact, and works of

function-and concluded that basic differences among

these types of works create difficulties for the

current intellectual property regimes.4

A 1989 OTA report, New Developments in

Biotechnology: Patenting Life-Special Report,5

examined challenges that biotechnology-specifically, the patenting of nonhuman living organisms—

poses for the patent system (see box 2-A in ch. 2).

Many of the questions and difficulties identified in

that report (e.g., questions concerning the appropriateness and scope of patent protection, the newness

of the technology, institutional difficulties in establishing a repository of prior art and in administering

patent prosecution) have also been noted in this

study6 Thus, it appears that-although the particulars differ—many current questions concerning the

‘ U.S. Constitution, art. I, sec. 8.

2 us+ conge~~, Offiw of Technology Assessment ]nte//ectua/ Property Rights in an Age of Electronics ~n~ ~@~~r@ o~-c~-q~

(Melbourne, FL: Kreiger Publishing Co., April 1986).

3 For exmple, lec~olog1e5 that lower the cost and time required to copy, transfer, or tipdate tio~tion ad intellect~l PmPcfiY cm ‘de

works more accessible, make them more valuable to consumers, and make using them more convenient. But, these technologies can also make enforcing

intellectual property rights more difficult, potentially reducing financial incentives to produce new works. For more discussion of technological change

and the enforcement of intellectual property rights, including impacts on print, music, video, and other media, see Intellectual Property Rights in an Age

of Electronics and Information, op. cit., footnote 2, pp. 97-123.

d Inte[lec~al proper~ Rights in an Age of Electronics and Information, op. cit., footnote 2, pp. 64-68 et seq. hong other Fidings, tie 1986 ~pofl

identified particular difficulties with respect to achieving the public-policy objectives of our intellectual property system when applying it to computer

programs (as works of function) and computer database systems (at the intersection of the factual and functional domains). (Ibid., pp. 67 and 78-88.)

These included questions regarding the appropriate scope of copyright protection for programs (e.g., how ‘‘expression ‘‘ is interpreted), patent protection

for computer processes, and reverse engineering.

5 U.S. ConWcss, offi ce of ~c~olo= Aswssment, New Developments in Biotechnology: pa:enn”ng Lif&pecial Report, OTA-BA-370”

(Washington DC: U.S. Government Printing OfXce, April 1989).

6 ~mmy respects, ow wobs~ed @t tie ~ICUltiti associated with the accommodation of software-related inventions vfi~ the Patent ~gtie

are similar to those experienced in biotechnology. There are some historical differences, though. For biotechnology, the industry had been in general

agreement concerning the desirability of patent protection and the major controversy within the industry was over the scope of such patents. (See footnote

5.) In software, OTA has observed that (in addition to concerns about scope) software developers’ opinions are somewhat divided conccming the general

desirability of patents for software-related inventions.

More recently, however, controversy over biotechnology patents has renewed, this time concerning the subject matter, as well as scope, of patents

for gene sequences. This controversy (in industry, academia, and government) was prompted by the National Institutes of HcaIth’s announcement that

it planned to file patent applications for thousands of complementary DNA sequences, even those whose function is unknown. See Leslie Roberts,

“Genome Patent Fight Erupts,” Science, vol. 254, Oct. 11, 1991, pp. 184-186.

-3-
4 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

availability, scope, and administration of patents for

computer processes and algorithms are not unique to

software technology; rather., they are general questions that may arise when any new technology is

introduced into the patent system.7

Another 1989 OTA report, Copyright and Home

Copying: Technology Challenges the Law,g 

examined noncommercial, private use of copyrighted

works and the implications of digital media and

recording technologies, particularly for home audio

recording. That report found that intellectual property laws serve to define the boundaries between

permissible and prohibited uses of works; technology, driven by the social and economic objectives of

its users, defines the frontiers of possible uses and

feasible enforcement of boundaries.g OTA found

that technological changes and trends10 that substantially alter the nature and extent of possible uses, or

the feasibility of enforcing prohibitions against

certain uses, give rise to tensions between users and

proprietors and may make modification or clarification of the law desirable.l1 In some cases, OTA

found, new technologies (e.g., copy protection) may

have the effect of a de facto change in the law.

In early 1989, the Subcommittee on Courts,

Intellectual Property, and the Administration of

Justice of the House Committee on the Judiciary

(now the Subcommittee on Intellectual Property and

Judicial Administration) requested OTA’S assistMany of the tensions concerning intellectual property protection for a new

technology are not necessarily technology specific.

ance in considering the issues related to the protection of computer software in a changing international marketplace. OTA prepared a background

paper, Computer Software and Intellectual Property,12 that examined current application of copyright, patent, and trade secret laws to computer

software. It also provided an overview of the often

conflicting views and concerns of various stakeholders

among industry, academia, and the public at large.

Current Study Approach

In its prior work, OTA had identified several

factors that contribute to the complexity of the

software debate: 1) the nature of software technology itself, which makes it difficult to fit software

into the current framework of copyright and patent

law; 2) the rapid pace of technological change in

computer hardware and software; 3) difficulties in

reconciling cultural and definitional differences

between the legal and technical communities; and 4)

complications arising from the international scope

of software markets and technologies. 13 In planning

7 However, software is presently distinct in that multiple modes of legal protection can apply simultaneously to portions of a manifestation of the

technology+. g., copyright for a program containing trade secrets, patentable software processes contained in a copyrighted program, etc.

Questions of patent scope and administration are not new—for a discussion of similar concerns in the 19th and early 20th centuries, see Fritz Machlup,

An Economic Review of the Patent System, Study of the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, United

States Senate, Study No. 15 Pursuant to S. Res. 236, 85th Congress, 2d Sess. (Washington, DC: U.S. Government Printing Office,

1958), ch. IV.

8 U.S. Congress, Office of ‘Ikchnolcgy Assessment, Copyright and Home Copying: Technology Challenges the Luw, OTA-CIT-422, (Washington

DC: U.S. Government Printing OffIce, October 1989).

g The= leg~ bo~ds we ~sed on the Constitutional intellectual property barga@ tempered by the feasibility and efficiency of enfomment. see

Copyright and Home Copying: ‘l?chnology Challenges the Law, op. cit., footnote 8, ch. 2 and ch. 3.

10 me tec~olo@~ ~nds ident~led k tie 1989 report were: 1) the movement to digitai representations of music, video, ~d Other typeS Of

entertainment and information available to consumers; 2) the erom”on of niche boundaries used to categorize copyrightable works according to their

content (e.g., audio, video, computer software) or physical format (e.g., audiotape, videotape, computer disc); 3) the emergence of new delive~

infrastmctures to deliver information and ente ‘ rtamment (e.g., fhroptic cable, interactive cable services); and 4) the efforts of some copyright proprietors

(e.g., in sound recordings and motion pictures) to develop and implement technicaZ means for copy protection.

11 si~titW~olo@c~ bends me ~;lev~t to tie present s~dy, espec~y he bl~g of tiche bourldti~ ~d the emergence of new klflZishllChllWS

for delivering computation and for interacting with software and hardware. When stored or executed in a machine, software and data are in “digital”

representations and thus can be interacted with, copied, or manipulated easily and efficiently. At the same time that new delivery infrastructures such

as high-speed networks are being deployed, important new technologies like hypermedia, virtual reality, and Scientflc visualization are blurring

content-based niche boundaries.

12 U.S. Congess, Office of lbchnola,g Assessment, Computer Sofhvare andIntellectual Property, OTA-BP-CIT-61 (New York M: Stockton ~ess,

1990). The background paper was released at the subcommittee’s second day of oversight hearings (Mar. 7, 1990) on the topic of computers and

intellectual property, at which OTA presented testimony. OTA had previously submitted a staff paper, ‘‘Intellectual-Property Protection for Computer

Softwm-e,” to the subcommittee to aswst in preparations for the fust day of oversight hearings on that topic (Nov. 9, 1989).

13 See Computer Sofiware andlntellectual Property, op. cit., footnote 12, ch. 1.
Chapter 1--Summary, Issues, and Options ● 5

and carrying out this study, OTA’S objectives were

to:

●

●

●

●

understand the characteristics of software as a

technology, as well as identify the relevant

technological changes and trends that will

confront Congress;

explore the relationships between the legal

protection of software and incentives for innovation;

understand the market, trade and policy implications of the emerging global software indusV ;

identify current intellectual-property challenges

presented by software and computing technologies and anticipate future challenges from

technological developments in computer software, operations, and architectures.

In the course of this study, OTA sought out the

opinions, positions, attitudes and perceptions of the

stakeholders in computer software protection, including individuals from academia and the research

communities, the legal profession, the computer

software and hardware industries, government agencies, and the public at large. This was accomplished

through personal interviews and correspondence,

and through public participation in the study’s

advisory panel and workshops. Each of the workshops focused on a specific set of issues or perspectives:

●

●

●

●

●

●

Software Engineering Technology and Intellectual Property Issues (Sept. 24, 1990);

Software-Developer Issues (Sept. 25, 1990);

Public-Interest Issues (Dec. 7, 1990);

Digital Libraries, Electronic Publishing, and

Intellectual Property (Feb. 11, 1991);

User Interface Technologies and Intellectual

Property (Apr. 18, 1991);

Patent, Copyright, and Trade Secret Protection

for Computer Software (June 20, 1991).

In each of these workshops, as in the overall study,

OTA sought to explore the dimensions of the

software debate by examining software technology

and its distinctive characteristics, asking questions

such as:

● What are the characteristics of the technology?

How does it advance?

●

●

●

What aspects of the technology are most

important to society? To a proprietor?

What might a proprietor want to secure rights

for? Why? What are the private and public

ramifications of granting or not granting

these?

How do these private and public objectives

relate to current law? Do existing legal modes

provide appropriate protection? Can they be

implemented effectively and efficiently? If not,

what might be done?

This sequence of examination was not always

possible. The published literature and the usual

terms of the software debate tend to focus on positive

analyses 14 of Current law and case law (e.g., whether

copyright encompasses program command structures, whether certain computer algorithms are

The rapid pace of technological change

in computer hardware and software

complicates the “software debate.”

patentable subject matter, etc.) rather than on

normative analyses of what is socially desirable and

how that might be accomplished (e.g., what aspects

of a program are valuable? how might a software

developer obtain and preserve competitive advantages? to what extent should the law permit this?).

This tendency is understandable and pragmatic. It

reflects a natural reluctance to speculate (perhaps

pointlessly) on hypothetical changes in the law or to

propose changes too readily or too specifically and

risk doing harm, rather than good.

Evolution of the Software Debate

Throughout the 40-some years of modern programming, computer software has not seemed to fit as

easily as computer hardware within the traditional

intellectual property framework. Most intellectual

property protection for software has come through

copyright and trade secret laws, and some through

patent law, but software developers and users, the

courts, and policymakers have engaged in a continual attempt to sort out what should or shouldn’ t be

14$ ‘positive WIysis’ refers to an analysis of what is. ‘‘Normative analys]s“ ‘‘ is concerned with what ought to be. In this context, for example, focus

on whether existing law can be interpreted as protecting program cornman d structures would be part of a positive analysis. Focus on whether the program

command structure shoufd be protected to meet public-interest objectives would be part of a normative analysis.
6 ● Finding a Balance: Computer software, Intellectual Property, and the Challenge of Technological Change

protected (from a social perspective) and what is or

isn’t protected (according to current law).

By the mid-1970s, this ‘‘software debate’ helped

motivate Congress to mandate the National Commission on New Technological Uses of Copyrighted

Works (CONTU) to consider the question of how

best to treat software. CONTU’S recommendation

that copyright protection be explicitly extended to

computer programs was reflected in the 1980

amendments to the Copyright Act.15 But the debate

was not put to rest, particularly with regard to the

appropriate scope of copyright protection. In its

1978 report, CONTU had recognized certain difficulties in applying copyright to software, especially

in distinguishing between the copyrightable “expression ‘‘ in a program and the processes or ideas

the program implements, which are not copyrightable. l6 CONTU assumed that most copyright infringements in the then-immediate future would be

‘ ‘simply copying, ’ ‘ but recognized that technological advances would raise more difficult questions in

determining the scope of copyright.17

One such question concerns “reverse engineering’ ‘ of copyrighted programs, especially when it

involves translation of object code into higher-level

languages. This process is often referred to as

“recompilation” (see box 1-A and ch. 4). Discussion of reverse engineering and recompilation

brings together a number of copyright issues,

including: whether it should be a copyright infringement to read/study a copyrighted digital work in

order to extract noncopyrightable subject matter;18

the extent to which fair use applies to unpublished

works; whether the combination of copyright and

trade secret laws should be used to achieve protection for noncopyrightable subject matter (ideas,

processes, etc.) in copyrighted programs.

As software technologies and markets evolved

and grew, so did the controversy concerning appropriate protection for computer programs, computer

processes (implemented in software), and algorithms. Since 1981, there have been increasing

numbers of patent applications and patents granted

for software-related inventions. 19 Over the past

decade, patents have been issued for softwarerelated inventions such as linear-programming algorithms, spell-checking routines, logic-ordering operations for spreadsheet programs, brokerage cashmanagement systems, and bank college-savings

systems. Patent litigation involving software-related

inventions and controversies concerning patents for

algorithms have become highly visible.20 These

causes of action and invention-specific controversies have focused attention on the appropriateness of

patent protection for software-related inventions and

algorithms, which present significant problems for

patent-system administration. These problems include the incomplete stock of “prior art’ available

15 Cop~@t Act of 1976, 17 U.S.C. 101 and 117. See *o ch. 2.

~bFina[ Report of the National Com”ssion on New Technological Uses of Copyn-ghted Works (CONTU), JUIY 31, 1978, PP. 18-22. (Referred to by

OT4 as CONTU Report.)

17 CONTU conciuded, however, that these questions shodd be answered on a case-by-case basis by the Federal COIMK (ibid., pp. 22-23).

18 6‘Ra~g~ ~ or ‘‘studying’ a copyrighted work has never, in itself, been a copyright violation. It is only when analysis involves (perhaps requires)

the making of a‘ ‘copy’ of the work—usually as an intermediate step in producing a competing work which may or may not be ‘ ‘substantially similar’

and therefore infringing-that the legitimacy of analysis to reverse engineer comes into question.

19 III MS repofi OTA sometimes uses phrases like ‘patents for Softwaro-rekited iWetXiOUS’ Or ‘‘software-related patents” to refer generally to patent

protection for inventions implemented in software. (See discussion in ch. 4.)

The U.S. Patent and Trademark Office (pTO) considers terms like “software patents” to be misnomers because they may be interpreted to mean

that a computer program per se (i.e., the code) is patentable, as opposed to the underlying computer process. The FTO position is that computer programs

per se are not patentable, as opposed to patentable computer processes and algorithms that do not fall into the subject-matter exception for ‘mathematical

algorithms.” (M. Keplinger, G. Goldberg, and L. Skillingtoq PTO, letter to Joan Winstoq OTA, Dec. 18, 1989.)

m ~ t~~gofi~~’ is a well-defined computational procedure for taking an input and producing an output. Algorithms are tools for solving

computational problems-an algorithm describes a spwYIc computational procedure for achieving a desired input/output relationship (see ch. 4).

In the United States, certain types of computer-implemented processes and algorithms can be patented. The U.S. Supreme Court has not ruled on

whether computer programs per se are patentable subject matter, but has ruled that computer-implemented algorithms that are deemed “mathematical

algorithms’ per se are not statutory subject matter. Federal courts have thus held that a computer processor algorithm is statutory subject matter unless

it falls within a judicially determined exception like the one for “mathematical algorithms.’

Currently, PTO patent examiners carry out a two-part test for mathematical-algorithm statutoxy subject matter; the test is intended to be consistent

with legislative history and case law. F70r examina tion purposes, ‘‘mathematical algorithms” are considered to refer to “methods of calculation

mathematical formulas, and mathematical procedures generally,’ and no distinction is made between manmade mathematical algorithms and

mathematical algorithms representing discoveries of scientific principles and laws of nature, which have never been statutory subject matter. (U.S. Patent

and Trademark Office, “Patentable Subject Matten Mathematical Algorithms and Computer Programs, ” 1106 O.G. 4, Sept. 5, 1989; also contained

in Michael S. Keplinger and Ronald S. hmrie (eds.), Patent Protecn”onfor Computer Software: The New Safeguard (Englewood Cliffs, NJ: Prentice

Hall Law and Business, 1989), pp. 942.)
.

Chapter 1--Summary, Issues, and Options . 7

Box l-A—Decompilation

There are three different types of programming languages: machine language, assembly language, and

high-level language. Machine language programs can be executed directly by the computer, but are relatively

difficult to write and understand. Assembly language programs and high-level language programs are easier to write

and understand, but cannot be executed directly by the computer. For this reason, programs are usually first written

in assembly language or a high-level language, and then translated into machine language so that they can be

executed on the computer.

Programs are typically distributed in machine language form. Machine language programs do not have to be

assembled or compiled by the user; they are ready to be loaded into the computer and executed. In addition,

distribution in machine language form has the side effect that it is difficult for others to look at the program code

and understand how the program works. This can help to keep secret those elements which give the program a

competitive advantage.

The “recompilation‘‘ issue has arisen because efforts to translate a machine language program back into a

more understandable form, such as assembly language or high-level language, may be a copyright infringement

because the translation process would involve the making of an unauthorized copy or derivative work. Legal

scholars are divided on the question of whether this activity can be excused under the provisions of Section 117 or

Section 107 of the copyright law.

Two terms are used to refer to the process of translating a machine language back into a more readable form.

Disassembly is the process of translating a machine language program into an assembly language program;

recompilation is the process of translating a machine language program into a high-level program. One issue in the

policy debate has been the feasibility of recompilation. There are currently no commercially available decompiler.

It appears that the term ‘recompilation,’ as it is used in the policy debate, encompasses disassembly and any other

procedure by which a machine language program is translated into a more understandable form. There area number

of disassembler programs available on the market. Translating a machine language program into assembly language

is much easier than translating it back into a high-level language.

One view is that limits on recompilation are required in order to encourage the development of original

programs. Those who take this position argue that recompilation significantly lowers the cost of implementing

“clone” programs. They claim that the original program is decompiled, altered to disguise the copying, and

marketed. The clone program can then be sold at a lower price, taking away market share from the original

developer, and reducing incentives for the development of new programs.

Others argue that recompilation is a difficult and time-consuming process that does not significantly reduce

the cost of developing clone programs. A large disassembled program takes a great deal of effort to understand. In

addition, they emphasize that recompilation is required for a variety of other purposes, many of which have a less

direct impact on the developer of the program being decompiled. (For more discussion, see ch. 4.)

SOURCE: OTA, 1992.

to patent examiners in evaluating patent applications

for processes involving software and algorithms,

and the long timelag between patent application and

issuance, compared to fast-moving software life

cycles (see below and boxes 1-B and l-C). Moreover, some members of the software and legal

communities believe that software-related patents

will tend to stifle, rather than encourage, technological progress.

Copyright and patent lawsuits have continued to

test and explore the boundaries of the current laws.

An incomplete stock of prior art can

present significant problems for patentsystem administration.

Looking at the scope of current legal interpretations

and at possible uncertainties in these laws, some

have proposed that modifications to existing structures, or the development of sui generis protections 21 are preferable to forcing software to fit

21 Suigeneris is a Latin phrase describingalaw that is “of its own kind or class.’ The Semiconductor Chip Protection Act of 1984 (Public Law 98-620)

is a sui generis law for chip mask works; it is not part of the patent or copyright laws.
8 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box l-B—Patent Problem of Prior Art

The quality and availability of the published (as opposed to product) prior art, or known technology, is often

cited as affecting the quality of issued patents (see ch. 2). The U.S. Patent and Trademark Office relies upon its

database of prior art to determine whether the invention defined in the patent application meets the patentability

criteria set forth in statute. It is against this collection of prior art literature (including earlier patents) that the PTO

compares the claimed invention and decides whether the claimed invention possesses the requisite novelty and

nonobviousness.

Among the reasons cited for the perceived problem of prior art is the extensive use of trade secret protection

for computer software. Unlike patent and copyright protection, trade secret does not require disclosure of

information that is the subject of protection. Rather, trade secret requires that the holder of the trade secret make

a deliberate effort to maintain the secret quality of the information. Such secret information cannot, by definition,

function as part of the “known” technology available as a standard for patentability as required in the patent law.

In the course of development of the computer sciences, some advances in the field were published in journals and

industry communications, most especially within the academic community. However, many new innovations were

not published because they were simply embodied in a product or not considered the type of “invention” which

would be the subject of a publication. The prior art that is not the subject of a patent is not always considered to

be as rich in the computer science field as in other disciplines. As a result, in large part, the resources available to

the PTO for determining obviousness and novelty are more limited than in other fields; in large part the prior art

database is limited to software that is already the subject of other patents for software-related inventions. It is

therefore often difficult to determine what can be considered the current state of the technology and what can be

considered, in the words of the patent statute, ‘‘obvious to the ordinary person skilled in the art’ for purposes of

determining patentability.

The patent law does not. provide for a free system for third parties to add to the present general stock of prior

art. However, it does allow parties to submit art that maybe pertinent to the patentability of particular issued patents.

As a result, it has been suggested that a private database of prior art be developed by the industry itself, which would

allow for free contribution of prior art in an effort to improve the quality of the prior art database available to the

PTO and, consequently, of the patents issued.

SOURCE: OTA, 1992.

models more suitable to other types of works and are questions as to whether this process of accommodadiscoveries. However, the majority of legal experts

and firms in the industry takes the position that

existing structures like copyright and/or patent are

adequate to deal with software, that the case law as

a whole is evolving appropriately, and that sui

generis approaches risk obsolescence as the technology changes and lack an established treaty structure

providing international protection (e.g., the Berne

Convention provides reciprocal copyright protection in over 75 countries). Thus, their tendency is to

try to find some way to accommodate specific

aspects of software-like protection of user interfaces—within existing structures, particularly copyright. In OTA’S view, despite the advantages, there

tion can-or should---continue indefinitely. With

respect to software, there may be a point where it

becomes preferable to complement or substitute for

the existing structures, rather than extend the scope

of copyright to fit certain aspects of software—

perhaps, cumulatively, at the expense of other types

of works. In continuing to assess the intellectual

property bargain, Congress may conclude that the

“balance” for software differs somewhat from that

for other copyrighted works.22

The stakeholders in the software debate can be

categorized in many ways—software creators, softZZ For exmple, see tes~ony on tie varying concerns of software developers, journalists, and histori- mgardhg fair use of unpublished woks at

hearings before the House Committee on the Judiciary on H.R. 2372 (“Copyright Amendments Act of 1991”), May 30, 1991 and June 6, 1991.

U.S. law provides that “original works of authorship” are copyrightable subject matter (17 U.S.C. 102(a)). Computer programs are considered to

be in the category of “literary works,” which are: “works, other than audiovisual works, expressed in words, numbers, or other verbal or numerical

symbols or indicia, regardless of the nature of the material object, such as books, periodicals, manuscripts, phonorecords, fm tapes, disks, or cards,

in which they are embodied, ” (17 U.S.C, 101).
Chapter I----Summary, Issues, and Options ● 9

Box l-C—Patent Examination Quality and Speed

The prolonged pendency period for patents between time of application and time of issuance has also been of

concern in light of the fast-moving nature of the field of the technology.1 At present, the U.S. Patent and Trademark

Office target for pendency is 18 months. The lower range of estimates of the pendency period for software-related

inventions is from 18 months to 2 years; some believe that it is more like 32 months from filing to issuance. 2

Stakeholders concerned with software development find this pendency period alarming, given the rapid pace at

which the technology advances. They cite the possibility of “landmine patents,’ patents which have been pending

in the PTO to issue only after others have in the interim unknowingly developed infringing software products. The

issuance of such a patent thereafter precludes the making, using, or selling of the software by anyone other than the

patent holder.

Also of particular concern is the question of criteria for subject matter patentability under Section 101. Courts

and the PTO have struggled with the question of patentability under Section 101 since the late 1960s, and the rapidly

advancing nature of the technology forces that debate to continue (see ch. 4). Recently applicants have complained

of a proliferation of Section 101 rejections from the PTO, causing some to conjecture that the PTO is implicitly

asking the Board of Appeals and the Court of Appeals for the Federal Circuit to issue new rulings on the question

of patentable subject matter.

1 s= discussion in ch. 2.

2 ROIXrt Gr&ne Sterne and Edward J. Kessler, “Worldwide Patent Protection in the 1990s for Computer Related ‘Ik&nology,” in

Morgan Chu and Ronald S, Laurie (eds.), Patent I’rotectionfor Computer Sojiware (13r@ewood CliHs, NJ: Prentice Hall Law and Business,

1991), p. 359.

SOURCE: OTA, 1992.

ware users, large and small commercial software and in dealing with large competitors.23 OTA has

developers, computer hardware manufacturers, educators, students, academic and other software and

computer science researchers, to name just a few

(see box l-D). Sometimes issues in debate are

characterized as conflicts between software producers and consumers, between large and small fins,

between major firms and their smaller competitors,

between commercial and academic/nonprofit software developers and researchers, or between industry and the general public. Although these characterizations can be helpful in understanding specific

issues and positions, one must be cautious about

overgeneralizing: for example, some aspects of the

controversy over software-related patents are characterized along the lines “large firm versus small

developer. ’ While it is true that large firms, on

average, are more likely to have greater financial and

legal resources and more expertise dealing with the

patent system, licensing, and litigation, some small

firms and entrepreneurs are advocates of patents for

software-related inventions and find them extremely

advantageous, particularly in attracting investments

found that the most general line of demarcation

across stakeholders separates those who perceive

significant current financial advantages under the

status quo and/or who are relatively confident that

their legal and financial resources are adequate to

deal successfully with any legal uncertainties or

litigation, from those who do not perceive significant financial advantages under the status quo

(compared to possible changes or modifications)

and/or feel less well-equipped to deal with legal

uncertainties or litigation.

Some well-publicized recent copyright lawsuits

have raised issues, which are also being debated

outside the courtroom, regarding how far the scope

of copyright extends beyond the literal written

expression—the program code-to the program’s

“design,’ to the logic underlying a program, and to

the program’s command structure and interfaces

(see ch. 4). At stake in these decisions is the extent

to which copyright (in concert with trade secret law)

should be interpreted to give protection to the

2.3 see, e.g., paul H~kel, “Epilogue: The Wright Brothers and Software Invention, ” The Elements of Friendly Software Design, 2d ed. (Alameda,

CA: SYBEX, Inc., 1991), pp. 223-294; and Elon Gasper et al., “Vital to Small Companies” (letter to the editor), The New York Times, June 8, 1989,

editorial page.
10 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box I-D—The Software Debate: Some Stakeholder Groups and Their Concerns

Individual software creators and the software industry-Creators of commercial software are concerned

about their financial viability; an important rationale for intellectual property protection for software is to give

commercial software developers adequate market incentives to invest the time and resources needed to produce and

disseminate innovative products. The software industry in general is concerned with revenue losses resulting from

commercial piracy and counterfeiting and many developers are also concerned about unauthorized end-user copying

(see ch. 3). But direct revenue losses are not the only concerns of commercial developers, who also want to gain

and maintain a competitive advantage in the marketplace.

One powerful source of market advantage is lead time: the first company out with an innovative computer

program benefits from its head start. Trends in software technology, like computer-aided software development, are

eroding leadtime advantages. Another potential source of a market advantage is user and/or machine interfaces. In

this area however, the industry’s goals of expanding the market and a firm’s goal of maintaining or increasing

market share can beat odds (see chs. 4 and 6).

Software developers, and the industry as a whole, are concerned with access to state-of-the-art knowledge and

diffusion of information about programs and programming, so that programmers can build on each others’ work,

rather than reinvent the wheel (or rewrite a matrix-multiplication subroutine) for each new program. For society as

a whole, the pace of innovation maybe speeded up if competitors are able to build on others’ advances, rather than

allowing an innovator to block others (see chs. 4 and 6). A related concern is reverse engineering of software,

particularly for the purpose of understanding the internal construction and functioning of a program (see ch. 4).

Software users—Millions of individuals and thousands of businesses rely on purchased software products for

their day-to-day activities and livelihood. As with any product, they care about the price, quality, functionality, ease

of use, and variety of software available. Most users, especially business users who rely on software tools for

day-to-day operations, are also concerned with the availability of expert support for questions or problems.

The “software workforce” who use and/or create software as part of their jobs want to have transferable skills;

thus they are concerned, sometimes only indirectly, with standards for programminglanguages and externa l

consistency of user interfaces (see ch. 4). (For example, learning a new wordprocessing package is easier if it has

commands in common with other packages one already knows.) However, users also want more powerful software

functionality of the program, as opposed to the

program code.24

Software-related patent suits are also ongoing.

This litigation and the recent publicity25 given to

some patents for algorithms26 have stimulated debate over whether computer processes and algorithms should be patentable at all, or whether they

are different enough from other areas of technology

that special limitations should apply. Although

questions pertaining to patent-system administration

are extremely important, the long-term question of

whether patent (or patentlike) protection for computer processes and/or algorithms is socially desirable is separate from the related question of how well

current U.S. Patent and Trademark Office (PTO)

procedures are working now,

In 1990, the Secretary of Commerce established

an Advisory Commission on Patent Law Reform.

The commission was to examine 13 sets of issues

regarding the patent system, including protection of

m As pad Goldstein put it:

“

. . .a computer program is quintessentially a functional work. As a consequence, even the most closely circumscribed definition of

a computer program’s protectable subject matter will to some degree enable the copyright owner to monopolize the program’s

function-its ‘procedure, process, system, method of operatiow concept, principle, or discovery. ’ Consequently, the task in defining

the scope of a computer program’s protectable subject matter is not to distinguish between nonfunctional and functional elcments,

since function will pervade all elements. IGither, the task in any case is to separate those elements-protectable expressio%whose

monopolization will not overly inhibit competitors’ use of the prograsn’s functions, from those elements—unprotectable

ideas-whose monopolization will improperly inhibit competitors’ use of the programs’s function. (Paul Goldste@ Copyrighr—

Principles, Law and Pracrice (Bosto~ MA: Little, Brown and Co., 1989), sec. 2.15.2, pp. 206-207.)

25 See, e.g., ~Wd L. ~d~ws, ‘‘Equations Patented: SOme See a Danger, “ The New York Times, Feb. 15, 1989, pp. D1,D6; Jack Shandle, “Who

Will Weather the Gathering Storm in the Courts?’ Electronics, August 1989, pp. 67-70; and ‘ ‘Lodging Securities at the Patent Office, ’ The Economist,

Aug. 25, 1990.

26 See footnote 20, supm.
Chapter l-Summary, Issues, and Options ● 11

with improved functions; sometimes the desire for consistent (’‘standard’ interfaces conflicts with ease of use and

improved functionality. The software-training and temporary-help industries share these workforce interests; they

also are developers of training software.

Thus, software users care about the health of and level of competition in the software industry, as well as having

‘‘common ground’ (compatibility) that allows them to use new products with their existing hardware and software

(see ch. 4). Users care about having “reasonable” rights (e.g., being able to make a backup copy of an expensive

piece of software); some need the ability to modify ‘packaged’ software in order to use it efficiently or meet other

specialized needs. Most businesses and individuals who use software tools to create other products or services want

a stable and predictable legal environment so they know what uses are permissible and which are not or must be

licensed from developers.

Academic community—Academic and research communities traditionally value free access to and exchange

of information (see ch. 5). Academic software/computer science researchers and developers who are motivated by

incentives other than commercial potential (e.g., professional prestige, tenure, publication in scholarly journals)

tend to view intellectual property protection somewhat differently than commercial developers. Like many small

software vendors, many in the academic community are concerned that what they consider to be “overprotection’

(e.g., copyright protection for “look and feel’ and patenting of software processes and algorithms) might hamper

research and long-term growth in their fields (see ch. 4).

In contrast to development of major commercial software packages, “small” software programs to help teach

students are developed by faculty in a number of disciplines. The incentives to develop, distribute, and use such

‘‘small’ software programs, which are often distributed over academic computer networks, differ significantly from

those for commercial software.

As financial pressures mount, universities and their faculties are becoming increasingly interested in

commercializing technology and appropriating financial rewards from their intellectual property. At the same time,

they are concerned about affordability of the software that students need, both inside and outside the classroom and

laboratory.

SOURCE: OTA (adapted from U.S. Congress, Office of Technology Assessment, Computer Software and Intellectual Property

OTA-BP-CIT-61 (New York, NY: Stockton Press, 1990)).

what PTO terms ‘‘computer-related inventions, ’ as

well as procedural matters such as a first to file

system, automatic publication of applications, and

the term of patent protection. 27 The latter questions

reflect a concern about the differences between the

U.S. patent system and those in foreign countries

(see ch. 3). The World Intellectual Property Organization (WIPO) has attempted to harmonize patent

laws in member countries. U.S. agreement to WIPO’S

draft treaty would entail adjustments in U.S. law

including a change from a first to invent to a first to

file system (awarding the patent to the applicant who

has the earliest filing date) and a change in the term

of patent protection from 17 years from grant to 20

years from date of filing.

The judicial system, along with PTO and the

Copyright Office, participates in the process of

defining the bounds of software protection. The

courts help determine requirements for—and scope

of—protection under the patent and copyright sysCourts must deal with complex and

fast-moving technologies.

terns by addressing issues in the course of litigation,

whether between parties in the private sector or

between the respective government agency and

applicants (see chs. 2 and 4). Given the rapid

advancement of the computer sciences, the courts

face enormous challenges in resolving the issues

raised by the changing technology adequately and in

a timely fashion, so as to properly serve the needs of

both the industry and society at large.

The problem confronted by the judiciary is

twofold. In addressing computer and software issues, courts must deal with technology that is highly

complex; the court must find a means to understand

27 See Federa[ Register, vol. 56, No. 95, M2y 16, 1991, W. ‘22.702-22.706

j~r] - z~b () Y7 - 2
12 ● Finding a Balance: Computer software, intellectual Property, and the Challenge of Technological Change

extremely technical concepts in order to decide legal

issues fairly. In addition, the generally overworked

judicial system, with its crowded docket, must

render decisions on a technology that often advances

faster than such decisions can be reached. These two

difficulties raise questions about the courts’ current

capabilities to address the issues presented by the

software industry.

The Law

The U.S. ‘ ‘intellectual property system’ is a

mixture of Federal and State law. Laws concerning

copyright, patent, trademark, and the protection of

semiconductor chip mask works are under Federal

jurisdiction. Laws concerning trade secrets and the

misappropriation of confidential business information, and certain limited kinds of ‘‘unfair competition, ’ are under State jurisdiction. Trademarks may

be federally registered and/or registered with an

individual State; trademark rights may also accrue

based on common-law usage. Computer software is

distinguished from most other intellectual creations

protected by intellectual property law in that it is

eligible for protection by patent, copyright, and trade

secret laws. Each kind of protection possesses

certain strengths and weaknesses, and each protects

certain aspects of software in specific ways.

The statutory subject matter of a utility patent is

limited to a process, machine, article of manufacture, or composition of matter that is novel, nonobviOUS, and useful, or to new and useful improvements

to these classes of patentable subject matter. In

exchange for a sufficiently detailed disclosure of the

invention by the inventor, the patent precludes

others from making, using, selling or importing

components of the patented invention. A patent

protects against independent creation, so that to

prove infringement the patentee need not show that

an invention was ‘ ‘copied’ or acquired through

some improper access or means. A U.S. utility patent

allows for 17 years of protection for the invention

(including application of the underlying idea), during which time the patented invention may be

licensed, publicly disclosed, and distributed without

altering its legal protection.

Design patent protection is available for surface

ornamentation, configuration, or a combination of

A patent protects against independent

creation. To prove infringement, the

patent holder need not show that an

invention was “copied.”

both. While the configuration of a useful object may

constitute a patentable design, a design dictated by

considerations of function is not a proper subject for

a design patent. Patent protection for designs is

granted for a period of 14 years.

Whether and to what extent software-related

inventions are the subject of utility patent protection

has been an issue for consideration by the courts and

the U.S. Patent and Trademark Office since the early

1960s. The U.S. Supreme Court has examined the

issue of patentability of software on a number of

occasions, in the cases of Gottschalk v. Benson,

Parker v. Flook, and Diamond v. Diehr, attempting

to delineate the limits of patentable subject matter

with respect to ‘‘mathematical algorithms. ’

At the same time, the PTO has grappled with

several institutional problems, including issues such

as: examiner training and turnover, length of pendency periods (from filing to issuance) for patent

applications, a backlog of applications, and the

quality and extent of the prior art database (see

discussion in this chapter, pp. 6-8 and more in-depth

discussion in ch. 2). In OTA’S view, these problems

are serious in that they may affect the quality of the

patents issued and create additional burdens for

software developers and users (e.g., 4

‘landmine’

patents--see box 1-C).28

U.S. law provides that until the patent is issued,

the information contained in the application for a

patent remains secret, and therefore may be protected as a trade secret. Information beyond that

required for inclusion in the patent to meet the

‘‘enablement’ and ‘‘best mode’ requirements can

also be reserved for trade secret protection. Trade

secret law protects confidential business information against unauthorized use or disclosure, and is

based on statutory and common law and contractual

provisions.

~ As ~ ~attcr of policy, no does not Comlent on tie ex~nation process for issued patents. Because OTA could not be “walked though”

application of FTO examina tion criteria or discuss interpretation of the criteria for specitlc patents, OTA was unable to make any independent finding

on the quality of examination for particular software-related patents.
—

Chapter l-Summary, Issues, and Options ● 13

Like patents, trade secret law can protect the

underlying idea of an invention, rather than any

particular expression. Trade secret possesses the

distinct advantage that, unlike patents, this form of

protection does not require any disclosure of information; indeed, trade secret protection is critically

dependent on the secret nature of the information,

and on the steps taken by the trade secret holder to

maintain secrecy. Unlike patent holders, possessors

of trade secrets have no protection against independent creations and even subsequent patenting by

others of the invention that is the subject of trade

secret. (For more on trade secrets, see ch, 2.)

Copyright law, unlike patent and trade secret,

protects the expression of an idea rather than the

underlying idea itself. Copyright does not extend to

any procedure, process, system, method of operation, concept, principle, or discovery, regardless of

the form in which it is described, explained, illustrated, or embodied. Rather, copyright is said to

protect the expression in the program-which may

include such program elements as source code,

object code, screen displays, etc. (see chs. 2 and 4).

The evolution of case law in copyright has

involved examination of several key issues. Among

the most important to software are whether object

code as well as source code29 is protected (Apple v.

Franklin); whether a program’s structure, sequence

and organization are protected (e.g., Whelan v.

Jaslow, Plains Cotton Cooperative Association v.

Goodpasture Computer Serv., Inc., et al.), and what

such protection implies; and whether the ‘‘look and

feel’ of the program and its interface is protected

(Lotus v. Paperback Software, Computer Associates

v. Altai, Inc.).

Current law provides for copyright protection for

unpublished as well as published works. This is

important for computer software, because it facilitates simultaneous use of copyright and trade secret

protections. The published version of the copyrighted program can be distributed as ‘‘object

code, usually in a machine language that is difficult

to read or study. The ‘source code, ’ usually written

in a higher-level, easier-to-understand computer

language, remains unpublished and is often held as

Copyright protects the expression of an

idea rather than the underlying idea

itself.

a trade secret in order to protect the program’s logic

and know-how (see below and ch. 4, especially the

section on recompilation). However, if the ‘‘ideas’

of the program can be ascertained by inspection of

the object code, trade secret in such ideas is lost.

Also, if and to the extent that recompilation is not a

copyright or contractual violation, trade secret

protection for the source code can be lost.

The Semiconductor Chip Protection Act of

1984 (SCPA) extends legal protection to a new form

of subject matter-semiconductor chip mask works—

in order to address the problem of chip piracy .30 The

act provides for a 10-year term of protection, and

registration under the SCPA is administered by the

Copyright Office. Reverse engineering is a defense

to a claim of infringement under the act, and

provides an exemption from infringement liability in

spite of proof of unauthorized copying and striking

similarity, so long as the resulting chip product was

the result of study and analysis and contained

technological improvement. The SCPA provides for

remedies similar to those associated with copyright

protection, does not allow for criminal penalties, and

maintains a higher limit on statutory damages than

that provided for in the Copyright Act.

The International Arena

The software industry has become global in

character, leading to increasing international efforts

to protect intellectual property rights in software.

The global nature of the industry and the law is

important because of the effect of commercial

activities in foreign countries on those in the United

States, as well as the similar effect of U.S. activities

on those in other countries. In the area of software,

as in all industrial and service sectors, companies

compete in international and domestic environments. As a result, U.S. legal concepts, definitions,

29 ~c cornpu[er term ‘‘source code’ is often used to refer to a computer program in the language that it was written, usually a high-level language

but sometimes assembly language. The term “object code” refers to a program in the form of machine language. Sec footnotes 57, 58 and 59 (and

accompanying discussion) below and also ch. 4.

~ 17 U,S ,c., ch. 9. See also Robert W. Kastenmeier and Michael J. Remington, ‘‘The Semiconductor Chip Protection Act of 1984: A Swamp or Firm

Ground?’ Minnesota Luw Review, vol. 70, No. 2, December 1985, pp. 417470.
14 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

and policy about software and intellectual property

protection for software affect (and are affected by)

those of other nations. This report discusses the

global software industry and the issue of piracy, and

examines various treaties, negotiation efforts and

attempts to harmonize domestic and international

laws to provide protection for intellectual property.31

The Global Software Industry

Although its share of the world software market

has declined over the past decade or so, the United

States is still the world’s leading innovator and

producer of computer software.32 Accurate data on

software industry revenues and market shares are

difficult to obtain, in part because there are many

types of “software industry” data being collected

and reported by different organizations.33 These

include data about:

●

●

●

●

software and services, including processing

and professional services, as well as software

products;

application and systems software, whether

packaged or custom-developed;

packaged software, including applications and

systems software;

custom software, professionally developed or

extensively tailored to meet a customer’s speCifiC needs;

personal computer (microcomputer) software,

usually sold as packaged software (although

not all packaged software is for microcomputers); and

software from ‘‘independent” developers who

are not part of a hardware manufacturer.

This variety of data, collected by different organizations, makes comparison and synthesis extremely

difficult. 34 Consistency across types and years is

usually not possible when drawing from these

published figures.35

By ah-nest any measure, though, the United States

has a premier role as a producer and a consumer of

software. According to one industry estimate, U.S.

demand accounted for 52 percent of world software

consumption in the late 1980s.36 The U.S. Department of Commerce estimated that global revenues

from sales of software were more than $65 billion in

1989 and that U.S. software suppliers accounted for

more than 60 percent of global software sales .37

According to the Software Publishers Association

(SPA), North American revenues from packaged

software for microcomputers (personal computers)

were $4.5 billion in 1990, up 22 percent from 1989.38

According to the Computer and Business Equipment Manufacturers Association (CBEMA), in the

31 Exfiation of North-South and East-West technology transfer is beyond the scope of this report. For a treatment of global economic competitio~

with an emphasis on high technology, see U.S. Congress, Office of Technology Assessment Competing Economies: America, Europe, and the Pacific

Rim, OTA-ITE-498 (Washington DC: U.S. Government Printing Office, October 1991).

Although this study does focus some attention on the relationship between intellectual property and standards (see chs. 4 and 6), a detailed

examination of standards is outside the scope of this report. For a thorough treatment of international standards, see U.S. Congress, Office of Technology

Assessment, Gfobuf Standards: Buildi,~g Blocks for the Future, OTA-ITE-529 (Washingto~ DC: U.S. Government printing Office, April 1992).

32 Studies in tie late 19gOs estimated that U.S. producers held a 70 percent share of the global market for software. Estimates by the u.!l. commerce

Department now place the U.S. market share at around 60 percent (see ch. 2). Part of the decline in the U.S. shares of software demand and supply has

come about naturally as software use becomes more widespread abroad and other mtions’ software industries develop.

33 For e~ple, the Softw= Publishers Association (SPA) collects data on packaged PC software; ADAPSO (The Computer Software and Services

Industry Association) reports data on software and services, usually (but not always) from independent mainframe and minicomputer software houses;

the Computer and Business I?quipment Manufacturers Association (cBEMA) reports data on the information technology industry, including office

equipment, telecommunications, electronic data processing equipmen~ and software and services (including software produced by hardware

manufacturers). Moreover, “hardware” companies rdso are software producers-sometimes, like IBM+ the largest in the world.

~ Wherever wssible, OTA ~sspec~led the we and source of market data and estimates (e.g., “software,” “independent software, ” “software and

services’ ‘); the reader should not expect figures for a given year to “add up” or figures horn different sources to be readily comparable.

35 For ~wce, a fm whose pr~ucts include ~ application may have at least some of its revenues included in ‘ ‘w-application SOfhVtUe, ” Or

‘‘packaged software; ‘‘ it maybe included in ‘software and services, ’ and may or may not be an ‘independent’ software house. But a fm whose main

products are PC networking software is likely not to be included in data on ‘‘PC-application software.”

36 ADAPS0 estimate in Jeff Shear, “Competitive Software Industry Suits Up for Global Hardball,” Insight, July 10, 1989, p. 38.

37 Comerce Dep~ent es~te cited inKeeping rhe us, compuferrndus~y compe(itive:D@”ning the.4gen~, Computer Science and khIIoIofl

Board (Washington DC: National Academy of Sciences, 1990), pp. 30-31.

38 Ken Wasch Nicole Field, and Sara Brow~ SPA, personal comrnticatiou JdY 30, 1991.
Chapter 1-Summary, Issues, and Options ● 15

39 market for software and services, the U.S. industry

had domestic revenues of about $93 billion in 1990,

a 16 percent increase from 1989 revenues of about

$80 billion. Of these domestic revenues, CBEMA

estimates that software products accounted for about

45 percent of the total--$42.5 billion in 1990 and

$35 billion in 1989.40 (See ch. 3 for more industry

revenue estimates.)

U.S. producers are increasingly challenged by

competition from developing software industries

abroad, particularly in Europe, where U.S. firms

currently hold 70 percent of the PC-software market. 41 With the prospect of a unified market and

common standards in Europe in 1993, U.S. firms are

facing new competition from Japanese software

producers who are establishing themselves in Europe through acquisitions, as well as invigorated

competition from European vendors. The United

States faces growing competition in Asia from

Japanese producers, while software industries in

Taiwan and Korea are developing rapidly. And in

the United States, U.S. firms face new competition

in the domestic market from foreign competitors like

the Sony Corp. (see app. A for more on overseas

markets and technology initiatives).

Software Piracy

Illegal copying of software results in financial

losses to U.S. software firms both directly, through

loss of sales and/or royalties, and indirectly, through

Although U.S. software developers face

increasing competition from foreign

competitors, the United States still has a

premier role as a software producer.

loss of investment opportunities. 42 Retail piracy—

duplication of an entire program for sale by ‘‘pirate’

competitors-and counterfeiting are major concerns

of most software companies.43 These concerns can

be dealt with straighforwardly, at least in theory, by

copyright law.

 44 In practice, enforcement, especially

overseas, is difficult. (See below and ch. 3 for

discussion of international treaties and agreements

concerning intellectual property and software.)

Estimates of financial losses due to piracy vary.

ADAPSO (The Computer Software and Services

Industry Association) estimates that one of every

two copies of personal-computer software used by

corporations in the United States is an illegal copy.45

In 1990, according to SPA estimates, developers of

packaged PC software lost $2.2 billion to piracy

within the United States,46 up from an estimated $1

billion in 1986.47 Industry estimates of losses from

piracy abroad are larger: the Business Software

Alliance (BSA) estimates that-looking at all types

of software-software piracy worldwide causes the

w OTA note: Revenue reported for ‘software and S~iCeS “ includes revenues from processing and professional services, as well as from custom and

packaged software products.

40 Ollver SmW4 CBE~,~rso~ comWication, J~e 30, 1991. SW ~so ~EMA, Tfie Computer, BWiness Equipment, Sofiwure u?ld Services,

and Telecommunicafi”ons Indusrry, 1960-2000 (Washington DC: CBEMA, Industry Marketing Statistics, 1990), p. 100. (Estimates from BDA Assoc.

forecast.)

41 SPA estimate (StTZ ch. 3).

42 For diXussion of revenue losses due to piracy, see U.S. Lnternationzd Trade C0mmi55i0% “Foreign Protection of Intellectual Property Rights and

the Effect on U.S. Industry and Trade, ” February 1988, ch. 4.

43 OTA ~ofe,. ~stext uses the p~W ‘‘re~l p~cy$ t. mea ~uthon~ Copfig for the p~ses of selling the illegal copies or close derivatives;

“counterfeiting” to mean passing off illegal copies as the real thing; “end-user piracy” to mean copying by users but not to sell the copies.

44 J~ome Reichman notes tit~glm~ena law tends to use cop~ght to r~ss ‘‘pi~cy’ (i.e., slavish imitation) because these countries lack

a general-purpose unfair competition law on the European model. Reichman considers that more attention needs to be paid to repression of piracy through

international norms of unfair competition law. (Personal communication Sept. 17, 1991.) See Jerome H. Reichman, Proprietary Rights in

Compufer-Generated Productions, paper presented at the WIPO Worldwide Symposium on the Intellectual Property Aspects of Artificial Intelligence,

Stanford University, Aprit 1991.

45 Ronald Palenski, ADAPSO, personal communicatio~ Jdy 10, 1991.

46 Ken wmc~ Nicole Field, md Swa Bro~ SPA, personal CommtiCatiOn, J~Y 30, 1991.

SPA’s estimate is based on “average” software prices and an “expected ratio” of software applications to new personal computers purchased in

1990. SPA obtained hardware sales numbers for DOS-based and Apple computers from Dataquest. SPA obtained expected ratios of software to hardware

liom Apple, Microsoft, and I.mtus; these ratios were an expected 3 software applications per DOS machine and 5 per Apple machine. Actual ratios based

on software sales were 1.78 for DOS machines and 2.55 for Apple machines. (Nicole Field, SPA, personal communication, Aug. 14, 1991.)

d’1 me SPA estimt~ tit micmcomputer-sof~we pr~uurs lost abut $1 bilfion in sales to ‘ ‘p~acy ” (defined by SPA as includhg both copyhg

for personat use and copying for commercial profit) in 1986. (SPA estimate cited in Anne W. Branscomb, ‘‘Who Owns Creativity? Property Rights in

the Information Age,” Technology Review, vol. 91, No. 4, May/June 1988, pp. 39-45.)
16 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

U.S. industry to lose $10 to $12 billion annually,

compared to an estimated $12 billion generated by

foreign sales of U.S. software.48 (For more on piracy

and efforts to combat it in the United States and

abroad, see ch. 3).

International Treaties and Agreements

The United States is a member of the Berne

Convention, the Universal Copyright Convention,

and the Paris Convention (patents); the United States

is also a party to numerous other multilateral and

bilateral agreements. (For a full discussion, see ch.

3.) This section briefly spotlights the provisions of

the Berne Convention and U.S. participation in the

Uruguay Round of the General Agreement on

Tariffs and Trade (GATT) and other international

agreements. It also notes the software directive

recently adopted by the European Community.

The Berne Convention—-The United States is a

signatory to the Berne Convention for the Protection

of Literary and Artistic Works. In pursuing its goals

of effective, uniform protection of authors’ rights in

literary and artistic works, Berne employs the

principle of national treatment,49 and limits national

treatment through the principles of reciprocity,

establishment of minimum rights and automatic

protection, and providing for the making of reservations. The Berne Convention protects “literary and

artistic works” and does not specifically protect

computer programs and databases. However, as the

United States protects computer programs as literary

works in its copyright law, computer programs are

granted protection under Berne in the United States.

When it agreed to Berne, the United States was

required to change its copyright law to make it

compatible with the treaty through the Berne Convention Implementation Act of 1988. These changes

include: abolition of mandatory notice of copyright;

maintenance Of mandatory deposit requirements;

establishment of a two-tier registration system that

differentiates between works of U.S. origin and

works of foreign origin; a limit on the use of

compulsory licenses; a minimum term of protection

(life of the author plus 50 years). These changes

caused by Berne must be considered or recognized

in evaluating options for protecting software in the

international arena.

The General Agreement on Tariffs and Trade—

Some parties to the Uruguay Round of negotiations

of the General Agreement on Tariffs and Trade have

attempted to include what they refer to as ‘‘traderelated intellectual property rights’ (TRIPs) as a

subject of the negotiations. These countries specifically have proposed provisions for protection of

intellectual property rights in computer software.

The U.S. proposal establishes the Berne Convention

as the basis for minimum rights to be granted to

authors by contracting parties to the GATT’, and then

sets forth additional protections provided to computer software and databases in the TRIPs. Provisions in the U.S. proposal reflect the current status of

U.S. law protecting computer software.

Other U.S. Participation in International Treaties-In addition to multilateral treaties such as the

Berne Convention and the GATT, the United States

is party to bilateral treaties with nations in which

specific provisions for intellectual property protection for computer software are delineated. For the

most part, the United States uses the provisions of

the Berne Convention as the bases for these treaties.

The United States is also a party to the Universal

Copyright Convention, created by the United Nations Educational, Scientific, and Cultural Organization in 1952 to provide an alternative to the Berne

Convention that would not require a forfeit of

copyright notice requirements.

The United States is party to many

multilateral and bilateral intellectual

property agreements.

The European Economic Community’s Directive on Legal Protection for Computer Software—

Following its Green Paper on “Copyright and the

Challenge of Technology--Copyright Issues Re4S ROM w, H~~~~~ ad ~fi Fofie, BSA, perso~ comm~catio~ J~y 12, 1991, Es-ate ticludes ~1 types of Softwtie, not just ~ SOfhV~e.

Foreign sales of PC application software are substantially less: SPA estimates that sales of packaged PC application software amounted to $4.5 billion

in 1990--up 22 percent from 1989—and that foreign sales amounted to about $2 billion. (Ken Wasch, Nicole Field, and Sara Brom SPA, personal

communication July 30, 1991.)

49 Natio~ ~ea~ent rw~es each Inem&r nation to provi&. the me prot~tion to works of MtiOdS of other member Mtiotls ~ it does tO WOrkS

of its own mtionals.
Chapter I--Summary, Issues, and Options ● 17

The function, external design, and code

of a computer program, as well as the

design of its user interface, have been the

subjects of intense policy debate.

quiring Immediate Action, ’ and after extensive and

heated debate, the EC released its Council Directive

on the Legal Protection of Computer Programs. In

the prologue, the directive asserts the variety and

scope of protection given computer software among

member states and noted the problems they present

to the European common market.

The articles of the directive provide for protection

of computer programs as literary works within the

meaning of the Berne Convention and establish

criteria for authorship and beneficiaries of protection. The directive sets forth specific restricted acts,

providing that the author has the exclusive right to

reproduce or authorize reproduction of a computer

program, to alter, translate or adapt the program, and

to distribute the program to the public. The directive

provides exceptions to these restrictions, including

copying needed to use the program according to its

intended use. The directive addresses the issue of

recompilation, by allowing reproduction and translation of the code without authorization of the owner

under certain conditions and when the information

garnered from recompilation is to be used to achieve

interoperability. The directive provides a term of

protection of life of the author plus 50 years after

death. The extent to which the directive addresses

the concerns of U.S. manufacturers and reflects US.

law responds to the trends in globalization of the

industry and the law.

Sofware Technology

In this report, OTA has focused on four elements

of a computer programe program function, the

external design, the user inteface design, and the

program code. Each of these elements has been the

subject of an intense policy debate concerning the

appropriate level of protection, and the level of

intellectual property protection available under

current law.50

Program Function

Computer programs instruct the computer to

perform a series of operations to transform input

values to output values. Under current interpretations of patent law, patents may be granted for parts

of the program function. The same program may

contain many patentable inventions-maybe none at

all-depending on whether parts of the program

function are novel, nonobvious, and meet the

statutory definitional requirements. In applying for

a patent, the applicant need not specify each

operation performed by the processor, but describes

the steps at a higher level of abstraction-e. g.,

‘‘storing a set of picture element data in a memory

device. ’ ’51

The case law and PTO guidelines indicate that

patents may not be granted for a “mathematical

algorithm’ (see footnote 20, supra). The meaning of

the term “mathematical algorithm” has been the

subject of considerable discussion,52 but it appears

to refer to a program function that is a “mere

calculation.” According to PTO guidelines, claims

that include calculations expressed in mathematical

symbols include a mathematical algorithm.53 On the

other hand, the function is not considered ‘ ‘mathematical’ if it can be stated in terms of its operations

on things in the ‘‘real world, ”54 e.g., processing

architectural symbols55 or translating languages.56

External Design

Another intellectual property question concerns

the protection of the external design or “interface”

of a program. The external design specifies the

inputs and outputs, and the conventions for communicating with a program. For example, a user would

50 p~t~~t, cop~ght, ~d ~a& s~ret lavv all have to be taken into account by sofWare developers.

51 U.S. Pat. No. 4,197,590.

52 See Pameia Samuelson, “BensonRevisited,” Emory fuwJournal, vol. 39, No. 4, fall 1990, pp. 1025-1 154; Donald S. ChiU “The Patentability

of Algorithms, ’ University of Pittsburgh Luw Journal, vol. 47, No. 4,surnrner 1986, pp. 959-1022; Allen Newell, ‘‘The Models Are Broken, The Models

Are Broken!” University o~Pittsburgh Law Journal, vol. 47, No. 4, summ er 1986, pp. 1023-1035.

53 us. patent ~d Trademark ~fiu, Computer Program ad Mafhe~tica/ Algorithms, September 1989, p. 8.

~In re Br~/ey, 600 F.2d 812 (C.C.P.A. 1979).

551n re Phillips, 608 F.2d 879 (C. C.P.A. 1979).

~In re TOM, 575 F.2d 872 (C. C.P.A. 1978).
18 ● Finding a Balance: computer Software, Intellectual Property, and the Challenge of Technological Change

The user interface specifies conventions

for communication between the user

and the program.

have to know the specific commands of a user

interface, their meaning, and formats for entering

data. Other examples of interfaces are communications protocols and operating system calls.

The interface is conceptually distinct from the

program code that implements the interface: there

are typically many different ways of writing a

program to provide the same interface. There has

been considerable discussion whether it should be

permissible to write a program that has the same

external design as a previously copyrighted program. Some believe that intellectual property protection of interfaces is needed, while others believe that

it is sufficient that the program code implementing

the interface not be copied.

User Interface Design

Courts have been asked to resolve cases that assert

protection of communications protocols and operating systems calls, but the type of external design

subjected to the most debate has been the user

interface. The user interface specifies the conventions for communication between the user and the

program. There are a number of different kinds of

user interfaces. One is the command language

dialogue, in which the user issues commands to the

computer through typed commands. If the program

is used infrequently, it may be difficult for the user

to remember the commands and how they can be

used together to perform more complex tasks.

“Menu” systems avoid this problem by displaying

the command options on a screen; the user can then

issue a command by pressing a key indicated as

corresponding to a particular menu option, or by

moving a cursor on the screen until the appropriate

selection is highlighted. Newer interfaces make use

of graphics or icons.

Program Code

The program code is protected by copyright:

unauthorized duplication of a program except as

provided by law (e.g., 17 U.S.C. 107, 117) will

nearly always be a copyright infringement. However, an important aspect of the software intellectualproperty debate is the degree of similarity that two

programs can have, without infringement. The issue

is whether two programs should be permitted to have

similar ‘‘structure, ’ even if not every instruction is

identical-i. e., at what level of abstraction above the

literal code should two programs be permitted to be

the same.

There are three different types of programming

languages: machine language, assembly language,

and high-level language. Machine language programs can be executed directly by the computer, but

are difficult to write and understand.57 Assembly

language programs58 and high-level language programs

59 are easier to write and understand, but

cannot be executed directly by the computer. For this

reason, programs are usually first written in assembly language or a high-level language, and then

translated into machine language so that they can be

executed by the computer.

Programs are typically distributed in machine

language form. The program on the diskette is ready

57 ~c~e lmWge fi~ctiom we patte~ of 1‘s ~d ()’s which represent digit~ el@mnic si@sinside the Cornputef. These signals CtUl take on

one of two different values; to make it easier to think about what is happening inside the computer, programmers represent one of the values with the

symbol 1,’ and the other with the symbol “O.’ For example, one type of ‘addition” instruction for the processor which is used inmost microcomputers

may be represented as “OOOOO1OO.’ Inside the computer, the pattern of electronic signals corresponding to this pattern of O’s and 1’s would cause the

computer to add two numbers together.

58 Assembly language makes prowlmming easier by associating a short mnemonic with each type of operation. For example, a programm er using

assembly language would represent the: addition instruction discussed above with the word ‘‘ADD. ’ Another typical assembly language instruction is

“MOV,’ which is used to MOVe a piece of data from one place to another inside the computer. Because the computer does not understand the assembly

language mnemonics, they have to be mmslated into machine language instructions using a special program called an assembler. The assembler reads

each assembly language instruction and replaces it with the appropriate pattern of 1‘s and 0’s. For example, the ADD instruction might be translated

to “mloo.”

59 High.level lmWges (e.g., FOR’I’RAN) me even easier to use and understand than assembly htnguage. me insmctions ~ ‘ ‘English-1 ike, ’ m with

assembly language, but differ from assembly language instructions in that they are more powerful. Each high-level language mstmction does the same

job as multiple assembly language instructions. Because the computer does not understand high-level language instructions, they arc translated into

machine language instructions using a special program called a compiler. The compiler reads each high-level language instruction and replaces it with

the appropriate sequence of machine language instructions. More sophisticated compilers then perform “optimization”: they may delete or rearrange

machine language instructions in an effort to make the program execute more efficiently.
Chapter L-Summary, Issues, and Options . 19

to be loaded into the computer and executed. Rarely

is the program distributed in the high-level language

or assembly language in which it was written.

Distribution in machine language makes it difficult

for others to read the program code to understand

how the program works. This helps to maintain

secrecy about the elements that give the program

competitive value. The ‘‘recompilation” issue is

concerned with the legality of efforts to translate a

machine language program into a more understandable form such as assembly language or high-level

language (see box l-A).

Digital Information and Copyright

‘‘Digital information’ refers to the data stored on

computers and in other digital media (e.g., magnetic

or optical discs). Computer programs are used to

manage and retrieve digital information. Software is

necessary for users to access and manipulate digital

information stored inside a computer or on storage

media. It is difficult, with some modem programming techniques, to distinguish between the computer program and the data the program manages.

Thus, decisions affecting intellectual property and

software may also affect digital information and the

industries that create and use it. (See ch. 5.)

Computers are revolutionizing the publishing

industry. “Electronic publishing” is now used in the

publication of most traditional books, newspapers,

and magazines, as well as for delivery of documents

to users in digital form. Computer software offers an

increasing range of tools for storing, accessing, and

manipulating information, Computers make collaboration and multiple authorship easy. Information in

digital form is easily copied, transmitted, and

modified. These characteristics make it a good

publishing medium, but also raise many intellectual

property questions concerning what constitutes a

copyrightable work, criteria for evaluating originality and authorship, and new ways of ‘using’ works

and compensating authors.

Due to some uncertainties about the level of

protection offered by copyright law to digital data,

copyright holders and vendors make use of contracts

to attempt to control the uses of digital information

by users. Data is often not sold to the user, but is

licensed. There is a wide variety of terms and

Computer software offers an increasing

range of tools for storing, accessing, and

manipulating information.

conditions included in these license contracts. Many

institutional users of digital information (e.g., libraries and university data centers) complain about the

difficulty of managing and complying with the

variety of contract terms required by their large

collections of data and software packages. There is

also controversy about the enforceability of some of

these contracts, particularly where vendors have

sufficient bargaining power to force terms on the

user. (Contracts are also discussed in ch. 2.) Despite

provisions of copyright law and license contracts,

unauthorized copying of digital information still

occurs.

Digital information is not just words and numbers.

Anything that can be seen or heard can be digitized,

so databases can include music, motion pictures, or

photographs of art works. Some databases consist

primarily of images. Mixed media or multimedia

works are those that package together information in

the form of images, sound, and/or text. For example,

a multimedia cultural history of the 1960s might

include text from newspapers and pamphlets, photographs, recordings of news broadcasts, segments of

movies, recordings of music, along with software to

access the information, all packaged together in a set

of magnetic and optical discs. There is no specific

copyright category for protecting mixed media

works.* In addition, it is not always completely

clear what obligations one has to original copyright

holders when creating a database of digitized

versions of all or part of works that fall under other

copyright categories.

If computers have changed the publishing industry, they have also affected libraries. Libraries began

embracing computer technology in the 1960s, at frost

for administrative tasks like acquisitions and circulation. The first on-line library catalogs began to be

developed in the mid-1960s, and many are now

available for use by library patrons, offering them

much greater flexibility in searching for needed

@ U.S. law ticludes ei@t categories of copyrightable works of authorship: liter~ works; musical works; dramatic works; pantomimes md

choreographic works; pictorial, graphic, and sculptural works; motion pictures and other audiovisual works; sound recordings; and architectural works

(17 U.S.C. 102(a)).
20 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

works. Some libraries are providing patrons with

access to databases of bibliographic citations and

full-text journal articles provided by commercial

firms, as well as other services like access to

electronic mail. These services are most widely

available through research libraries at universities,

but are increasingly moving into public libraries,

where they may be important services for segments

of the population that have no other reasonable

access to digital information.

Uncertainties have arisen about libraries and

digital information. For example, provisions under

the copyright law for libraries to lend materials or

make preservation copies apply to both printed

information and “computer programs’ (instructions to the computer) but not necessarily to digital

information or mixed media works. Some ways in

which libraries might wish to enhance services to

patrons, e.g., upgrading on-line catalogs to provide

tables of contents and other information from the

cataloged books, might be considered to infringe on

the underlying works. It is not clear what responsibility libraries may have for patrons’ violations of

copyright or for contract conditions when patrons

have direct access to digital information.

Economic Perspectives

U.S. patent and copyright laws define limited

monopoly rights61 granted to creators of certain

classes of ‘‘works and inventions. ’ In this country,

these monopoly rights are not viewed as ‘‘natural’

or ‘ ‘inherent’ rights of creators; rather, they are

granted by the government in order to promote the

public interest and are designed within a framework

involving an economic tradeoff between private

incentives and social benefits. Thus, in the United

States, an “intellectual property bargain” underlies

the Federal framework for intellectual property law.

The Intellectual Property Bargain in U.S. Law

The rationale for this economic tradeoff-the

“bargain” —recognizes that for certain goods, market forces will not necessarily produce the most

desirable outcomes from the perspective of society

as a whole. These goods will tend to be produced in

insufficient quantity or variety because producers

are unable to fully realize the gains from investments

in creating them.62 In granting a limited monopoly

via copyright or patent, government attempts to

compensate for distortions arising from this market

imperfection. 63

The linkage between intellectual property rights

and economic benefits to society as a whole has

traditionally followed the logic that: 1) intellectual

property rights increase innovators’ ability to appropriate returns from their intellectual labors; 2) the

resulting potential for increased private gains to

innovators induces additional innovation; 3) because of increased innovation, additional benefits

accrue to society as a whole.64 The U.S. system of

patents and copyrights is intended to strike a balance

between holders of intellectual property rights and

the public at large. This balance involves benefits

and costs on both sides: legal protection for intellectual property imposes costs on a society, as well as

benefits. These costs and benefits can be monetary

(e.g., increased or decreased costs or royalties), or

less tangible (e.g., social consequences of stimulated

or stifled technological advances). The specifics of

how this balance is maintained--the exact form,

scope, and duration of intellectual property rights—

may evolve in response to changes in technology,

markets, or social values.

Intellectual Property and Software

Economists have been paying increasing attention

to intellectual property and software, but as yet there

are no firm conclusions as to what socially optimal

protections may be. The lack of precise policy

61 OTA ~ote: IU MS rwo~ ‘monopoly” is USed in the economic sense and should not be takenas synonymous with illegal monopolization of a market

or markets. For discussion see F,M. Sc”herer, Indusm”al Market Structure and Economic Pe@orntance, 2d ed. (Chicago, IL: Rand McNally College

Publishing Co., 1980), pp. 527-594. As Scherer notes, “Congress [chose] the word ‘monopolize’ to describe what it condemned, and not some more

conventional phrase such as ‘obtain or possess monopoly power’ ‘‘ (p. 527).

62 Some g~ds (like ~omtion) ~ve tie prov~ of non=clusivi~: once tie g~d ~been p~duc~ md publicly distributed, it is impossible (or

prohibitively costly) to exclude any individud from benefiting fi-om it, whether or not he or she pays. Furthermore, consumers’ individual self-interests

provide strong incentives not to pay for the god or to undematue it, in hopes of getting access as “free riders, ” See ch. 6.

63 “me Conwess shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors

the exclusive Right to their respective Writings and Discoveries. (U.S. Constitution art. I, sec. 8, cl. 8.)

64 ~ ~~e ~no~c p~osophy be~d tie clause empw~g he Conpess to g~t paten~ md COpyr@U is the conviction that encouragement of

individual efforts by personal gain is the best way to advance public welfare through the talents of authors and inventors in Science and the useful Arts. ”

(Mazer v. Stein, 347 U.S. 201,219 (1954).)
Chapter I--Summary, Issues, and Options . 21

prescriptions regarding linkages among intellectual

property, technological innovation, and social benefits is not unique to software, although economic

inquiry is made all the more difficult by the rapid

changes in software technologies and markets.

Literature on the economics of software is still

In the United States, an “intellectual

property bargain” underlies the Federal framework for intellectual property

law.

evolving, along with the broader literature on

intellectual property and innovation.65 Chapter 6 of

this report offers a “snapshot’ of economic thinking, rather than economists’ solution to the problem

of how best to balance private incentives and social

benefits in a rapidly moving area of technology.

The economics literature on intellectual property

focuses mostly on patent and copyright. In large

part, this focus stems from the nature of patent and

copyright.” these exclusive rights have been designed

within a framework involving an economic tradeoff

between private incentives and social benefits .66 The

laws governing trade secrets do not incorporate this

kind of explicit tradeoff.67 Therefore, patent and

copyright offer more established economic bases for

theoretical and empirical analyses of markets for

intellectual property. The bulk of economic analysis

on linkages among technological progress, economic welfare, and intellectual property has dealt

with the patent system, rather than copyright.

Software is remarkable in being a technology for

which copyright is so crucial.68 However, many of

the arguments concerning patents and duplication of

innovations can be applied to software copyright,

especially to issues like copyright protection of

interfaces and the appropriate breadth of copyright

protection.

As noted previously, this is an evolving literature.

Sometimes, the analyses discussed in this report

differ in conclusions or policy implications. In

particular, some of the economic research done since

CONTU suggests policy implications that differ

from those of earlier work in the 1950s, 1960s, and

early 1970s.69 These differences result because the

economic models incorporate different industry

conditions, different types of innovation, and different timeframes. Much of the earlier economic work

on intellectual property (mainly patents) focused on

cost-saving process innovations, while later work

looked at product innovations. Until after the

mid-1970s, most analyses of (socially) optimal

patent design focused on patent term and assumed

static (one-shot) models of innovation. The more

recent work focuses on breadth of protection, as well

as term; dynamic models of innovation include the

possibilities of multiple inventors,70 cumulative

innovation, and network externalities. The more

recent work, using dynamic models for innovation,

65 OTA ~ofe: unless otherwise specified, O’M uses “innovation” and “innovative activity ‘‘ in this chapter to refer to R&D and other creative

processes producing scientific and technological advances, whether the form of these advances would legally be considered copyrightable, patentable,

or neither. In reviewing the economics literature on this topic in ch. 6, OTA uses the authors’ terminology.

~ fivate ~centives ~e exp~ted to arise from tie right holder’s limited monopoly powers; social benefits are expected to include additional benefits

to society from the induced disclosure and/or dissemination of innovations and technological advances.

For discussions of this balancing betvveen private incentives and social benefits in the “intellectual property bargain,” see intellectual Property

Rights in an Age of Electronics and Information, op. cit., footnote 2. See also Paul Goldste@ op. cit., footnote 24, sees. 1.1 and 1.2.

67 See Stiey M. Besen and I...eo J. Raskind, “AnIntroduction to the I.aw and Economics of Intellectual Property, ’ Journal ofEconomic Perspectives,

vol. 5, No. 1, winter 1991, pp. 3-27, esp. p. 23,

The rightful possessor of a trade secret does not have an exclusive right to use the secret informatiorL and the law ordy provides for legal remedies

when the secret is lost through breach of contract or ‘‘impmper” means of discovery (e.g., industrial espionage). A trade secret may be maintained

indefinitely. See ch. 6 and also David Friedman et rd., “Some Economics of Trade Secret Law,” Journul ofEconom”c Perspectives, vol. 5, No. 1, winter

1991, pp. 61-72.

6S However, here is also a we]l-develo@ Iiteratme dealing with economic welfare, copyright, ~d cons~er copying of Jo~ ficlest ‘usic~

software, etc. (see the final section of ch. 6 on home copying).

69 As descn~d by Sidney Winter, tie Pendulm of opinion on me ‘ ‘optimal’ term of protection (e.g., whe~er increasing or decreasing hC tel”m Of

patent protection would be more socially desirable) has swung back and forth over the years. For his discussion of changes in economic thinking about

the term and strength of protection+ see Sidney G. Winter, “Patents in Complex Contexts: Incentives and Effectiveness,’ in Vivian Weil and John W.

Snapper (eds.), Owning Scientific and Technical information (New Brunswick NJ: Rutgers University Press, 1989), pp. 41-43.

For another discussion of economics literature on innovatio% see Robert P. Merges, “Commercial Success and Patent Standards: Economic

Perspectives on Lnnovatiom ” Calfornia Luw Review, vol. 76, pp. 803-876, 1988.

To ~ multiple-inventor “patent races, “ the rate of R&D spending affects the probability of invention.
22 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

suggests shorter, rather than longer, terms of protection.71

Software Industry and Technology Changes

Computing technologies and the software market

have also evolved since the mid-1970s (see chs. 3

and 4). Because of timing, CONTU and its analyses

could not foresee the time when powerful computers

could be in every office and every home and individuals would be able to create and use sophisticated and

valuable software outside large organizations, or the

full impact of these changes a decade later.

CONTU saw the software market shares of

hardware producers being “steadily eroded” by

independent software developers and expected this

trend to continue.72 But, despite vigorous growth by

independents, computer-hardware firms retain a

major share of the software market. (In terms of

revenues, IBM is the leading U.S. software producer

overall and the largest producer of packaged software in the world—see ch. 3). In CONTU’S analysis, 73 the software industry was characterized by

easy, rapid entry by small fins-a viable ‘‘cottage’ industry of small developer-vendors.74 Although there are still thousands of small companies,

the industry today is moving away from this picture.

Significant changes, which may affect the way in

which Congress sets the balance for software,

include:75

. the ‘‘PC Revolution’ and explosive growth in

markets for personal computers and packaged

software;

● widespread use of computers and software by

nonprogrammers and the corresponding market

importance of user interfaces;

. increased barriers to entry by small firms and a

trend toward centralized software-publishing

houses that acquire rights to software and then

distribute and market it, paying royalties to the

program developers;

●

●

maturity of the software industry and increasing firm size (through growth, acquisition, and

consolidation); and

increasing industry concentration, especially

when considering submarkets like PC applications.

Issues and Options

In this report, OTA focuses on the various ways in

which current U.S. copyright, patent, and trade

secret laws apply to four key elements of computer

program development—the program function, the

external design, the user interface design, and the

program code. Our study has examined the technology behind each of these aspects of the development

process, the application of current intellectual property laws to each of the four elements, and the policy

issues and arguments associated with them, in terms

of current law and in terms of possible modifications

to the existing intellectual property system.

Technological Challenges for Copyright Law

OTA finds that treating computer programs as

literary works under copyright offers straightforward remedies for the literal copying of

program code, although enforcement remains a

problem, especially overseas. (See ch. 3.) OTA

also finds, however, that the functional aspects of

computer programs pose difficult questions for

application of the copyright law.76 One important

question is the extent to which copyright (particularly, in concert with trade secret law) should protect

the functionality and design of a program. OTA

finds that the traditionally “fuzzy” line between

idea and expression in copyright law is confounded by the need to determine an appropriate

scope of protection in order not to provide

coverage for the program procedure, process,

system, method of operation, or concept, con71 see winter, op. cit., fOOtnOte 69

72 CO~Repo~, op. cit., fw~ot(~ 16, p. 24. (Quoting from he. e~nomic ~ysis prepar~ for CONTIJ by the Public rnterest fiOnOtUiCS center,

An Analysis of Computer and Photocopying Copyright Issues From the Point of View of the General Public and the Ultimate Consumer (Wa.shingto~

DC: June 1977), p. IV-13.)

~~ Ibid., p. 23.

74 fibfic ~temst Economics Center, op. cit., footnote 72, p. IV-5.

75 For discussion, StX box 6-A in ch. 6.

76 see ~so Intellectml Propem Rights in an Age of Elec~onics and Information, op. cit., footnote 2; ad Paul Goldste~ op. cit., footnote 24, XX.

2.15.2, pp. 206-207. But see Morton D~wid Goldberg and John F. BurleigQ “Copyright Protection for Computer Programs: Is The Sky Falling?’ AIPfA

Quarterly Journal, vol. 17, No. 3, 1989; and Antbony L. Clapes et al., “Silicon Epics and Binary Bards: Deterrnini ng the Proper Scope of Copyright

Protection for Computer Programs, ’ UCLA Law Review, vol. 34, June-August 1987.
Chapter 1--SummaryJ Issues, and Options ● 23

trary to the intent of the current law (17 U.S.C.

102(b)) .77 This key software-copyright question is

manifested (among other places) in the debate over

application of copyright to features of a program’s

external design and/or user interface, and in the

debate over reverse engineering and decompilation

(see above and ch. 4).

Technological and Institutional Challenges

for the Patent System and PTO

Patent protection is used extensively to protect

software-related inventions in the United States,

Japan, and Europe. Many of the major commercial

developers of software (including firms like IBM

that tend to be thought ofas‘‘hardware’ companies)

are extensively using patent protection for softwarerelated inventions, As a result, patent protection is of

importance to the U.S. software industry, both

domestically and in the global market.

The protection of software-related inventions and

algorithms by patent78 is a fairly recent development

and is controversial.79 (See chs. 2 and 4 and boxes

1-B and l-C.) The case law and PTO guidelines

indicate that patents may not be granted for a

specific kind of program function called a ‘ ‘mathematical algorithm’ (see footnote 20, supra and

discussion in ch. 4). The meaning of the term

‘‘mathematical algorithm’ has been the subject of

considerable discussion and debate. Moreover, some

academics and members of the software community

perceive that the technology80 and economics and

industry structure81 of software development make

patents inappropriate for software-related inventions.82 Many other members of the same communities, however, disagree with this perception and

consider that patents for software-related inventions

are appropriate for the industry and are in the public

interest. 83 Furthermore, the latter argue that the

‘‘disadvantages’ perceived by critics are fully

addressable by changes in the operation of the

PT0.84

OTA finds that the PTO faces considerable

challenges in examining applications for softwarerelated inventions. At the same time, there ap77 4‘Somc concern kS ken express~ lest copyright in computer programs should extend protection to the methodology or processes adopted @tie

programmer, rather than merely to the ‘writing’ expressing his ideas. Section l(Y2(b). . .is intended, among other things, to make clear that the expression

adopted by the programmer is the copyrightable element in a computer progrq and that the actual processes or methods embodied in the program are

not within the scope of the copyright law. ’ (U. S.C.A. 17 sec. 102, “Nature of Copyright, ” p. 17, from House Report No. 94-1476, Committee on the

Judiciary.) See also footnote 24, supra.

Congress has already (17 U.S.C. 117) limited copyright holders’ exclusive rights for computer programs.

78 see footnotes 19 and 20, supra.

79 ~ *Algorl~~ (~so ~om t~~c~ly as he p~~ly recursive f~ctions) fo~ tie essence of softw~e. Increasingly we M(2 StXiIlg lawsuits or threats

of lawsuits claiming patent infringement for the mere use of software on a typical computer, e.g., for such functionality as public key encryption

compression and cursor blinking. If patent law establishes that such suits are justified, that will mean to me that algorithms do have patent protection.

To underscore that algorithms do have the same unpatentability as scientific principles, I think patent law should be clarified to the effect that a patent

is never infringed merely by the use of software on a computer. ’ (Robert S. Boyer, Professor of Computer Sciences, University of lkxas at Austin, letter

to Harry F. Manbeck, Jr., Assistant Secretary and Commissioner of Patents and Trademarks, Sept. 22, 1991.)

so See, e,g,, D~iel J. Be~te@ unive~i~ of California, letter to E.R. Kazenske, PTO, JUIY 10, 1991 (ResPonse to R~uest for co~en~ for tie

Advisory Commission on Patent Law Reform). Using issued patents from the field of data compression as examples, Bernstein discusses his views that

PTO examiners have failed to detect “mathematical algorithms” in claims, that PTO is not correctly evaluating criteria for nonobviousness and

equivalence of patent claims for algorithms, and that “software patents” are beginning to damage the software industry. See also ch. 4.

81 For exmple, entv b~crs Me s~d to be lower for software than for commercial biotechnology, w~ch ~1~ to ~ indus~ wi~ more sm~l

entrepreneurs for whom the administration of patents would be difficult, especially given that one program may contain (or infringe) many patented

processes. See ch. 6.

8’2 For ~gumcnts against ‘‘software patents, ’ see Pamela Sarnuelsow op. cit., footnote 52; and Richard Stallman and Simson Garfinkel (The League

for ~obng Fr~dom)+ “Ag~~t SOftW~ paten@ “ Communications of the ACM, vol. 35, No. 1, January 1992, pp. 17-22,121.

Among the problems noted are an incomplete prior art and insufficient examiner training, leading to difficulties in examination and issuance of patents

that are not novel and/or nonobvious. Another problem noted is that the pendency period is long compared to software-development cycles, so that

“landmine” patents can issue. (See chs. 2 and 4.)

as See, e.g., paul Heckel, op. cit., footnote 23; John L. Pickett, President, CBEMA, letter to E.R. Kazenske, PTO, in rtxpom to Rwu@ for Comments

for the Advisory Commission on Patent Law Reform, July 15, 1991; Esther Schachter, Chair, ADAPSO Intellectual Property Committee, letter to E.R.

Kazenske, PTO, in response to Request for Comments for the Advisory Commission on Patent Law Reform, Sept. 4, 1991; and Robert G. Steme, letter

to Paula Bruening, OTA, Oct. 6, 1991. Steme argues that many inventive aspects of software-related inventions that are protectable by patent cannot

be protected adequately and/or effectively and/or at all by copyright and trade secret (ibid., p. 2).

S4 Jo~ L. plckett, op. Cit., fm~ote 83. ~EMA rogues tit Pemeived &S~v~~geS Su& as ‘ ‘bad patents’ m(icipated by the priOr @ CXiUIIkHS’

difficulties in deciding questions of novelty and nonobviousness, and vulnerability to patents issuing after long delays IOTA note: i.e, “landmine”

patents] are fully addressable by changes in operation of the PT’O. (Ibid., p, 2.)
24 ● Finding a Balance: Computer Sofware, Intellectual Property, and the Challenge of Technological Change

pears to be some variance-or, at least, uncertainty on the part of observers outside PTO—in

how PTO examination guidelines for subjectmatter determinations are being applied. A long

series of (often inconsistent) court decisions has led

to a situation in which some types of softwarerelated inventions are patentable while others are

not. Applying the PTO guidelines for distinguishing

patentable and nonpatentable types of inventions is

a complex part of the examination process and one

that outsiders find difficult to understand and/or

predict. 85 (As a matter of policy, PTO does not

comment on the examination process for issued

patents. Because OTA could not be “walked

through’ application of PTO examin ation criteria or

discuss their interpretation for specific patents, OTA

was unable to make any independent finding on the

quality of examination for particular softwarerelated patents.) In addition, the PTO has an

incomplete database of “prior art” for softwarerelated inventions.86 This makes it even more

difficult for examiners to judge whether an

application describes a “novel” and “nonobviOUS” invention. Filling in the gaps in the database

of prior art maybe difficult., because so much of what

would constitute the ‘‘prior art’ has historically been

in the form of products, not literature or issued patents.

To address the issue of examin ation quality, the

U.S. Patent and Trademark Office is currently

reviewing the nature of the qualifications required

for examiners and has recently completed the first

phase of its reclassification of the software arts. This

reclassification process involves the creation of a

new Class 395, “Information Processing System

Organization.’ ’87 To make searching easier, this new

class will have a larger number of subclasses than

the old Class 364, each encompassing a particular

area of technology-e. g., database and file management systems or artificial intelligence. PTO intends

that examiners will specialize in one of these

subclasses. In addition, the Secretary of Commerce

established an Advisory Commission on Patent Law

Reform** to examine administrative and procedural

challenges facing the patent system.

OTA finds that “filling in” the prior art

database (patent and nonpatent) is extremely

important, as one means of improving the quality

of examination. OTA also finds that improving

electronic search and retrieval capabilities for

the PTO’S own database is critical, because it is

used by the PTO’S own examiners during the

application process and by the public. In September 1991, PTO reported that it is unable to provide

statistics on the number of patents issued for

software-related inventions (e.g., patents for computer processes and algorithms), which PTO refers

to as ‘‘computer-implemented process patents. ’89

Despite the intense controversy and policy focus on

these areas of art since Diamond v. Diehr, PTO

reported to OTA that it has no provisions for

flagging, cross-referencing, or otherwise efficiently

monitoring and reporting prosecution, issuance, and

litigation for these types of patents, except through

time-cons uming manual search, review, and selecBS ‘‘~~so finds tie guide~es themselves to k a reasonable reading of case law but questions how the P’TO iS aCWdly~“ “stering the stated

Guidelines. Enough ADAPSO member companies have noted a substantial increase in subject-matter rejections on computer program-related claims

as to constitute a new trend. . while these rejections cite Section 101, this new practice has no obvious basis in the statute itself and does not represent

the kind of result that we believe the Guidelines would lead one to expect. ” (Schacter, ADAPSO, op. cit., footnote 83, pp. 15-16.) Others have questioned

how examin ers interpreted the PTO guidelines in issuing certain patents. (See, e.g., Brian Kah@ ‘‘The Impact of Software Patents, ’ ED UCOMReview,

winter 1989, pp. 26-31 .)

86 see Jeffrey M. Sauels, ~@ Cotissloner of patents ~d Trade~ks, tes~ony at He@s on Computers and hlteuectu~ prOperly, MM.

7, 1990, U.S. House of Representatives, IOlst Congress, 1st and 2d Sessions, Subcommittee on Courts, Intellectual Property, and the Administration

of Justice, Committee on the Judiciary, Serial No. 119, pp. 325-354. According to Samuels’ testimony, ‘‘We are concerned that some computer processes

that are sold or are in use are not fully described in the published literature or readily evident from use of the process. The sale or use of the process is

evidence that the process is not new and should not be protected by a later fded application. Regrettably, there is not an efficiently searchable record

of this type of prior art, not only for computer-related inventions but for all inventions. ’ (Ibid., pp. 337-338. )

67 Gerald Goldberg, Director, Group 230, PTO, personal communicatio~ @t. 18, 1991.

6fI For titi~sc~sion of the Advisory Commission on Patent Law Reform, see pp. I&l 1 of t.hk chapter, md ch. 2.

69 S~Jeffmy M. Smuels, Acting Commissioner of Patents and Trademarks, letter to cowes~ Robert W. Kastenmeier, Chairrmq Subcommittee

on Courts, Intellectual Property and Ihe A&mm“ “stration of Justice, Nov. 1, 1989, answer to question 1: ‘‘Computer processes are not classfled within

USPTO’S patent classification system in any readily identifiable set of classes and subclasses. ’ See also Harry F. Manbeck, Jr., Assistant Secretary and

Commissioner of Patents and Trademarks, letter to Joan D. Winsto% OTA, Sept. 11, 1991, p. 1 (“. . ,it is not possible to generate reliable data in response

to questions directed to computer-implemented process patents through the manipulation of existing PTO databases’ ‘).
Chapter l---Summary, Issues, and Options ● 25

tion from various large patent subclasses.90 OTA

found, however, that the private sector has had more

success in developing such statistics and classification schemes. Electronic Data Systems Corporation

(EDS) has compiled statistics on patents issued for

software-related inventions during the years 1972

through 1989 by examining notices published in the

Official Gazette of the Patent and Trademark Office.

EDS obtained similar statistics for 1990 by reading

official database tapes purchased from the PTO.

With the 1990 data, an artificial intelligence technology (involving a natural language interface created

by EDS) was used to characterize each patent and

determine which involved software-related inventions. Using this method, EDS found that 576

patents were issued for software-related inventions

during 1990. (According to EDS, this technology

will be used to reexamine the statistics initially

gathered for 1972 through 1989. For more on the

EDS statistics, see table 2-1 and accompanying

discussion in ch. 2.)

These shortcomings in the PTO database affect

searches conducted by or for the public. Therefore,

while “filling the gaps” in the prior art will be

useful, these steps should be taken in conjunction

with measures to improve electronic search and

retrieval and provide statistical information for use

within PTO and for reports to Congress. PTO is still

in the process of deploying its automated patent

system and has also begun to reclassify patents in the

computer arts (see discussion inch. 2, pp. 54-56). As

part of its oversight, Congress may find it useful to

receive statistical profiles of patent activity in this

and other important areas of technology .91 Therefore, Congress may wish to determine what improvements in statistical reporting by field of

technology will be part of this automation and

reclassification.

International Dimensions

Computer software markets are international, as

are software research and development. Although

software markets and industries abroad are growing,

the United States currently remains a major force in

this international market (see ch. 3). The issues and

questions facing Congress are more complicated

because of the “global” nature of software. The

balance struck in the intellectual property bargain’

cannot ignore increasing foreign competition in

overseas markets-and within U.S. borders .92

The paradigm of software as or akin to a literary

work under copyright is the keystone of existing

international copyright agreements. However, foreign countries may treat software differently in some

respects, even with a copyright framework. For

example, the European Community’s software directive includes specific provisions concerning certain aspects of reverse engineering, referred to in the

directive as “recompilation” (see ch. 3).

The level of patent protection offered by foreign

countries for computer software varies: while some

may not protect software per se, they may grant

protection for processes that include software, or if

a program is claimed in conjunction with a method

or computer. To the extent that the market for

software is global, policy decisions about patent

protection for software reflect these differences in

90 From letter t. Jo~ D, Winston, OTA, from Han-y F. Manbeck Jr., Assistant Secretary and commissioner of Patents and Trademarks, Sept. 11,

199 1: ‘‘In sum, PTO is not able, through its existing databases, to respond to OTA’S request for data concerning ‘computer process and algorithm’ patents.

To compile data with which to respond to OTA’S range of questions involving computer-implemented process patents would require a manual search

of many technology classes, a thorough review of the claimed invention, and the investment of hundreds of staff weeks. ’

OTA had requested statistics from PTO concerning prosecution, issuance, and litigation of patents for software-related inventions. In its request, OTA

had asked for statistics on what it referred to as “computer process and algorithm patents. ” OTA staff asked to meet with PTO staff to discuss the

request-particularly, to explore PTO’S suggestions for alternative formulations of OTA’S questions in order to facilitate a meaningful response.

(Personal communications with PTO staff March-June 1991 and letter from Joan D. Winston, OTA, to Lee Skillington, Office of Legislative and

Intemationat Affairs, PTO, June 24, 1991,)

No such discussion or suggestions were provided and PTO responded that, ‘‘As a general matter, the denomination ‘computer process and algorithm’

patent bears no direct correlation to PTO policy or practices. . patents issued for inventions involving computer-implemented processes are not cla.ssifled

in a single technology class or subclass. . and have not been othemvise ‘flagged’ to enable the retrieval of the requested data. . even if we were to limit

the task to Subclass 364/200 and Subclass 364DO0, the task would still be a significant one. , .[that] would probably exceed 30 staff weeks. ” (Manbeck,

op. cit., footnote 89, enclosure item 3.)

91 For ex~ple, OTA ~d asked no for data on paten~ ~d patent appli~tio~ for computer processes and algorithms: the IlUIIb2rS Of such patents

issued from 1974-present, cumulative numbers of patents in effect during this period, average tendencies, examiner rejections appealed to PTO and the

courts, etc. ~0 reported that it was unable to provide this information because it would have required ‘‘hundreds of staff weeks’ to prepare. (Manbcck,

op. cit., footnote 89.) In 1989, the House Subcommittee on Courts, Intellectual Property, and the Administration of Justice asked for similar information

as part of its oversight of computers and intellectual property; PTO reported that it could not provide it. (See footnote 89, supra.)

m For exmple, the United States is a signatory to the Beme Convention and Universal Copyright Convention. Under these agreements, ow domestic

copyright law applies reciprocally to foreign copyright holders who are nationals of convention members (see ch. 3 and footnote 49, supra).
26 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

legal systems. The World Intellectual Property

Organization’s Committee of Experts on the Harmonization of Certain Provisions in Law for the

Protection of Inventions is considering a draft treaty

that would provide for modifications of general

aspects of patent system, not specific to software,

including a first-to-file (an application with the

patent office) system, and establishment of a term of

patent protection of 20 years from the date of filing

a patent application.

Digital Information and Copyright

OTA finds that many of the issues of concern

with copyright and computer software also apply

to digital information. For example, copyright

provides remedies for the literal copying of

digital information, but as with software, enforcement may be a problem. There appear to be

few technological or other remedies to prevent

unauthorized copying, except within closed systems.

It would be helpful for both publishers and users

of digital information if some aspects of fair use of

digital information under the copyright law were

clarified. Because of uncertainties about users’

rights to “download” or make copies of information, providers of digital information rely on contracts to limit customers’ uses of information, and do

not sell information to customers, but merely

authorize certain uses. On-line digital information

may pass through several intermediaries between the

publisher and the end user--distributor, database

service, library-making contracts less effective for

controlling end-user practices.93

Some aspects of fair use also remain unclear with

regard to libraries. For example, while guidelines

have been developed for libraries’ making archival

copies of books or of computer programs, no

mention is made of rights to make such copies of

databases or other information in digital form. There

is also some question as to how far libraries can go

in enhancing the content of their on-line information

retrieval tools by including more information from

the original works (e.g., the table of contents or the

index). While such enhancements are now feasible

and seem a logical step, some hold that such

enhancements may infringe on the copyrights of the

underlying works.94

Digital information includes multimedia or mixed

media databases, which may include images, music,

text or other types of works. The status of mixed

media works under copyright is not clear. Mixed

media is a fairly new concept; the acquisition of

rights to convert copyrighted works to digital form

for incorporation in mixed media databases is often

difficult because conventions and standards for

royalties do not yet exist, nor are there organizations

of rights holders to collect the royalties.

Software Technology, Industry Structure,

and the Future

Software and computer technologies are fastmoving and complex. The software industry and the

discipline itself are maturing: the software industry

structure has changed since CONTU and the costs of

successful market entry are rising. Although there

continue to be many viable small firms and entrepreneurs, the industry is moving away from the model

of a cottage industry (see box 6-A inch. 6). With the

vast increase in numbers and types of software users,

user interfaces have become increasingly important,

both to users (in terms of ease of learning and use,

performance, productivity) and to developers as well

(in terms of value in the marketplace and market

share).

Despite the advantages of incremental accommodation within the current structures, especially in terms of established case law and

reciprocal international protection, OTA finds

that there may be a point where it is in the public

interest to develop new law(s) either to complement the existing framework or to substitute for

copyright and/or patent protections for software,

rather than continue incremental accommodation. Congress may eventually find that the best

means for achieving policy objectives with respect

to software are different from those used for other

93 Bfim,‘con@act and Ffi~Jse Issues in Dowrdoading: Subcommittee Report, Committee 702 (Databases), ’ in Section on Pafent, Trademark

and Copyright: Committee Reports (Chicago, IL: American Bar Association 1989), pp. 405411.

94 Mq Jeme~ Dumtor, Univemity of SOUti DalKota Law School Library, personal co~unicatio~ Feb. 8, 1991.
Chapter I--Summary, Issues, and Options . 27

types of works, based on the intellectual property

bargain. 95 In its deliberations, Congress could draw

upon public input from many economic and social

sectors96 in assessing the net impact of new rights

that might be created as alternatives to a strategy of

accommodation within the current structure.

Some commentators favor sui generis approaches,

either to complement or substitute for current

software protections. Most proponents of a ‘ ‘substitute’ sui generis law seem to envision a modified

copyright approach.97 That is, a copyrightlike registration would continue, but the term of protection

and the bundle of rights would be modified to

conform to what is considered to be the needs of

software. In the Semiconductor Chip Protection Act

(SCPA), a modified copyright approach is used to

protect chip mask works from copying. 98 Some early

proposals for the protection of semiconductor chips

had recommended amending the Copyright Act, but

a sui generis approach was chosen to avoid distorting traditional copyright principles for other categories of works .99

Software features and advances that may be

valuable and beneficial to society may not be

traditionally patentable or copyrightable subject

matter. Therefore, OTA finds that Congress may

wish to consider periodically whether there is

some public advantage in giving limited rights for

incremental software advances that would not be

patentable or for aspects of program functionality that fall outside copyrightable subject matter.

In this case, the subject matter, scope, term, and

exemptions from infringement of a “complementary’ sui generis law could be carefully tailored to

fit the characteristics of the technology and its

uses.

l00

One intellectual property scholar has suggested

that software is an example of a “legal hybrid” that

falls between patent and copyright.l0l To encourage

innovation, these hybrids are thought to require

some kind of protection to ensure lead time.

However, for these hybrids, it is thought that patents

will usually protect only a small portion of the

innovation, and the ‘‘powerful reproduction rights

and long term of protection [of copyright] implement cultural policies that are largely irrelevant to

the needs of a competitive market. 102 According to

this logic, in addition to fading to protect innovation

95 For ~.aple, con=~-~ might wish to consider ~he~er he mend toward more use of patent protectio~ absent altema[ives tO prOteCt prOgHUIl

functionality, affects the public-interest “balance” in terms of equity for smallflarge software firms and for those with many/few legal and financial

resources: What will be the effect on end users and the public at targe? Will ‘‘stronger’ protection for software (e.g., patents precluding commercial

exploitation of independent program inventions, copyright protection for the design of user interfaces) spur innovation stifle it, or have no real effect

overall? Will it disproportionately disadvantage individuals and small fm versus large (or rich) corporations?

% see, e,g, tie discussions of Pubfic tiput in craffig me SCPA in Robert W. Kastenrneier and Michael J. Retigto~ op. cit., foo~ote 30, esP. PP.

424-432 and 442-459; and Richard H. Stem, “Determining Liability for Infringement of Mask Work Rights Under the Semiconductor Chip Protection

Act, ” Minnesota La+ Review, vol. 70, No. 5, December 1985, pp. 271 et seq.

~ See parnela Sarnuelson, op. cit., footnote 52, esp. pp. 1148- 1153; and Richard H. stem “The Bundle of Rights Suited to New lkchnology,”

Uni\’ersity of Pittsburgh L.uw Review, vol. 47, No. 4, p. 1229.

A modified copyright approach has previously been used for the protection of semiconductor chips (see below and ch. 2). There have been a number

of proposals to protect industrial designs using a modified copyright approach, but these have not been enacted into law. For a discussion of industrial

design protection, see ch, 2.

98 me SCpA Uses a mod~led Copfight approach to protect @e. topography of integated c~cui~ against copying. There is 110 patCIlt~e t3XZUIlhatiOIl

process; the ‘‘mask work’ is registered with the Copyright OffIce. However, the SCPA has a novelty standard somewhat higher than the mere

‘‘originality’ standard of copyright law: protection is not available for a mask work that ‘‘consists of designs that arc staple, commonplace, or familiar

in the semiconductor industry or variations of such designs, combined in a way that, considered as a whole, is not origimd’ (17 U.S.C. WXb)(z)). me

bundle of rights is also somewhat different from that granted under copyright law, and copies of the ‘‘mask work’ made in the course of reverse

engineering are not infringing (17 U.S.C. 906(a)). Finally, semiconductor chip protection differs from copyright in that the turn of protection is only

10 years.

9 see Kastenmeier ad Rem~@on, op. cit., fm~ote 30, pp. 424430 and 442-444 and H.R. Repofl No. ?81, ggth Congress, 2d Sess., 1984, pp. 5-11.

100 Forex~p]c, use of copyright ma~tes a 1ong tem of prot~tion for software, no provision for comp~sory licensing, and limited exemptions from

infringement (e.g., SCCS. 107 and 117). Patent has a shorter term+ but many program features may not be patentable subject matter; although reverse

engineering is allowed, independent invention is not a defense to claims of patent infringement.

The SCPA, which is not part of the copyright law but is “in harmony” with it, was tailored with a shorter term, technology-specific subject matter

(original mask works), and explicit exemptions for reverse engineering that differ from copyright’s fair-use exemptions. See Kastenrneier and

Remington. op. cit., footnote 30, pp. 445-452,

10{ J.H. Reichman, “Computer Programs as Applied Scientific Know-How: Lrnplications of Copyright Protection for Commercialized University

Research, ” tinderbi[t law Retiew, vol. 42, No. 3, April 1989, p. 655.

Ioz Jerome H. Reichman, ( ‘Proprietary Rights in the New Landscape of Intellectual Property Law: An Anglo-American Perspective, ’ study prepared

for the International Literary and Artistic Associatio~ Congress of the Aegean Sea II, June 19-26, 1991, p. 54.
28 ● Finding a Balance: Computer Software, intellectual Property, and the Challenge of Technological Change

properly, attempts to use existing laws for these

hybrids risk distorting the existing laws.103

The CONTU report had noted that patent protection for software was limited, and that some

additional form of protection would be required.

However, the Commission did not recommend a sui

generis approach, concluding that copyright was

appropriate.

104 The argument that computer programs are ‘‘useful articles’ or otherwise fall outside

the range of statutory subject matter was rejected by

CONTU105 and has been consistently rejected by the

courts. 106 Proponents of the continued use of copyright law contend that copyright, as interpreted by

the courts, is working well, 107 that a new system

would create unacceptable uncertainty, and that

existing international agreements provide a framework for the protection of computer programs in

other countries (see ch. 2).

Policy Choices and Options

OTA has identified three principal policy areas

that Congress may wish to address. These are:

1.

2.

3.

difficulties that the functional aspects of computer programs present in determining the

appropriate scope of copyright protection for

programs;

difficulties in determining the scope of patent

protection for software-related inventions and

algorithms and the challenges facing the U.S.

Patent and Trademark Office in these areas of

art; and

complications facing libraries and developers

and users of digital information, especially

mixed media works encompassing several

different categories of’ copyrightable works.

As the preceding sections and body of this report

detail, these principal areas encompass a variety of

issues. For each, Congress haas fumdamental choices.

The first of these choices is to act or not to act. Not

acting continues the status quo in terms of statute,

and allows the continued evolution of the case law,

but does not assuage uncertainty. On the other hand,

taking action may reduce some uncertainties but add

others, especially if additional bodies of case law

and new international agreements had to be developed (e.g., for a sui generis law). This choice is not

a static decision—Congress may wish to periodically reevaluate the choice to take action or

continue the status quo. In so doing, Congress can

draw upon input from the broad communities of

stakeholders in these issues. These stakeholders

include the computer and software industries; members of the academic, research, and library communities; private, corporate, and institutional software

users; the software-using workforce; and the public

at large (see above discussion on the evolution of the

software debate and box l-D).

The second choice, if Congress determines that

action will be in the public interest, is the timeframe

for action. If sufficient information concerning an

issue and how to resolve it unambiguously is

available, Congress could act in the near term. In

instances when institutional problems and alternative courses of action are well-defined, near-term

actions may be both appropriate and necessary,

especially when they require some lead time

before yielding benefits (e.g., see discussion of

Options 2.3 through 2.6).

Otherwise, Congress might wait until more information becomes available concerning the likely

outcomes of an action (compared to the status quo)

in order to avoid precipitous action and legislation

that may not have the desired long-term effect or that

may quickly be outdated by changes in technology.

Delaying action will also allow Congress to have the

benefit of additional information about the course of

case law (on software interfaces, patent litigation

and appeals, etc.) and on the impact on software

developers and users of the current legal environment and uncertainties. In the nearer term, Congress could initiate strategic information- and

input-gathering processes (e.g., Options 1.5 and

3.3, see also section below on “planning for the

future”) and use these as a basis for evaluating

103 See diXu55ioq ibid., P. 550

104 co~noted lmWage ~ tie House ~d SeMte ~eP~ ~comp~y~g tie 1976 copy@t ~t hdim~ titthe act did not need to be amended

to include computer programs, and language indicating that computer programs were copyrightable as “literary works. ” (See CONTU Report, op. cit.,

footnote 16, p. 16.)

105 Hersey dissent, CONTU Reporl, Op. cit., fOOt.llOte 16, p. 31.

1~ Se, e.g., E-F, Johnson v. Unidmt, 623 F. SUpp. 145, 1498.

107 see, e,g., Mo~on Davld Gold&:rg @ Job F. B~leigk op. cit., footnote 76, p. 294.
—

Chapter 1--Summary, Issues, and Options ● 29

longer-term options. 108 Such a strategy fight be

especially helpful in determinin g whether statutory

changes are necessary and, if so, what definitional

problems and uncertainties will be addressed. Possible disadvantages of waiting are that incremental

accommodations through the case law may conflict

over time, as the case law continues to evolve. As is

the case with current legal uncertainties, the uncertainties that ensue will affect smaller/poorer firms

and individuals (that do not have the resources to

‘‘ride it out) more than large firms with deep

pockets.

If Congress chooses to take action, it faces a third

choice--how comprehensively to act. Congressional

actions could take the form of: measures to address

ongoing institutional problems (e.g., Option 2.4);

measures to seek ‘‘cooperative, ’ rather than legislative, clarification of uncertainties (e.g., Option 1.5);

or legislative measures to amend current copyright

and patent statutes (e.g., Option 1.1 ), or create sui

generis protection (e.g., Option 1,4). Depending on

the specific action or actions taken, the overall effect

might:

1.

2.

3.

4.

5.

explicitly affirm the status quo and course of

case law (e.g., in terms of the scope of

copyright and patent);

make small adjustments at the margins of

copyright and patent (e.g. through procedural

changes);

clarify or modify the scope of patent and/or

copyright (e.g., through definitional changes),

but leave the basic paradigms the same;

introduce one or more complementary, sui

generis regimes tailored specifically to certain

aspects of programs and software functionality, recognizing particular patterns of innovation; or

develop a sui generis regime for software to

substitute for copyright and/or patent protection, tailored to encompass program code as

well as software design and functionality.

These alternatives appear to impact increasingly on

the present intellectual property system as the list

progresses. But it is not necessarily the case that the

least disruptive choices (e.g., explicitly afirming the

status quo) can, or should, be selected more quickly

than the others. Any of these must result from careful

deliberation and crafting, in order to specify clearly

and unambiguously what is and is not covered, and

what exceptions, if any, are to be made (e.g., along

the lines of reverse engineering, fair use, etc.).l09

The following sections discuss the policy issue areas

in the context of the above choices for congressional

action.

Policy Area 1: Difficulties that the functional

aspects of computer programs present in

determining the appropriate scope of

copyright protection

The functional aspects of computer programs

pose difficult questions for application of the copyright law, most notably the appropriate scope of

copyright. The traditionally ‘‘fuzzy” line between

idea and expression in copyright law is complicated

by the need to determine an appropriate scope of

protection in order not to cover for the program

procedure, process, system, method of operation, or

concept, contrary to the intent of the current law (17

U.S.C. l02(b)).

Despite the advantages of incremental accommodation within the copyright law, there may be a point

where it becomes preferable to augment or complement the existing framework rather than extend the

scope of copyright to fit software-perhaps, cumulatively, at the expense of other types of works.

Sometimes, what is in question is the extent to which

copyright (perhaps, in concert with trade secret law)

is to be interpreted to protect the functional and

design aspects of the program in addition to the code.

This is the essence of the current debate over

application of copyright to features of a program’s

external design and/or user interface, and in the

debate over reverse engineering and recompilation.

If or when Congress decides to take action, options

include the following:

Definitional Issues and the Scope of

Software Copyright

To clarify the scope of copyright protection for

software beyond the code, Congress might want to

explicitly include or exclude one or more aspects of

software, such as computer languages, algorithms,

design specifications, user and other interfaces. If it

108 under filS s~atc=, ConWSs ~i@t ~so C~nduCt Series of hefigs on he ~sues ~d ~sess me RSUIW of the ex~utive b~ch review of thc FTO.

109 For dl~cusslon of how ~s Wm ac~mp]lSh~ for tie scpA, ~~~ a f~ework for ev~uating proposed changes to the hltClleChld prOpe~ SySte~

see Kastenmeier and Remingtom op. cit., footnote 30, esp. pp. 438451.
30 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

chose to explicitly include one or more of these,

Congress could:

Option 1.1a: Expand upon the Copyright Law’s

current language on “subject matter of copyright” in Section 102 to specify that [computer

languages/algorithms/design specifications/user

and other interfaces/. ..] are copyrightable

subject matter.

Alternatively, if it chose to make explicit exclusions, Congress could:

Option l.lb: Expand upon the Copyright Law’s

current language on “subject matter of copyright” in Section 102 to specify that [computer

languages/algorithms/design specifications/user

and other interfaces/. . .] are not copyrightable

subject matter.

In order to do this, statutory definitions for

software-specific terms like ‘‘computer language,’

‘‘algorithm, ’ etc. would have to be developed for

Section 101, along with means to keep them current

or update them as technological changes require.

This would not be easy, and would require input

from the technical, as well as legal, communities to

ensure that the resulting language is unambiguous.

If (under Option l.lb) Congress chooses to

explicitly exempt any of these from inclusion within

the scope of copyright, then it must determine

whether they are to be left to the public domain, trade

secret law, patents, or to new, sui generis laws (see

Options 1.3 and 1.4 below).

Alternatives to Current Treatment of Programs

as Literary Works

Option 1.2: Establish a separate category in the

Copyright Act for “computer programs,”

instead of treating them as literary works.

In the international arena, however, this is counter

to current U.S. standards of “adequate’ protection

for software as or akin to a literary work. Also, there

would be a period of uncertainty as a new body of

case law developed. An advantage of this approach

would be that the courts would not have to apply the

same principles to software and other literary works,

whose economics, patterns of innovation/dissemination, and useful life spans are quite different. Using

this approach, though, the term of protection would

remain the same as for other copyrighted “literary

and artistic’ works.

Instead of establishing a separate category for

software within Section 102(a)), Congress might

limit the scope of “literary” copyright to the code,

with the possibility of adopting a complementary

regime for elements of software design and functionality.

Option 1.3: Leave “computer programs)’ within

the category of literary works but establish

legislative bounds holding the extent of copyright protection as a literary work to the code

(as text), not to the behavior of the program

when it is executing or to “interfaces.’> Determine whether the latter are to be covered by a

complementary, sui generis regime.

This option would continue to allow copyright

protection for the program code both in the United

States and in other countries, under the provisions of

Berne. However, it would leave room for a different

mode of protection for elements of design and

functionality, such as the program’s external design

and the design of user interfaces. Alternatively, these

could be left to the public domain except as

protected by patent and/or trade secret law.

At this time, it is not clear to what extent the courts

will find these elements to be protected by copyright

law. Protecting them explicitly through a new, sui

generis law would reduce uncertainty about their

protection, and provide for features not permitted

under copyright, such as a shorter term length (but

long enough to allow some reasonable lead time), or

compulsory licensing to facilitate standardization. A

sui generis law might also have software-specific

criteria for infringement or for exemptions and could

impose a different threshold standard for innovation

than copyright’s ‘‘originality’ criterion.

A disadvantage of this approach, as for other

options, is that it may be difficult to define what is

and what is not covered under copyright and under

the new, sui generis law. A new body of case law

would have to develop, as would international

agreements, particularly regarding the sui generis

mode of protection.

Another option, which represents a more significant change from the existing modes of protection

for software, is to replace copyright protection for
Chapter l--Summary, Issues, and Options . 31

software with a new form of protection tailored

especially for software.

Option 1.4: Withhold copyright protection from

“computer programs” and substitute protection under a sui generis framework, including

protection for the program code, as well as

other elements of program functionality and

design.

This approach would replace copyright protection

for software with a sui generis regime tailored to the

protection of computer programs. The new law

could address both issues of scope and of reverse

engineering. 110 It could either explicitly include or

exclude ‘‘interfaces and could determine under

what circumstances, if ever, reverse engineering was

permissible. A different length of protection could

reflect possible differences in market life or purchase patterns between computer programs and

traditionally copyrightable works. The availability

of protection tailored especially for software might

also decrease use of patent protection for some

software-related inventions.

As with the sui generis choice in Option 1.3, it

may be difficult to define what is and is not covered

under the new law. Another disadvantage of a sui

generis law designed to substitute for copyright is

that there would be much uncertainty during a

transitional period, as the case law develops. In

addition, as with other sui generis options, there

would be no established international treaty structure.

Reverse Engineering

The issues and uncertainties concerning reverse

engineering might be handled by clarifying or

modifying the scope and subject matter of copyright

as described in Option 1.1 or Option 1.4 above.

Another alternative would be to clarify the existing

statute concerning ‘‘fair use’ (Section 107) and

existing limitations on exclusive rights in computer

programs (Section 117). This clarification could be

accomplished through cooperation or through legislation. A "cooperative approach could either

stand alone or be a precursor to legislation. This

type of approach has been used in the past to reduce

uncertainties about the acceptability of certain

photocopying practices.111

Option 1.5: Direct the Copyright Office, with the

assistance of software producers, software

consumers, educators, and representatives of

the public at large, to develop practical guidelines regarding “fair use” of programs and

“essential steps in the utilization” of programs. These guidelines should address what

reverse engineering practices, if any, are permissible.

If Congress decides to pursue a legislative approach to deal with the uncertainties surrounding

reverse engineering, it might:

Option 1.6: Establish legislative guidelines regarding “fair use” of computer programs and

Section 117, especially with respect to fair use

for unpublished works (source code as trade

secret, object code “published’ and reverse

engineering.

Among other things, these measures would establish whether incidental copies made during the

course of reverse engineering are or are not copyright infringements and/or the extent to which

factors such as the purpose of reverse engineering,

whether or not a resulting program has taken

protected expression from the first, etc. should be

taken into account. Legislation might develop from

study and input from the industry and the public,

whether conducted under Option 1.5 orotherwise.112

Policy Area 2: Difficulties in determining the

scope of patent protection for software-related

inventions and algorithms and the considerable

technological and institutional challenges the

U.S. Patent and Trademark Office faces in

examining applications in these areas of art

110 For ~xmple, tie new law ~~d ~ve a sh~fler spm of prot~tion ~an copyright, a ~gher standard of originality, compulsory licenses, ~d SpeCId

provisions for reverse engineering.

11 I CONTU r~ommend~ that the Register of Copyrights and others periodically study and report on photocopying practices in and out of libraries.

Based on lengthy consultations with coneemed parties, CONTU developed guidelines for library photocopying that were intended to be fair and

workable. (CONTU Report, op. cit., footnote 16, ch. 4, See also 17 U. S. C. A., sec. 108, pp. 136-137.)

See also footnote 119 and accompanying discussion.

112 For exmple, Smtlon 108 of he Copfight Act p~vldes de~led gui~ce for library ~d arehv~ photocopying; in developing the klnguage fOr

that section, the conferms agreed that CONTU’S guidelines were a reasonable interpretation of sec. 108(g)(2). (17 U. S. C. A., p. 136.)
32 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Whether and to what extent software-related

inventions are the subject of utility patent protection

has been an issue before the courts and the PTO since

the early 1960s. The U.S. Supreme Court has

examined the issue of patentability of software on a

number of occasions (Gottschalk v. Benson, Parker

v. Flook, and Diamond v. Diehr), attempting to

delineate the limits of patentable subject matter. The

PTO faces considerable challenges in examining

applications involving computer processes. If or

when Congress wishes to take action, options

include the following:

Statutory Subject Matter

Under current interpretations of patent law, patents may be granted for certain parts of a program’s

function. The same program may embody many

patentable inventions, or none at all, depending on

which parts of the program function are novel,

nonobvious, and meet the requirements for statutory

subject matter.

The case law and PTO guidelines indicate that

patents may not be granted for a program function

called a‘ ‘mathematical algorithm’ (see footnote 20,

supra). The definition of ‘mathematical algorithm’

has had considerable discussion; currently it seems

to refer to a program function that is a “mere

calculation. ” According to PTO guidelines, claims

that include calculations expressed in mathematical

symbols contain a mathematical algorithm.113 On

the other hand, the function is not considered

‘‘mathematical’ if it can be stated in terms of its

operations on things in the ‘real world. 114 Over the

past decade, patents have been issued for softwarerelated inventions such as linear-programming algorithms, spell-checking routines, logic-ordering operations for spreadsheet programs, brokerage cashmanagement systems, and bank college-savings

systems. To some industry observers, there appears

to be varianc--or, at least, uncertainty on their

part-in how PTO guidelines are being applied

during examination.115

To reduce uncertainties and clarify legislative

intent, Congress could explicitly address the question of patentability for software-related inventions

and for certain algorithms. However, either of the

options below would face even more difficult

definitional problems than those of the copyright

options. For example, a good deal of the software

debate has focused on whether PTO should grant

“software patents. ’ The term “software patent”

does not correspond to any PTO category (see

footnotes 19, 89 and 90, supra). As it is used in the

debate, ‘software patent’ appears to refer to patents

that can be infringed by a computer program

executing on a general-purpose computer.1 16 However, this class of inventions includes more than just

‘‘software patents. It also includes, for example,

traditionally patentable processes which happen to

employ a computer.117

The need to make the distinction between nonstatutory “mathematical algorithms’ and statutory

inventions results from the courts’ efforts to interpret, in the context of software-related inventions,

the patent doctrine that “laws of nature” are not

statutory subject matter. Any effort to redraw the

line between statutory and nonstatutory softwarerelated inventions is likely to encounter serious

definitional problems.

In addition, the types of processes and apparatuses

that typically are the subject of “software patents”

can be claimed in a way that covers both hardware

and software implementations. At present, the form

of implementation (hardware or software) does not

deterrnin e whether an invention is statutory subject

113 U,S, patent and Trademark Wlc:e, Computer Programs and Mathematical A/gori(hm.r, September 1989, p. 8. However, tie P’ro Widehes state

that a‘ ‘mathematical algorithm” may be present in prose form, without the presence of mathematical symbols: ‘‘It is not always possible to determine

by inspection of the claim whether it indirectly recites a mathematical algorithm; in such instances the analysis ‘requires careful interpretation of the

claim in the light of its supporting disclosure. ’ .lohn.ron, 589 F.2d at 1079, 200 USPQ at 208. ” Ibid. Despite the presence of a mathematical algori~

the claim may be statutory. See discussion of the ‘‘two-part test‘‘ in ch. 4 and in pp. 5-12 of U.S. Patent and Trademark OflIce, Oficial Gazette, Aug.

9, 1989.

1 ldJnreBrad/ey, 6oo F.2d 812 (C. C.p.A, 1979). Inventions that process architectural symbols (In rePhillips, 608 F.2d 879 (C. C.p.A. 1979)) or~anslate

languages (In re Toma, 575 F.2d 872 (C.C.P.A. 1978)) were not found to be “mathematical.”

I IS See foo~ote 85, supra (ADAPSO, op. cit.).

116 ~ventiom of ~s ~~lo% t. ~gemeof ~ventiom ~0 mfem to as ‘ ‘~mputer-re~ted inventions’ or ‘computer-implemented process patents”

(see foomotes 86 and 90, supra). In the request for comments for the Advisory Commission on Patent Law Reform, PTO also used the te~ “computer

program-related inventions” (Federal Register, vol. 56, No. 95, May 16, 1991, p. 22702-22703).

\ 17 ~ewple would ~ tie mbber-c~ prWess found to be statutory by @ Us. supreme COM in Diamrtd v. Diehr. There d~s not appear to

be much public concern about these types of inventions.
..— ———

Chapter 1--Summary, Issues, and Options . 33

matter. The only issue is whether the inventor is

attempting to claim a ‘‘mathematical algorithm. ”

However, if software implementations were not

statutory subject matter or could not infringe a

hardware implementation, then some hardwarebased inventions could have their value appropriated

by software implementations.

Option 2.1: Refine the statutory definition of

patentable subject matter to provide guidance

for the courts and PTO. Legislation might

address the extent to which processes implemented in software or “mathematical algorithms” are or are not statutory subject

matter. Legislation might also address the

issue of special exemptions, such as for research and education.

Option 2.2: Exclude software-related inventions

and/or algorithms from the patent law and

create a special, sui generis protection within a

patent framework for some inventions. The

latter might have a shorter term, lower criteria

for inventiveness, and/or special exemptions

from infringement.

Other measures could address some of the challenges facing PTO regarding the database of prior art

and the timeliness and quality of examin ation:

Prior Art and Examination Quality and Timeliness

PTO has been grappling with institutional problems such as examiner training and turnover, length

of pendency periods for patent applications from

filing to issuance, a backlog of applications, and the

quality and extent of the prior art database.ll8 OTA

views these problems as serious since they may

affect the quality of the patents issued and create

additional burdens for software developers and users

(e.g., “landmine” patents—see box l-C). A major

problem for patent-system administration with respect to software-related inventions and algorithms

is the incomplete stock of ‘‘prior art’ available to

patent examiners in evaluating patent applications

for processes involving computers, especially those

involving software and algorithms.

“Filling in” the prior art database (with both

patent and nonpatent prior art) is important for

improving the quality of examination. Improving

electronic search and retrieval capabilities for PTO’S

own database is also critical, because it is used by

PTO examiners during the application process and is

also used by the public. The public’s access to an

adequate prior-art database is crucial because it

allows software developers to review the status of

the art and to determine what has already been

covered by patent. Given this information, developers can make more informed decisions about their

design alternatives, their choice of patent protection

versus trade secret, and what might be worthwhile

areas for further research and development.

Measures to address the quality of the prior-art

database and examination (e.g., Options 2.3

through 2.6) will benefit PTO and the public, no

matter what other legislative options are chosen.

Because they require some lead time, Congress

might select a strategy of initiating one or more of

these options now:

Option 2.3: Encourage establishment of a supplementary repository of nonpatent prior art,

either public or private.

Patent examiners for the most part are limited to

prior art that is already the subject of patent

protection. Unlike other areas of technology, software prior art consists in large part of software

products that are not a part of the PTO prior-art

database. Such a supplemental prior-art database

would expand the background against which examiners would compare patent applications, and would

allow the software community to inform the PTO of

art which is in the public domain but of which the

PTO would not be aware because it is not patented.

This would prevent the patenting of art which is

arguably “old.”

Whether publicly or privately developed and

maintained, a supplemental repository of prior art

would allow members of the software community to

participate in upgrading the bank of prior art for

software and thus assist in maintainingg the quality

and legitimacy of specific, issued patents for softwarerelated inventions. Public access to such a database

might also be encouraged, allowing developers to

track innovation and make decisions about future

118 me Dq~entof Commerce ~es~blished an ~viso~commission onpatent Law Refo~ due to repofi in 192. Thecommissionis examhklg

13 sets of issues regarding the patent system; these include protection of what PTO terms “computer-related inventions, ” as well as procedural matters

such as a first to file system, automatic publication of applications, and the term of patent protection.
34 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

research and development and about intellectual

property protection for its products.

One nongovernmental response to these needs is

the effort to establish a nonprofit Software Patent

Institute to provide a supplementary repository of

prior art for PTO and others and to offer educational

and training opportunities for PTO staff.119 Congress might wish to monitor the progress of this

effort in order to determine what role, if any,

government should play.

Option 2.4: Encourage PTO to include in its

ongoing automation program means for improved data retrieval, such as flagging, crossindexing, etc. Encourage the PTO to use this

improved database and increased access to the

prior art to monitor activity and trends in

“hot” areas of art, as well as anticipate and

plan for changes in staffing and expertise.

Examiners make comparisons between the invention described in the patent application and the prior

art in order to make determinations about the novelty

and nonobviousness of the invention described in

the patent application. Including the means to

cross-reference patents among different areas of art

would give examiners easier and better access to

pertinent prior art. Increased awareness of the nature

of patents for software-related inventions issued by

PTO and increased access to those patents by

examiners would improve the quality of the examination with respect to nonobviousness and novelty.

In addition to these benefits, this system would

enable the PTO to review the trends in prior art both

generally and within specific areas of art to determine staffing needs (numbers and skills of examiners). Matching examiner staffing levels and expertise to the changing quantity and character of the

influx of applications could improve the quality and

efficiency of the examination process and, as a

result, yield a higher quality of issued patents. Such

a system would also improve PTO’S ability to

respond to questions generated for congressional

oversight.

Option 2.5: Encourage PTO’S ongoing efforts to

improve funding, training, and support for

PTO examiners, in order to assure highquality examinations. Examination quality depends both on the clarity of the examination

guidelines and on training and support for

examiners.

The PTO has cited high turnover of examiners—

particularly in the computer-related art units-as a

concern. Well-trained examiners familiar with the

prior art and the examination guidelines are important to the quality of issued patents. Steps are needed

to induce or enable highly trained examiners in the

computer arts to stay within the PTO, and avoid high

turnover and the expense and delay of training new

hires.

Option 2.6: Encourage PTO to continue to seek

input from the software community in formulating examination guidelines, developing classification systems, anticipating technical

change, improving the prior art database, and

determining appropriate examiner qualifications. Expand efforts to communicate PTO

practices and guidelines to the software community, especially in the period following new

Court of Appeals for the Federal Circuit cases.

PTO/software community communication could

be improved by establishing an external computer

science and software engineering advisory committee for IWO, with balanced representation. PTO

might also seek technical review from experts in

government (e.g., at the National Institute of Standards and Technology) in reviewing changes to

examination guidelines.

A procedure for challenging software-related

patents (presenting additional prior art to the PTO)

on an expedited basis could aid in the development

of the prior-art database. Challenges could take

place prior to issuance of a patent, or shortly

thereafter, and could help ensure that patents not be

issued for developments that are in fact well-known

or well-established ‘‘inventions. ’

Option 2.7: Because of gaps in the prior art,

either: expedite challenges to newly issued

patents in the software area or establish

procedures for preissuance challenges.

Publication of applications after 18 months,

whether or not a patent issues, would make the

subject matter available to the public. If the subject

of the application is deemed patentable by the PTO,
—.

Chapter I---Summary, Issues, and Options ● 35

the published information becomes proprietary. If

not, and the application is not withdrawn, the

information becomes part of the prior art. The major

advantage of this approach is the avoidance of

“landmine” patents that issue after years of pendency. This system of publication would allow

developers to avoid investing in research and

development on technology that is already the

subject of an application and, potentially, covered by

a patent.

Option 2.8: Because of application backlog and

pendency problems, and the possibly shorter

market life of software, publish applications

after 18 months, whether or not issued, or

provide PTO with resources to shorten pendency for software-related patent applications

to 18 months.

Another consequence of this system could be a

reduction in the number of applications for patents,

as some developers chose to avoid the risk of losing

trade secret protection for their inventions. If the

pendency for patent applications could be shortened,

such an approach would likely be unnecessary, as

the problem of “landmine” patents would be

reduced by timely issuance of patents.

Policy Area 3: Complications facing libraries and

other developers and users of digital information,

especially mixed media works from several

different categories of copyrightable works

Decisions affecting intellectual property and software can also affect digital information and the

industries, individuals, and institutions that create

and use it. Government may have a role in clarifying

“fair use’ with regard to digital information.

Guidelines might be developed to clarify the rights

of libraries to make archival copies of digital

information or to provide copying and other services

to patrons (computer networks allow patrons to be

people miles away, not just those within library

walls). The rights of libraries to lend, archive or

share traditional materials have been well established in the copyright law, but in the case of digital

information are often defined by contracts with

information providers.

Clarification might also be provided on the extent

to which computer-based catalogs can be enhanced

by incorporating material from underlying works.

While such clarification might be made through

legislation, several sets of nonstatutory fair-use

guidelines exist,120 and it may be useful to update

them or to develop additional ones through consultation with users and other interested parties. Publishers rely on contracts specifying what users may do

with data to deal with the uncertainties about what

users’ rights are to ‘‘download, ’ ‘‘use, ’ or ‘copy’

data under fair-use principles of the copyright law.

Clarification of users’ rights under copyright could

simplify or reduce the need for such contracts.

Guidance would, however, have to be carefully

crafted for a wide variety of users, products, and

technologies. If or when Congress decides to take

action, options include the following:

Use of Works in Electronic Form

Option 3.1: Clarify “fair use” guidelines with

regard to lending, resource sharing, interlibrary loan, archival and preservation copying,

copying for patron use, for works in electronic

form.

Option 3.2: Establish legislative guidance regarding “fair use” of works in electronic form and

what constitutes “copying” and “reading” or

‘‘using. ”

These clarifications would reassert Congress’s

intention, as expressed in copyright law, to establish

limitations on the rights of copyright holders and to

permit certain uses of information for research and

educational purposes. Alternatively, a ‘ ‘cooperative’ alternative that might or might not lead to

subsequent legislation would be to:

Option 3.3: Direct the Copyright Office, with the

assistance of producers and users of electronic

information, to develop and disseminate practical guidelines regarding “fair use” of works

in electronic form and what constitutes “copying” and “reading” or “using.”

Whether established through legislation or

through nonstatutory, cooperative guidelines, these

clarifications would require careful crafting, with

Izo Guidel~es for fair use related to educational and nonprofit Org animations were incorporated into the House Committee Report prior to the enactment

of the 1976 Copyright Act. Another set coneeming off-air taping of broadcast television was approved by the House Subcommittee on Courts, Civil

Liberties and the Administration of Justice (Congressional Reeord Sec. E?4751, Oct. 17, 198 1).
36 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

input from all interested parties—users, as well as

producers-in order to cover the wide variety of

users, products, and technologies existing now and

in the future.

Multimedia Works

Multimedia works raise questions in two areas.

First, what type of protection should they be

afforded-as single works or as collections of

different works in different categories. The second

deals with the incorporation of copyrighted works in

a mixed media work. Guidelines may be needed to

determine what rights should be obtained, for

example, in determining whether a multimedia

presentation on a personal computer constitutes a

public performance or merely an adaptation of the

music or drama incorporated within.

option 3.4: Clarify the status of mixed media

works with regard to their copyright protection.

Permissions and Royalty Collollection

The difficulty of obtaining permission for including images, text, or other copyrighted works incorporated into multimedia databases could be eased by

the creation of a royalty collecting agency or

clearinghouse (or perhaps several agencies for

different types of works). The ability to deal with

one source, or a small number of sources, for

permission to use these works would aid development of multimedia projects, as would creation of

standards and conventions about the royalties to be

paid.

Option 3.5: Create, or encourage private efforts

to form, clearing and royalty collection agencies for groups of copyright owners.

The responsibility for creating such agencies

probably rests with the rights holders, rather than

with government. There may, however, be a role for

government in easing antitrust or other regulations

to encourage the creation of such organizations.

Preparing for the Future

Each of the principal policy areas and intellectual

property issues discussed in this report is complicated by the complexity of software and computer

technologies and by the rapid pace of change in these

technologies. Congress and the courts could begin

to benefit now from institutional means to understand and remain current about the emerging

issues surrounding them.

Establishing a “Congressional Commission on

Computing Technologies” would help. The commission (composed of technology experts from

academia and the private and public sectors) could

be charged with monitoring the fields of computer

and software technologies and reporting periodically (perhaps each Congress) on the status of, new

directions in, and problems facing these fields. The

commission reports could be helpful to Congress in

anticipating future areas of policy concern and

topics for further study.

Courts are asked to make difficult decisions about

technology that is new, changing, and complex.

Congress might consider measures that the courts

would find helpful as they deal with complex cases

involving computer and software technologies. Such

measures might include special software and computer technology courses tailored for the judiciary,

use of special masters, and other means for educating the courts and keeping them abreast of developments in hardware/software technologies. The largely

nontechnical judicial staff-judges and clerks—

could, in this way, be tutored about current computer/

software technologies, thus contributing to a high

standard of judicial decisionmaking. Special masters, focused in the area of computer litigation, could

provide understanding and expertise on a continuing

basis, and make technical determinations when

needed.

For the longer term, Congress might also

explore the merits of establishing a ‘‘faster track”

for intellectual property litigation concerning software and software-related inventions. Software products have a relatively brief market life. Courts,

already burdened by caseloads and crowded dockets

must render decisions for a fast changing and

complex industry. An expedited time period for

software-related litigation would assist the courts in

reaching timely decisions.121

121 CoWess kin tie past made special provtiions to shorten the time period for litigation for other patented products; the W~-Hatch Act

provides for a 30-month period for litigation of certain actions for patent infringement involving pharmaceutieals and certain drug and veterinary

biological products which must undergo an often lengthy approval process with thr Food and Dmg Adrmms “ “ tration. (See 35 U.S.C. 271 and 21 U.S.C.

355(j) (4)(B)(iii).)
Chapter 2

The Law
—. —

Contents

Page

Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Introduction to the Patent System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Evolution of Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

PTO Policy and Procedural Response to Court Cases.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ● . . . . . . . . . . . . . . . . . 56

Goals of U.S. Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Development of U.S. Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58

The Scope and Nature of Copyright Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

The 1976 Copyright Act and Fair Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

The Copyright Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

CONTU Recommendations Regarding Registrations and the Rule of Doubt . . . . . . . . . 66

CONTU and the 1980 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Evolution of Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68

Databases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Hybrid Design Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77

Trade Secret Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Characteristics of a “Trade Secret” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

The Need to Maintain the Trade Secret . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Software and Trade Secret Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Relationships Among Patent/Trade Secret/Copyright Laws . . . . . . . . . . . . . . . . . . . . . . . . 86

Boxes

Box Page

2-A. Biotechnology Challenges to the Patent System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

2-B. Court of Customs and Patent Appeals Cases After Prater . . . . . . . . . . . . . . . . . . . . . . . . 48

2-C. Court of Customs and Patent Appeals Cases Following Benson . . . . . . . . . . . . . . . . . . 50

2-D. The Cases of Pardo, Taner, Abele, and Meyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

2-E. Analogous Patent Law in Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

2-F. Early Protection Against Copying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

2-G. Copying in Renaissance Art . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

2-H. Analogous Copyright Law in Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

2-I. Contract Law Protection of Electronic and Computer Technology . . . . . . . . . . . . . . . . 83

2-J. The Shrink-W:rap License Controversy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

2-K. Analogous Trade Secret Law in Foreign Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Tables

Table Page

2-1. Number of Patents Issued for Software-Related Inventions, 1970-91 . . . . . . . . . . . . . . 55

2-2. Copyright Registrations, Generally: 1974 to Present . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

2-3. Copyright Registration, Computer-Related Works: FY 1986 to Present . . . . . . . . . . . . 65
Chapter 2

The Law

Patents

Patent protection is used extensively today to

protect software-related inventions both in the

United States and abroad. According to practitioners

in the field of computer law, most of the major

developers of software are presently using patent

protection for software-related inventions. 1 The

following is a discussion of the patent system, and a

survey of the issues arising from the protection of

software-related inventions by patent.2

Introduction to the Patent System3

The first U.S. patent law, enacted in 1790,

embodied Thomas Jefferson’s philosophy that ‘‘ingenuity should receive a liberal encouragement.”

This law provided protection for “any new and

useful art, machine, manufacture, or composition of

matter, or any new and useful improvement [thereof].

Subsequent patent statutes were enacted in 1793,

1836, 1870, and 1874, employing the same broad

language as the 1790 act. The Patent Act of 1952

replaced ‘art’ with ‘process’ as patentable subject

matter. 4 The Committee Reports accompanying the

1952 act demonstrated that Congress intended

patentable subject matter to include “anything

under the sun that is made by man. However, the

U.S. Supreme Court has held that laws of nature,

physical phenomena, scientific principles, and abstract ideas are not patentable.

Patents grant to inventors a limited property right

to exclude others from practicing (making, using, or

selling) the claimed invention for 17 years. In this

Photo credt: U.S. Library of Congress

The first U.S. patent statute was enacted by Congress in

1790. The patent law embodied Jefferson’s philosophy that

“ingenuity should receive a liberal encouragement.”

way, patents are intended to encourage inventiveness. In the United States, patent law is exclusively

within the jurisdiction of the Federal Courts.5 Strict

examination of an invention is required,6 making the

patent the most difficult form of intellectual property

protection to obtain. Once obtained, a patent is

maintained by periodic payment of maintenance fees

during the life of the patent. 7

1 Robert Greene Steme, Steme, Kessler, Goldstein and Fox, personal communication Oct. 8, 1991.

z In this report, OTA sometimes uses phrases like ‘patents for software-related inventions, ’ ‘ ‘software-related patents, ’ or ‘patentig ~goritis”

to refer generally to patent protection for computer-implemented processes and algorithms. The U.S. Patent and Trademark Ofliec considers terms like

“software patents’ to be a misnomer because they maybe interpreted to mean that a computer program pa se (i.e., the sequence of coded instructions

itself) is patentable, as opposed to the underlying computer process it carries out. (M. Keplinger, G. Goldberg, and L, Skillington, PTO, personal

communication, Dec. 18, 1989.)

s This material is adapted from U.S. Congress, Office of ~chnology Assessment, New Developments in Biotechnology: F’aten(irrg Life, OZ4-BA-370

(Washington, DC: U.S. Government Printing Office, April 1989), pp. 37-43. For further discussion of biotechnology challenges to the patent systcm,

see box 2-A.

4

35 U.s,c. 101.

5

35 U.S.C. 1 et seq.; 28 U.S.C. 1338. Questions related to patent licenses arc governed by State contract law, but maybe decided in Federal or State

court, depending on the circumstances.

G Some obsewers bel ieve that the level of exarnimtion in the computer arts cannot be characterized as strict, particularly in the area of software-related

inventions. Richard Stallman, Free Software Foundation personal communication, September 1991.

7

35 U.S.C. 41(b).

–39–
40 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 2-A—Biotechnology Challenges to the Patent System

Concerns about the integration of new technologies into the patent system are not confined to the area of

computer software. In 1989 OTA published a report New Developments in Biotechnology: Patenting Life, in which

it examined many of the intellectual property issues confronted by this industry. Biotechnology, broadly defined,

includes any technique that uses living organisms, or parts of organisms, to make or modify products, to improve

plants or animals, or to develop microrganisms for specific uses. Interest in commercial uses of living organisms

has increased greatly over the past 15 years or so, spurred by new capabilities to select and manipulate genetic

material. Proprietors’ interest in obtaining biotechnology patents has increased accordingly. Like the computer

software industry, biotechnology has confronted questions of subject-matter jurisdiction, the quality and efficiency

of the examination process, disclosure and deposit requirements, and the expense and uncertainty of litigation of

patents. In addition, Congress has addressed specific areas where the nature of the field of biotechnology was

believed to warrant special treatment for the patents granted.

Subject-Matter Issues

Although there has been steady increase in the number of biotechnology patents issued since the early 1980s

(i.e., since Diamond v. Chakrabarty), controversy has surrounded the issue of the appropriateness of intellectual

property protection for biotechnology. The Chakrabarty decision concluded that Congress had intended the patent

law to be given wide scope and that genetically engineered microorganisms, defined as useful products of human

ingenuity as distinct from manifestations of nature, were patentable subject matter.

The controversy surrounding the issue of patents for biotechnology arises in large part from the very creation

and patenting of ‘inventions’ that are themselves alive. The debate over whether to permit the patenting of living

organisms frequently goes beyond the relatively simple question of the appropriateness of patents per se in this field

of technology, focusing on the consequences of commercial use of patented organisms or the underlying merits of

biotechnology itself. Discussion regarding patenting of genetically engineered organisms can turn to scientific

questions, philosophical and ethical issues, environmental concerns, concerns for the welfare of genetically

engineered animals, and economic considerations. One difficulty inherent in examining the desirability of these

types of patents lies in the need to separate arguments that are new and directly related to patents in these areas of

technology from broader arguments that would pertain independent of patent considerations. The 1989 OTA report

on Patenting Life exarmined subject-matter issues, as well as issues related to patent prosecution and the operation

of the Patent and Trademark Office.

Examination Speed and Quality

In the 1989 report, OTA found that the PTO was unable to process the ever increasing number of biotechnology

applications in a timely manner. The PTO cited turnover among patent examiners, lured to the private sector by

substantially higher salaries, as a significant reason for these difficulties. The number of applications severely

challenged the process and examination capabilities of the PTO, despite the reorganization of biotechnology

activities into a separate examining group in 1988, so that as of July 1988 there was a backlog of nearly 6,000

applications. The PTO issued just under 1,500 biotechnology patents in 1987. OTA found that approximately 15

months, on average, lapsed before examination of a biotechnology application was begun and another 27 months

passed before examination was completed (either by issuance of a patent or abandonment of the application).

Disclosure and Deposit Considerations

OTA found that biotechnology presents a differentiating administrative issue in that it is the only art where

words alone may be incapable of describing an invention sufficiently to enable one skilled in the art to make and

use it in a reproducible manner. Currently, patent applications for inventions involving biological materials that are

not generally available or reproducible without undue experimentation by a person skilled in the art are often

supported by a deposit in a recognized patent depository. Although not automatically required, a deposit is

employed in many cases to meet the requirement that a patent provide enablement or the ‘best mode’ of practicing

an invention.

Patent Litigation

OTA found that biotechnology patent litigation required courts to assess whether patent holders have met the

requisite requirements of novelty, usefulness, and nonobviousness, as well as issues relating to the scope of claims,

infringement, and patent enforcement. OTA also noted the cost resulting from the existing uncertainty over the

scope of protection, citin,g, for example, the additional litigation necessary to define the parameters of patent
Chapter 2—The Law . 41

protection. OTA further found that such costs undoubtedly influenced the R&D and intellectual property strategies

of many companies: 85 percent of firms surveyed by OTA reported that, even though they might consider patent

protection more desirable, they expected to pursue trade secret protection for biotechnology lines in addition to

patent protection.

Experimental Use Exception

In biotechnology, the most relevant exemption from patent infringement is the experimental use exception,

a court-created doctrine that holds that an experiment with a patented invention for the sole purpose of gratifying

true scientific inquiry or philosophical curiosity does not attack the right of the patentee, and thus does not constitute

infringement.

In 1984 the Court of Appeals for the Federal Circuit considered a case involving the testing of a pharmaceutical

pursuant to Food and Drug Administration approval for a generic drug equivalent. This testing was conducted close

to the end of the patent term for the original drug. The court found that such testing did not fall within the narrow

confines of ‘‘experimental use’ and thus was an infringement. In the wake of this case, Congress amended the

patent code (Public Law 98-417) to allow a statutory exemption with respect to testing human drug products in order

to meet FDA approval requirements.

PVPA Research Exemption

A complementary form of intellectual property is provided by the Plant Variety Protection Act of 1970

(PVPA), intended to encourage the development of new, sexually reproduced plants (new varieties and hybrids).

Upon application to, and examination by, the U.S. Department of Agriculture, a plant variety certificate maybe

issued on any novel variety of sexually reproduced plant, other than fungi, bacteria, or first-generation hybrids.

Amendments in 1980 added protection for 6 vegetable crops and extended the period of protection to 18 years so

that PVPA would be consistent with international plant-breeding provisions.

The PVPA has two important exclusions to a certificate holder’s protections: a farmer’s exemption and a

research exemption. The farmer’s exemption allows individuals whose primary occupation is growing crops for sale

(rather than plant breeding) to save protected seed for use on their farm or for sale to other such individuals. The

research exemption precludes a breeder from excluding others from using the protected variety to develop

new varieties. By contrast, utility patents for plants (which have been granted since 1985) do not have statutory

exemptions from infringement: the holder of a plant utility patent can exclude others from using the patented variety

to develop new varieties.

SOURCE: U.S. Congress, Office of Technology Assessment New Developments in Biotechnology: Patenting Life, OTA-BA-370 (Washington,

DC: U.S. Government Printing Office, April 1989), pp. 37-43.

An invention must fulfill five major requirements requirements are met, a patent will be granted. The

to be deemed patentable.8 The invention must: 1) be grant of a patent by the U.S. Government to an

patentable subject matter; 2) be useful; 3) be novel; applicant gives a property right from the U.S.

4) not have been obvious at the time it was made; 5) Government to the applicant or the applicant’s

be disclosed in sufficient detail to “enable persons assignee.

of ordinary skill in the art’ to practice the invention

without ‘‘undue experimentation. The patent must

also disclose the “best mode” of practicing the Subject Matter

invention known to the applicant as of the filing

date. These issues of statutory subject matter, utility, A patent may issue to:

novelty, nonobviousness, and enablement/best mode [w]hoever invents or discovers any new and useful

are addressed by 35 U.S.C. 101, 102, 103, and 112 process, machine, manufacture, or composition

respectively. If it is determined that these require- of matter, or any new and useful improvement

ments have been fulfilled, and if certain other formal thereof. ..9

8App/~cation ~~~ergy, 596 F.2d 952 (C,C.pA. 1979). It should also & no[ed that i[ is tie burden of the Patent and Trademark Office tO show

nonpatentability, rather than the burden of the applicant to show patentability. If, however, the PTO makes out a pn”ma facie case of nonpatentability,

the burden of prwf then does shift to the applicant.

~ 35 U.s.c. 101,
42 ● Finding a Balance: Computer Sofware, Intellectual Property, and the Challenge of Technological Change

Patents of this kind are known as utility patents, and

are divided for examination purposes into three

classes by the U.S. Patent and Trademark Office

(PTO): chemical, electrical, and mechanical. Patents

for software-related inventions are classified within

the electrical class, relating to data processing

methods and apparatus.

Under section 101, the invention must be

. characterizable as a process, machine, manufacture, or composition of matter,

● a new invention, or a new, useful improvement

of an existing invention; and

● useful.

Congress and the courts have interpreted the

classifications of process, machine, manufacture, or

composition of matter broadly. Although the subject

matter of things that may be patentable is broad, it is

not unlimited. Laws of nature, physical phenomena,

scientific principles, and abstract ideas cannot be

patented .10 The Supreme Court, in the case of Parker

v. Flook, stated that the rule that discovery of a law

of nature cannot be patented is based not on the

belief that natural phenomena are not processes, but

on the concept that natural phenomena are not the

kind of ‘discoveries” that patent law was designed

to protect. The court stated that mere recognition of

existing phenomena or relationships carries with it

no rights to exclude others from their use or

exploitation.

11 The issue of what constitutes patentable subject matter has been especially problematic

in the area of software, as will be discussed below .12

In addition to the types of utility patents permitted

under section 101, U.S. law provides for two other

types of patents:

● Design patents13—A design patent may issue

to the inventor of any new, original and

ornamental design for an article of manufacture. Unlike other types of patents (which have

a term of 17 years from grant), design patents

have a term of 14 years from grant.

● Plant patents 14—A plant patent may issue ‘0

the inventor of any distinct and new variety of

plant which is capable of asexual reproduction.

Utility

In general, utility is easily shown by the patent

applicant. Utility is demonstrated by experimental

data, commercial use, or through the drawings or

description of the patent application.

Novelty

The requirement for patentability that an invention be novel is set forth in section 101 and is

addressed in section 102 of the Patent Act. Under the

provisions of section 102, an invention should not

have previously existed through the work of others.

The specific provisions of section 102 require that in

order to qualify as prior art there be some public

aspect to the previously existing work of others;

inventions concealed through trade secret protection

do not preclude patent protection on grounds of lack

of novelty or nonobviousness.15

Under section 102, a patent can be denied under

several conditions, including:

●

●

●

●

the invention was known or used by others in

the United States or patented or described in a

printed publication in the United States or a

foreign country before the invention date

claimed by the applicant for patent;

the invention was patented or described in a

printed publication in the United States or a

foreign country, or sold or used in the United

States more than 1 year prior to the date of the

application for a patent in the United States;

the invention was abandoned by the applicant;

the invention was made in the United States by

another person who has not abandoned, supIODia~nd v. Chakrabarv, 447 U.:5. 303 (1980); Funk Brothers Seed Co. v, Kalo Inoculant Co., 333 U.S. 127 (1948); Gottschalk v. Benson, w

U.S. 63 (1972).

11 parker v. Flook, 437 U.S. 584 (1978).

12 Biotechnolo~ faces SMEM Conc(:m abut integration into the patent system as does the area of software. For finther discussion of the problem

of subject matter, as well as a brief survey of problems of the PTO in maintaining the quality and efficiency of the patent examina tion process for

biotechnology patents, determining requirements for disclosure and deposit considerations, issues confronted in litigation, ‘and special exceptions to the

patent law as applied to biotechnology, see box 2-A.

1335 IJ.!3.C. 171-173.

1435 U.S.C. 161-164.

15 Acts by ~ inventor t. wi~o]d an invention f~mpublic ~owl~ge by ei~er: 1) Wiberately hi(ling the invention, or 2) fading to apply fOr a patent

within a reasonable time after invention, may extinguish a fiist inventor’s priority of invention such that a patent is granted to a later rival inventor. (35

U.s.c. 102Q).)
Chapter 2—The Law ● 4 3

pressed, or concealed it (in such cases determining the priority of invention becomes important); and

● the applicant is not the inventor.

Nonobviousness

To be patentable, an invention must be found to be

not obvious under the terms of 35 U.S.C. 103, which

states that a patent may not be obtained:

. . . if the differences between the subject matter

sought to be patented and the prior art are such that

the subject matter as a whole would have been

obvious at the time the invention was made to a

person having ordinary skill in the art to which the

subject matter pertains. 16

Obviousness addresses the degree of difference

between the invention sought to be patented and the

inventions or technology that are known or available

(the “prior art”) to the hypothetical person skilled

in the relevant field of technology. Evidence of prior

art (e.g., existing patents, publications) is evaluated

not only for what it expressly teaches, but also for

what it would reasonably suggest to one of ordinary

skill in the relevant field of technology. Since an

invention may be new (novel) but still be obvious, a

determination as to whether or not the proposed

invention is obvious needs to be made. The Supreme

Court set forth the test for obviousness in 1966:

. determine the scope and content of the prior art;

. ascertain the differences between the prior art

and the claims at issue; and

● resolve the level of ordinary skill in the

pertinent art.17

In addition, the Court stated that secondary

considerations of nonobviousness such as commercial success and long felt but unsolved industry need

may be relevant to particular situations.18

How a Patent Is Obtained

An application for a patent must generally be

made by the inventor. It must be in writing, contain

a specification, and, where necessary, a drawing.

The application must include claims and an oath or

declaration that the inventor believes himself or

Photo credit: U.S. Library of Congress

The “model room” of the old Patent Office, where inventors

deposited models of their inventions.

herself to be the original and first inventor of that for

which the protection is sought.

The specification is the written description of the

invention, describing the manner and process of

making and using it ‘‘in such full, clear, concise, and

exact terms” as to enable any person skilled in the

art to which it pertains to make and use the same, and

setting forth the “best mode contemplated by the

inventor’ (at the time of the application) of carrying

out the invention (35 U.S.C. 1 12). The specification

includes a set of one or more claims, each of which

particularly points out and distinctly claims the

subject matter which the applicant regards as his or

her invention. The claims represent the metes and

bounds of the property to be protected. As in real

property, the claims stake out the patent holder’s

territory, and any encroachment on that territory

constitutes infringement.19

The purpose of the “best mode’ requirement of

section 112 is to prevent inventors from applying for

patents while concealing from the public the preferred embodiment or implementation of the invenIs 35 U.s.c, 103.

17 Graham v. John Deere Co., 383 U.S. I (1966).

‘8 Ibid.

19 B.A, Amcmic~ patent ~B, for the No~la~~er: A Guide for (he Engineer, Technologist, ad Manager (NCW York, NY: bNost~d Reinhold

Co., 1986).

3?()-?26 o - ’32 ‘1
44 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

tion. The meaning of this requirement in the context

of computer software has been explored by the

courts. The claims in In re Sherwood20 were rejected

by the examiner for failure to disclose any computer

hardware, flow charts, algorithms, or programs with

which best mode would operate. Yet the court

overturned that determination, asserting that the

question is not how an applicant discloses the best

mode, but whether he has done so. The Court of

Customs and Patent Appeals (C. C.P.A.) concurred,

stating:

[T]here is no objective standard by which to judge

the adequacy of a best mode disclosure. Instead, only

evidence of concealment (accidental or intentional)

is to be considered. That evidence, in order to result

in affirmance of a best mode rejection, must tend to

show that the quality of an applicant’s best mode is

so poor as to effectively result in concealment.21

Notwithstanding the applicant’s failure to disclose

the listing of the known program, the disclosure was

sufficient to satisfy the best mode requirement.

In White Consolidated Industries, Inc. v. Vega

Servo-Control, Inc.,22 

a program that was an essential element to a claim for machine tool had been

identified in the patent specification as an example.

The program was not disclosed in the specification,

but rather was maintained as a proprietary trade

secret. The court held that, absent disclosure of the

program, the specification required a great deal of

experimentation by a skilled programmer to develop

a workable program to make the invention operational. The proprietary nature of the program was

irrelevant, given that it was the only way of

disclosing the best mode of practicing the invention.

The U.S. Court of Appeals for the Federal Circuit

invalidated the patent on the ground that the

disclosure failed to satisfy the enabling requirement

under 35 U.S.C. 112.

The patent application may be made by the

individual inventor, by two or more inventors

jointly, by legal representatives of the inventor or

inventors, or by a person to whom the inventor has

assigned a proprietary interest in the invention.2g

The actual filing date of the application is important

because the presumption is that patent applications

filed and documents published after the priority date

do not constitute prior art for purposes of the earlier

filed patent application.

Upon filing, the application is assigned to a

primary examiner at the PT0, who conducts an

examination of the PTO prior-art database as part of

determining whether a patent should issue.24 After

the examiner initially reviews the application and

the search results, there is an exchange of written

correspondence between the patent applicant and the

examiner. During this exchange, the examiner will

often cite prior-art references in addition to those

found and cited in the patent application that limit or

preclude patentability of the claimed invention. The

examiner will provide these to the applicant, who

may then respond with amendments to the claims,

information, or arguments to distinguish the claimed

invention from the prior art. The back-and-forth

procedure in which the applicant attempts to demonstrate the patentability of the claimed invention is

called ‘‘prosecuting’ a patent application.25

If, after the initial examin ation process has been

completed, the examiner determines that any claim

of the patent application is unpatentable, the claim is

rejected and the applicant is notified of the rejection

with an explanation. If the applicant makes a request

within 6 months,26 he or she has a right to automatic

reconsideration of the rejection of the claims, after

which the examiner may make the rejection ‘final. ’27

An applicant whose claims have been finally rejected may appeal the decision of the primary

examiner to the Board of Patent Appeals and

m 613 F.2d at 816 (C. C.P.A. 1979)

21 In ~e S~eWoo~, 613 F.2d 809 (C. C.P.A. 1980) at 816.

22 ~~ire con~o~idared ]~u~m+e$, IrIC., V. Vega &rvo-Contro/, ]nc,, 214 U. S.P.Q. 796 (S.D. Mich. 1982), aflu’ 713 F.2d 788 @~. Ck. 1983).

~ 35 U.S.CQ 116-118.

2435 USC, 131,

M J. Dmbi& ‘‘Paten~, Copyrights, and Trademarks: A Primer on Protecting btekctud prOptXly Work product, ’ Southern Illinois University Law

Journul, vol. 11, No. 1, fall 1986, pp. 1-28.

M The PTO can and often does set a shorter response ptiod.

2735 U. SC. 132-133.
Chapter 2—The Law ● 4 5

Interferences. Each appeal is heard by at least three

members of the Board.28

If an applicant is dissatisfied with the decision in

an appeal to the Board, he or she may file an appeal

with the Federal Circuit or file a civil action against

the Commissioner in the U.S. District Court for the

District of Columbia.29 Appeals of inter-partes

interference actions in the PTO to establish the

priority of an invention proceed in a similar manner.

30 For the applicant who chooses to appeal to ‘he

District Court, a new hearing is conducted.3

1 One

advantage of such anew hearing is that the applicant

may be able to introduce additional evidence into the

prosecution record.

The Term of Patent Protection

In the United States, patents are granted for a term

of 17 years from issuance, so long as maintenance

fees, which are required only for utility patents, are

paid.32 Design patents are granted for a term of 14

years, For certain utility patents, the term may be

33 For example, extended for an additional 5 years.

where a patent claims a product which must undergo

regulatory review by the Food and Drug Administration prior to approval for commercial marketing or

use, the patent may be eligible for such an extension

if certain conditions are satisfied. Products eligible

for such an extension are limited to human drug

products, medical devices, and food or color additives.

Evolution of Case Law

Pre-Benson Patents for Computer Processes

and Algorithms

During the early 1960s, the PTO faced a backlog

of patent applications and a 4-year pendency for an

application prior to issuance as a patent. The PTO

and the patent system experienced further difficulties because of a limited budget and processing

methods that could not adequately handle this

volume of applications. As a result, the President’s

Commission on the Patent System was established

in 1965 to address these problems and suggest

revisions to the Patent Act.34 Reflecting the policy

concerns of the PTO, the Commission recommended against patent protection for computer

programs. The Commission report stated:

The Patent Office now cannot examine applications for programs because of the lack of a classification technique and the requisite search files. Even if

these were available, reliable searches would not be

feasible or economic because of the tremendous

volume of prior art being generated. Without this

search, the patenting of programs would be tantamount to registration and the presumption of validity

would be all but non-existent.

As early as 1964, the Patent Office denied the

patentability of programs, characterizing them as

‘‘creations in the area of thought. ’ In 1966, the PTO

attempted to formulate standards for patentability of

software. In its first guidelines for Examination of

Programs, the Patent and Trademark Office made

recommendations regarding process claims based

solely on computer execution of mathematical

formulae and process claims called. These recommendations were withdrawn after hearings in which

hardware manufacturers opposed the guidelines on

the ground that software users must have access to

software to promote the development of the technology. Software developers disagreed, maintaining

that software was a technology entitled to protection

under the patent laws.35 These recommendations by

the PTO came under attack during Senate hearings

on the Patent Reform Act of 1967 for denying

software manufacturers rights equal to those of

hardware manufacturers.36 During later House hearings, former PTO Commissioner Edward J. Brenner

indicated that the PTO lacked sufficient pertinent

prior art since there was a lack of prior art patents and

most of the literature was not in the Office

possession. The Commissioner also noted the diffi-

~ 35 U.s.c. 7, 134.

2935 U.S.C. 141, 145.

.3035 USC 141, l%

31 Hoover CO. v. Coe 325 U.S. 79 (1945).

3235 U.s.c. 154.

3335 U.S.C. 156.

~ Nelson Moskowitz, “The Metamorphosis of Software-Related Lnvention Patentability,” Computer J!-.uw Journal, vol. III, 1982, p. 281.

35 Ibid., p, 283, ~it~g Repofi of tie He~gs on tie Patent Office’s Guidelines to EX amination of Programs (1966).

36 Ibid., citing Hearings on S. 1042 Before the Subcommittee on Patents, Trademarks and Copyrights of the Semte Committee on the Judiciary, 90th

Cong., 1st Sess. (1967).
46 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

culty of finding qualified examiners for computer

software technology, the lack of experienced personnel, and the inadequate examination procedures in

the area of software.37

In 1968 the PTO, disregarding the arguments and

line drawing of the previous guidelines published in

1966, issued another set of guidelines in which it

stated that computer programs, however claimed,

were not patentable unless combined with an apparatus which caused the physical transformation of

matter. The PTO cited examples of transformation

such as knitting a pattern or shaping metal. The legal

theory on which the PTO based its guidelines was

the doctrine of “mental steps’ ’—i.e., if the process

could be carried out purely in one’s mind, the

invention was not patentable. As discussed below,

the C. C.P.A. rejected these guidelines in In re

Prater, and the PTO rescinded them.38

In 1968, the C. C.P.A. issued a series of decisions

testing the limits of the ‘‘mental steps’ doctrine and

the PTO guidelines. Because a programmed computer performed calculations that, in theory could

have been carried out in the human mind, it was

thought that the mental steps doctrine precluded the

patentability of algorithms.

The C. C. P.A. ’S first decision in this series of

cases was In re Prater.40 The court reversed the

Patent Office Board of Appeals which had affirmed

the rejection of appellant’s claims to a spectrographic analysis in which linear equations were

solved on a programmed general purpose digital

computer. In its initial decision the court expressly

held that the mental steps doctrine of In re Abrams41

and In re Yuan42 did not preclude the patenting of

software. The court held that,

[P]atent protection for a process disclosed as

being a sequence or combination of steps, capable of

performance without human intervention and directed to an industrial technology-a “useful art”

within the intendment of the Constitution—is not

precluded by the mere fact that the process could

alternatively be carried out by mental steps.43

The court found that in a case where the electronic

or mechanical means for performing the process are

disclosed in the application and where it is not

reasonable to carry out the invention mentally, the

invention is patentable subject matter under section

101. Because the applicants had disclosed that a

computer, an electronic device, would be used for

performing the process, and the process could not

reasonably be per-formed in the mind, the court

found that the invention was statutory.

On rehearing, the court sidestepped the 35 U.S.C.

101 statutory subject matter issue, and found that the

mental steps doctrine did not apply because the

applicants disclosed an apparatus for implementing

the process without human intervention. The court,

in a footnote, asserted that a general purpose digital

computer programmed with a claimed process

becomes a special purpose digital computer and

could qualify as a patentable invention, assuming

the requirements of novelty, utility, and nonobviousness are met. For this reason, the court allowed the

apparatus claim. However, the court found that the

applicants’ language failed to limit the process claim

to its machine implementation and affirmed the

patent examiner’s rejection of the specific process

claim. 44

In response to the Prater decision, Con-missioner

William E. Schuyler withdrew the PTO’S 1968

guidelines, stating:

We now will consider patent applications for

computer programs on the basis of the merits for the

specific inventions sought to be protected rather than

refuse consideration for reasons such as those

37 Ibid., ci~gH~gson H.R, 5924, H.R. 13951, and Related Bills Before Subcommittee No. 3 of the House Committee on the Judiciary, goth COng.,

1s1 Sess., Seriat No. 11, pt. 1 at 37 (1967).

38 Mosko~~, op. cit., footnote 34, at P. 284.

39 Ibid,, p. 286. ~ter COWI decisions distinguished between ‘‘mathematical’ ad other algofibs. ‘‘Mathematical’ algorithms, as defined by the

case law, are not statutory. However, some observers believe that patents for mathematical algorithms are, in fac~ being granted. They cite U.S. Patent

No. 5,031,134, which falls into, they cl:~ a classical area of mathematics, that of numerical integration. Richard Stall- Thehague for Programming

Freedom, personat communication, September 1991.

40/n ~e Prarer, 415 F.2d 1378 (C.(;.P.A. 1968), afl. on rehearz’ng, 415 F.2d 1393 (C.C.p.A. 1969).

41 In re Abra~, 188 F.2d 165 (C. C.P.A. 1951).

42 In re yuan, 188 F.2d 377 (C. C. F’.A. 1951).

43 Ibid,, at 1389.

~ln re Prarer, 415 F.2d 1393 (C.C.P.A. 1969).
.—

Chapter 2—The Law ● 47

discarded by the court in the Prater and Wei

case.

45

The C. C. P.A. ’S conclusion in Prater was reaffirmed by the C. C.P.A. in In re Bernhart.46 The

permissible scope of subject matter was extended by

the C. C.P.A. to include computer program processes

in In re Musgrave47 in which the court rejected the

application of the mental steps doctrine and set forth

a constitutional ‘‘technological arts’ standard for

determining patentability. The concurring opinion

in Musgrave, concluded that ‘‘there is very little left

of the ‘mental steps’ doctrine. ’ This view was borne

out in subsequent C. C.P.A. decisions. (See box 2-B.)

Gottschalk v. Benson

The Supreme Court finally considered the issue of

the patentability of computer software in the case of

Gottschalk v. Benson. 48 The invention at issue in

that case was considered frost by the C. C.P.A. in In

re Benson .49 That case was an appeal from the

decision of the Patent Office Board of Appeals

which affirmed the rejection of two of the claims on

the grounds that the claims were not directed to

statutory subject matter. One of these rejected

claims, claim 8, was for a method to be practiced in

part using a particular apparatus called a “reentrant

shift register. ’ The other, claim 13, contained no

reference to any apparatus, and in fact referred to the

thing operated on not as ‘‘signals’ but a ‘ ‘representation. The method claimed in claim 13 was one for

converting ‘binary coded decimal number representations” into ‘‘binary number representations. ’ The

court thus addressed the issue of whether method

claims reciting methods of converting binary-coded

decimal numbers to binary numbers were statutory

under section 101.50

The C. C.P.A. found that Claim 8, reasonably

interpreted in light of the specification (as directed

in Mahoney 51), was for statutory subject matter

because the shift register referred to in the claim was

part of an electronic computer. The C. C.P.A. found

digital computers used to manipulate signals representing binary numbers comparable to conventional

cash registers and other machines which manipulate

numbers. Since these machines had never been

denied patentability, the court held that patentability

could not then be denied digital computers.

Analyzing claim 13, which did not recite a shift

register, the C. C.P.A. rejected the PTO’S argument

that the claim was not restricted to any apparatus and

could be carried out directly by mental steps. Rather,

the C. C.P.A. found that the claim must be interpreted in light of the specification and concluded

that, with regard to claim 13, the “process had no

practical use other than the more efficient operation

and utilization of a machine known as a digital

computer. ” The court held claim 13 to be within the

statutory subject matter of section 101, and concluded in its opinion by stating that computers are

‘‘in the technological field and are in the useful arts,

regardless of the uses to which their users may put

them.’ ’52

The Supreme Court considered the Benson application and reversed the C. C.P.A. in a brief opinion .53

While the C. C.P.A. considered claims 8 and 13

separately, the Supreme Court’s analysis made no

distinction between the two. The Court stated that

both claims 8 and 13 could be “performed without

a computer, ’ and that the “claims were not limited. . . to any particular apparatus. The court

viewed the claims as broad, and not tied to any

particular application. The Court stated:

Here, the ‘process’ claim is so abstract and sweeping

as to cover both known and unknown uses of the

BCD to pure-binary conversion. The end use may (1)

vary from the operation of a train to verification of

drivers’ licenses to researching the law books for

precedents and (2) be performed through any existing machinery or future-devised machinery or without any apparatus.54

45 Moskowitz, Op,cit,, footnote 34, p. 287 at foo~ote 26.

461n re Bernhart, 417 F.2d 1395 (C. C.P.A. 19@).

47 In re ~uSgra},e, 431 F.zd 88’2 (CC-PA. 1970). For f~~ discussion of Bernhart, and ~wgrave, sti box 2-A.

~ Gottschalk v. Benson, 409 U.S. 63 (1972).

qg]n re Benson, 441 F.2d 682 (C. C.P.A. 1971).

M Ibid.

51 In re &fahon~, 421 F.2d 742 (C. C.P.A. 1970).

52 In re Ben~~n, 441 F,2d 682 at 688.

53 GoHscha/k v. Benson, 409 U.S. at 64 (1972).

~ Ibid., at 68.
48 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 2-B-Court of Customs and Patent Appeals Cases After Prater

In re Bernhartl

The C.C.P.A. reaffirmed the Prater holding in In re Bernhart. In that case, a general purpose digital computer

was used to solve a set of transformation equations for a claimed apparatus and method which plotted

three-dimensional figures onto any desired planar surface. The solutions derived by the general purpose digital

computer were used to drive the plotter in drawing the two-dimensional representation from any desired angle and

distance. Thus, as in Prater, the court confronted the question of whether a new machine is formed when a computer

operates under the control of a program. In response to the examiner’s argument that a programmed computer was

structurally equivalent to the same computer without that program, and that the addition of new signals to the

computer did not make it a new machine, the C. C.P.A. confirmed the patentability of the apparatus claims, and

amplified its Prater footnote, stating:

. . . if a machine is programmed in anew and unobvious way, it is physically different from the machine without

the program; its memory elements are differently arranged. The fact that these physical changes are invisible to the

eye should not tempt us to conclude that the machine has not been changed. If a new machine has not been invented,

certainly a ‘new and useful improvement’ of the unprograrmmed machine has been, and Congress has said in 35 U.S.C.

section 101 that such improvements are statutory subject matter for a patent. 2

In re Musgrave3

The invention of In re Musgrave consisted of a process for establishing weathering corrections for seismic

exploration. The claims include steps such as “generating signals” and “applying corrections. ” The Patent and

Trademark Office rejected the claims, asserting that none of the claims defined a “process” within the meaning

of section 101. The PTO Board of Appeals considered the claims by separating the ‘‘mental steps” from the

‘‘physical steps” and found that the point of novelty was found in the mental steps. Thus, the Board held the process

did not fall within the category of patentable inventions.

The C.C.P.A. rejected the view that a mental versus physical distinction could be read into section 101.

According to the court, dissecting the claims to arrive at some “point of novelty” was irrelevant to an analysis of

statutory subject matter of the process under section 101. The court explicitly stated that:

As maybe seen from the statutory language, it contains nothing whatever which would either include or exclude

claims containing ‘mental steps’ and whatever law may be on the subject cannot be attributed to Congress.

1417 F~ 1395 (CoC>p.A. 19(j9)

21bid., at p. 1400.

3431 F.2d 882 (C.C.P.A. W70)

The Court characterized the Benson method as a computer, which means that if the judgment below

“mathematical formula’ and went on to rule that is affirmed, the patent would wholly pre-empt the

processes are not patentable if they only claim or mathematical formula and in practical effect would

“preempt” a mathematical formula. be a patent on the algorithm itself.55

It is conceded that one may not patent an idea. But Nevertheless, the court stated specifically that it

did not hold that there could be no patent for any in practical effect that would be the result if the

formula for converting binary code to pure binary program servicing a computer.5G In ensuing cases

were patented in this case,, The mathematical for- before the C. C.P.A., the court attempted to interpret

mula involved here has no substantial practical the Benson decision and apply it to a variety of

application except in connection with a digital factual situations.

55 ~id., at 71.

M Ibid., at 72.
———— .— .—— —.—

Chapter 2—The Law . 49

It was irrelevant to the court in its section 101 analysis that some or all of the steps read on (but not solely on) a

mental process. As a practical matter, the court stated that in their broadest context, process claims ‘read on’ physical

and mental steps:

All that is necessary, in our view, to make a sequence of operational steps a statutory ‘process’ within 35 U.S.C.

section 101 is that it be in the technological arts so as to be in consonance with the Constitutional purpose to promote

the progress of ‘useful arts.’ [Const. art. 1, sec. 8.]

The court by this holding thus expanded the bases for a process as defined by section 101 to include any sequence

of steps that can be performed by a machine as well as by a thinking person and that promotes the progress of the

useful arts.

In re Mahoney4

The invention of In re Mahoney involved a data communication system, in which circuits and methods

synchronized a receiver of digital information. The application for the invention disclosed a method of

synchronizing a receiver with a bit stream containing digital information. The claims had been directed to steps in

this process involving “comparing,” “registering,” and “counting.” These functions were performed on “bits”

and ‘bit streams.” The PTO rejected these claims under 35 U.S.C. 112, stating that the claims failed to particularly

point out and distinctly claim the invention since they read simultaneously on statutory subject matter (machine

implementation) as well as on nonstatutory subject matter. The C. C.P.A. disagreed with this application of section

112, and pointed out that both section 112 and 101 rejections would be overcome if the claims in fact covered only

machine implementation. The court found that references in the claims to ‘bits’ and ‘bit streams’ were sufficient

to preclude reading the claims on a mentally performable process. It was clear from this case that method claims

must include machine limitations to meet the requirements of section 112 and 101.

In re Waldbaum5/In re MacIlroy6

In re Waldbaum involved a process consisting of a method for controlling the operation of a data process, i.e.,

a computer program, to determine the number of "1s" in a data word. The Patent Office Board of Appeals affirmed

a rejection of the claims on the basis that, inter alia, the application did not claim statutory subject matter. The board

adopted the examiner’s grounds for a “mental steps” rejection, stating that since the apparatus limitations in the

claims were only functional, the claims embrace “that which could be only an act of the mind rather than calling

for an act on a physical thing. . .“ The C. C.P.A. rejected the mental steps grounds for rejection and stated that

“whether the appellant’s process is a ‘statutory’ invention depends on whether it is within the ‘technological

arts’. . .“ The C. C.P.A. reversed the decision of the board.

4/n ~e ~ahonq, 421 F,2d 742 (C.c.P.A. lgTOJ,

s )~ ~e Wufdbaurn, 559 F.2d 611 (C.C.P.A. 1977).

6~n ~e ~cllroy, 442 F.2d 1397 (C.C.P.A. 1971)

SOURCE: Oll& 1992.

Post-Benson to Diehr tion. While the C. C.P.A. was clearly of the opinion

After Benson, the C. C.P.A. applied a “point of

novelty test to determine patentability of the

claimed invention. (See box 2-C.) The claims in [n

re Christensen57 were directed to a process for

determin ing the porosity of a subsurface formation.

The claims recited a series of known steps for

obtainin g certain information and a new equation for

computing the porosity from this gathered informathat the issue decided by the U.S. Supreme Court in

Benson was narrowly drawn, it determined that in

the Christensen claim reciting a new invention the

“point of novelty” was a mathematical equation.

Such an equation, the C. C.P.A. held, is not patentable. The steps involving establishing values for the

variable steps which were not novel were not

sufficient to render the invention patentable.58

57 In re Christensen, 478 F.2d 1392 (C. C.P.A. 1973).

‘g Ibid., at 1394.
50 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 2-C--Court of Customs and Patent Appeals Cases Following Benson

In re Noll1: The C. C.P.A. in this case found apparatus claims for displaying images patentable. The input of the

display device was provided in part by a programmed data processor.

In re Chatfield 2 In this case the majority opinion comments that the C. C.P.A. ’S “point of novelty test” in

Christensen does not mean that a claimed method maybe dissected to determine whether the novel portion lies

outside the statutory classes of invention. The court repudiated any such analysis in Christensen, and reaffirmed

its opinion in Bernhart 3 that classification of the point of novelty as nonstatutory is inappropriate and irrelevant

for Section 101 considerations.

In re Deutsch4: The court found the claimed method for control and optimization of multiunit plants at different

geographic locations patentable, since the specific computing methods were independent of the claimed

invention.

In re Waldbaum5 Characterizing the applicant’s claims to a data processor controlled telephone switching system

as “so abstract and sweeping” as to cover both known and unknown uses of the method claimed, the C. C.P.A.

found the claims nonstatutory in view of Benson, even though some of the claims were drawn to a data processing

apparatus.

In re Richman6: The court held the claimed method of calculating using a mathematical formula unpatentable.

In re deCastelet 7: The court held a machine method for generating a curve from data supplied to a computer to be

nonstatutory because it was derived from the solution of a set of mathematical equations (a set of points along

a curve) rather than a step in achieving a larger result.

In re Freeman8: This case focused on apparatus claims in means-plus-function form for a system of typesetting

information using a computer-based control system in conjunction with a phototypesetter of known design. In

its analysis, the C. C.P.A. set forth a two-part test which, with certain modification, has become the standard test

for determiningg subject-matter patentability of software.

In re Torna9: The C. C.P.A. in Torna considered a method of operating a digital computer to translate from a source

natural language (e.g., Russian) to a target natural language (e.g., English). The C. C.P.A. applied the Freeman

rationale, determiningg whether the claims recite a Benson type algorithm. Finding that the program did not

involve a solution for a mathematical problem, the method of enabling the computer was found to be within the

technological arts and thus statutory.

1 ]n reNO//, 54s F.ZI 141 (C,C.P.A. 1976).

21n re Cha@eki, !545 F.2d 152 (C.CY.A. 1976).

3 In re l?er~n, 4]7 F.2d 1395 (C.C.P.A. 1%9).

Aln re ~eut$c~, 553 F.2d 689 (C.C.P.A. 1977).

51n re Wa/&W, 417 F.2d (C.C.PA. 1%9).

(j~n re R~~n, 563 F.2d 1026 (C.C.P.A. 1977).

7~n re &Ca~e/et, 562 F.2d 1236 (C.C.P.A. 1977).

81n reFree~n, 573 F.2d 11237 (C.C.P.A. 1978).

g~n re TOM, 575 F.2d 872 (C.C.P.A. 1978).

SOURCE: OTA 1992.

In a subsequent case, ,Trz re Johnston,5g the invention obvious, the Court did not consider the

application characterized the claims as apparatus matter of subject matter patentability under section

claims for a computer program which conti-oiled an 101.

automatic computerized check sorting device. The

C. C.P.A. held the invention patentable, construing Parker v. Flook

Benson to apply only to process claims. Although The Supreme Court again addressed the question

the Supreme Court reversed the decision, finding the of software patentability in Parker v. Flook.* The

Sg]n ~e Johnston, 502 F.2d 765 (C.C.P.A. 1974), rev’d sub nom., Dunn v. Johnston, 425 U.S 219 (1976).

a Parker v. F/ook, 437 U.S. 584 (1’978).
Chapter 2—The Law ● 51

Court reversed the C. C.P.A., holding that a method

for updating “alarm limits” during a catalytic

conversion process, in which the only novel feature

was the use of a particular mathematical formula,

was not patentable under section 101. The Court

stated that the only difference between the claimed

invention and conventional methods of changing

alarm limits was that the applicant provided what the

Court referred to as a “mathematical algorithm or

formula”61 [emphasis added] for computing alarm

limits. 62 The application did not include disclosure

about monitoring the process or the means of setting

off an alarm or adjusting an alarm system.

The Supreme Court characterized its holding in

Benson as precluding the patenting of the discovery

of a novel mathematical formula, and addressed the

issue of ‘ ‘whether the identification of a limited

category of useful, though conventional, postsolution applications of such formula makes respondent’s method eligible for patent protection. ’

The Court stated that it did not, holding that ‘a claim

for an improved method of calculation, even when

tied to a specific end use, is unpatentable subject

matter under Section 101 if the end use involves

trivial ‘‘post solution activity. ’

The Supreme Court left open the possibility of

patenting computer programs, and recognized that

‘‘a process is not unpatentable simply because it

contains a law of nature or mathematical algorithm. ’ A patent must not preempt a law of nature

or a mathematical algorithm.63

In subsequent cases, the lower courts bore in mind

the Flook principles and continued to struggle with

the limits of the patentability of software. In the

cases of In re Johnson,64 in re Walter,65 and In re

Bradley66 the C. C.P.A. attempted to apply the test

set out in Freeman in light of Flook to determine

whether a software-related invention constitutes

statutory subject matter.67

Diamond v. Diehr

In 1981 the Supreme Court decided the case of

Diamond v. Diehr.68

The application in Diehr recited a process of

curing synthetic rubber. The process included use of

a known mathematical formula to determine the

time for curing, and a programmed digital computer

to determine the proper length of time for curing the

product and automatically opening the mold. The

claims were rejected by the Patent Office as nonstatutory subject matter. The Court of Customs and

Patent Appeals reversed. The Supreme Court decided in a 5 to 4 decision that the process was

patentable under section 101. The claims were not

disqualified from patentability because of the use of

a mathematical equation and programmed digital

computer.

The Supreme Court characterized a mathematical

formula or an algorithm to be “like a law of nature,

which cannot be the subject of a patent. ’ The Court

asserted that a claim drawn to otherwise statutory

subject matter is not rendered nonstatutory simply

because it involves a mathematical formula, computer program, or digital computer. The Court stated

that the claims must be considered in their entirety,

and held that the incorporation of a computer in the

process claimed in the application does not render

the process as a whole to be unpatentable subject

matter.

61 The co~ ~ foo~ote I of tie Cme s~ted, ‘ ‘We use the word ‘algorithm’ in this case, as we did k GottschaM V. Benson, 409 U.S. 63, 65, 93 S. Ct.

253, 254, 34, L.Ed. 2d 273, to mean ‘[a] procedure for solving a given type of mathematical problem. . . .’ “

~zparker V. FZook, Sup. Ct. 2522 (1978), at 2523.

GS The use of tie tem “ma~ematic~ algorithm’ here refers to the case law dcftition of the word, rather than the meaning given it by the computer

industry.

~In ~e ~o~nson, 589 F.2d 1070 (C. C.P.A. 1978).

bs~n re waiter, 618 F.2d 758 (CCPA 1980).

661n ~e Br~/eY, 600 F.2d 8(37 ((_J.C.p.A. 1979), afld by equally divided court sub nom. Diamond v. Bradley, 450 U.S. 381 (1981).

67 For f@er dl~ussion of ~ese ~d o~er post_F/ook Cmes, se cq shcrm~, Hamish s~diso~ ad Mark Guren, Computer Softw’are PrOteC?hJl

Luw, (Washington DC: Bureau of National Affairs, 1991.)

68 D1awnd ” Diehr, 450 U.S. 175 (1981). Some commentators believe bat Diehr ~s been misinterpreted by the Patent ~d Trademark (-)ffice ad

the lower courts. Profmsor Pamela Samuelson argues that as a result of Diehr, the Patent Office issues patents for a wide variety of nonindustrial computer

program-related inventions and seems to be issuing patents for Benson-type algorithms. While some attorneys argue that this change is consistent with

Diehr, she finds a substantial bias in patent law for flenson’s ruling that computer program algorithms are unpatentable. See, Pamela Samuelson, ‘‘Benson

Revisited: The Case Agaimst Patent Protection for Algorithms and Other Computer Program-Related Inventions, ’ Emory LUMI Journal, vol. 39, No. 4,

fall 1990.
52 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

The Court in Diehr clearly stated that purely

mathematical procedures or algorithms alone are not

proper subject matter of patent protection:

[W]hen a claim recites a mathematical formula (or

scientific principle or phenomenon of nature), an

inquiry must be made into whether the claim is

seeking patent protection for that formula in the

abstract. A mathematical formula as such is not

accorded the protection of our patent laws, and this

principle cannot be circumvented by attempting to

limit the use of the formula to a particular technological environment. Similarly, insignificant postsolution activity will not transform an unpatentable

principle into a patentable process. To hold otherwise would allow a competent draftsman to evade

the recognized limitations on the type of subject

matter eligible for patent protection.

In cases such as that being considered by the

Court, however, where the applicant wishes to

protect an overall industrial process rather than

simply a mathematical formula, the circumstances

change.

[W]hen a claim containing a mathematical formula implements or applies that formula in a

structure or process which, when considered as a

whole, is performing a function which the patent

laws were designed to protect (e.g., transforming or

reducing an article to a different state or thing), then

the claim satisfies the requirements of section 101.

In spite of this holding by the Supreme Court, it is

still believed that the Diehr decision does not

conclusively determine whether a computer program, standing alone, may be patented.69 However,

Diehr indicates that at least some subject matter

involving software may be patented and that algorithms may be included as part of patentable subject

matter .70

PTO Policy and Procedural Response

to Court Cases

Following the C. C. P.A. ’S decisions in the companion cases of Pardo, Taner, Abele, and Meyer in

mid-1982 (see box 2-D), the court did not further

consider the subject of algorithms and statutory

subject matter. The Court of Appeals for the Federal

Circuit, established on October 1, 1982, did not hand

down decisions on these issues until November 3,

1989 with the opinion in In re Grams.71 Just prior to

this decision in September 1989, the PTO, in part in

response to commentary in the media and academic

journals, published a set of guidelines on the

patentability of mathematical algorithms. In these

guidelines, the PTO interpreted the law to encourage

greater consistency in examination procedures among

the different groups which handled patent applications that include mathematical algorithms.

The PTO relied upon the two-part test of In re

Freeman72 as modified by In re Walter73 and In re

Abele74 as the proper legal analysis of mathematical

algorithm-statutory subject matter cases. Part 1 of

the test is to determine whether a mathematical

algorithm is recited, directly or indirectly, in the

claims. The guidelines warn that, since mathematical algorithms have been determined not to fall

within the section 101 statutory class of a ‘ ‘process, ’ applicants may attempt to circumvent the

nonstatutory subject matter rejection by drafting

mathematical algorithms as ‘‘apparatus’ claims.75

The guidelines require that the claims first be

inspected to determine whether the claim recites a

mathematical algorithm.76 Noting that such a determination is not always possible by inspection of the

claim, the guidelines indicate ‘careful interpretation

of each claim in light of its supporting disclosure. ’77

Part 2 of the test is to determine whether the

mathematical algorithm is ‘‘applied in any manner

to physical elements or process steps. ’ The guide6!) she rman et al., Computer Sc@ware Protection Luw, op. cit., footnote 67. Sherman enumerates an extensive list of scholarly legal articles discussing

the meaning of the Diehr decision.

7(I she~ et al., op. cit. footnote 67, at page 403419.

71 ~n re Gram, 888 F.2d 835 (Rd. ICir. 1989).

T21n re Free~n, 573 F.2d 1237 (C. C.P.A. 1978).

73 In re Walter, 618 F.2d 758 (C.CI’.A. 1980)

~41n re Abele, 684 F.2d 902 (C.C.P.A. 1982)

75 be E. B~et~ As~iate Solicitor, OjjiciaZ Gazerre ofrhe Parent Office, Sept. 5, 1989.

76 Ibid.

nIn re Johmon, 589 F.2d at 1079.
Chapter 2—The Law • 53

Box 2-D—The Cases of Pardo, Taner, Abele, and Meyer

In re Pardo:l The case of In re Pardo involved an invention which controlled the internal operations of a computer

through the compiler program, and consisted of a method for converting the computer from a sequential

processor to a processor that is not dependent on the order in which it receives program steps. The patent

application characterized the invention as an algorithm of a compiler program. The Court of Customs and Patent

Appeals viewed the invention not as an algorithm, but as the rules by which a data processor operates, thereby

governing the manner in which programs are executed. It rejected the argument that the claims were really

mathematical calculations.

In re Taner:2 Following the handing down of the Diehr decision, the Patent and Trademark Office rejected a patent

application for a method of seismic exploration using simulated seismic waves which were generated by

summing the signals of conventional waves. A mathematical algorithm carried out on a digital computer was

a part of the claimed invention. According to the court, the simulated signal constituted a physical conversion

of the summed actual signals, and was therefore a patentable process.

In re Abele3: In re Abele involved a patent application for an improvement for CAT sc arming. The C. C.P.A.

concluded that some portions of the invention were patentable subject matter in spite of the use of a computer

to perform some of the calculations involved.

In re Meyer4: The C. C.P.A. in In re Meyer held a process and apparatus claims covering the use of a computer

program and algorithm for storing and comparing medical test results. The applicant conceded and the court

found that the claimed invention computerized the thought process of a physician. The court concluded that the

claims were properly rejected by the Patent Office because they related to a:

mathematical algorithm representing a mental process that has not been applied to physical elements or process steps

and is not, therefore, limited to any othewise statutory process, machine, manufacture, or composition of matter.

1 Zn re Pwdo, 6$4 F.2d 912 (C.C2.A. 1982).

21n re Taner, 68 I F.2d 787 (C.C.P.A. 1982).

~zn re A&fe, 684 F.2d 902 (C.C.P.A. 1982).

dln re Meyer, 688 F.2d 789 (C.C.P.A. 1982).

SOURCE: OTA, 1992.

lines suggest that the Abele rule be followed, 2. A mathematical algorithm is not rendered

wherein the claim is viewed without the mathematical algorithm to determine whether what remains is

“otherwise statutory. ” If it is, the claim does not

become nonstatutory simply because it includes a

mathematical algorithm. Citing Flook, and recognizing that the line between a patentable ‘‘process’

and an unpatentable ‘‘principle’ is not always clear,

the PTO suggests some “useful guidelines” synthesized from the court decisions, that should aid in

drawing the line between a patentable process and an

unpatentable ‘‘principle. ” The PTO issued guidelines resulting from leading court decisions:

1. If the only limitation other than the mathematical algorithm is insignificant or nonessential

“post solution activity, ” the claimed subject

matter is nonstatutory .78

statutory by ‘attempting to limit the use of the

formula to a particular technological environment,’ so that ‘‘field of use” or “end use”

limitation in the claim preamble do not suffice

to constitute statutory subject matter.79

3. If the only claim limitations in addition to the

mathematical algorithm are data gathering

steps which ‘merely determined values for the

variables used in the mathematical formulae

used in making the calculations, such steps

are insufficient to change a nonstatutory method

of calculation into a statutory process,80

4. The PTO suggests that it is useful to analyze

whether there is transformation of something

physical into another form. A distinction is

made between transformation of matter in one

78 Parker V. Flook, 437 U.S. at 590.

7gDiamnd v, Die~r, 450 U.S. at 191.

~In re Rich~n, 563 F.2d at 1030.
54 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

5.

physical state to another physical state, which

is a statutory process in electrical arts, and

mathematical manipulation of “data’ which

is not a statutory process.

Structural limitations in method claims have a

limited effect on patentability. While such

limitations are not improper, they are not

generally to be given patentable weight unless

they affect or form an essential part of the

process.

81

The analysis of the guidelines were used before

the Federal Circuit in the Solicitor’s brief for the

Commissioner in In re Grams,82 the first reported

decision by the Federal Circuit in this area. The

subsequent case of In re Iwahashi83 indicates how

mathematical algorithms in apparatus claims maybe

handled by the PTO.

In re Grams involved method claims that combined a mathematical algorithm with data gathering

steps. The invention at issue was a process for

diagnosing a patient using an algorithm that manipulated data obtained from results of tests performed

on the patient. The claim involved performing

clinical laboratory tests on an individual to obtain

data indicative of the individual’s medical condition. The invention further involved processing steps

for manipulating the collected data. As a result of

this process, a set of parameters corresponding to a

combination of constituents responsible for the

medical condition could be identified. Citing Benson, the Federal Circuit stated that these remaining

steps were “a procedure for solving a given kind of

mathematical problem. The court cited the rule of

Abe/e, which stated that:

[i]f a claim would be otherwise statutory, albeit

inoperative or less useful without the algorithm, the

claim likewise presents statutory subject matter

when the algorithm is included.

The Federal Circuit would not interpret this

language as declaring any claim that was statutory

without the algorithm as patentable. It also pointed

to the “provided that’ qualification in Abele as

denying effect to field of use limitations or nonessential postsolution activity. The court decided that

the claimed process was nonstatutory subject matter

because the step of performing lab tests “merely

provides the data for the algorithm,” and that

whether or not the claims required that the method

be performed by a programmed computer was

irrelevant to the determination of whether the claim

defined a section 101 process.84

In re Iwahashi85 involved an electronic ‘unit’ for

providing coefficients to be used in pattern recognition based on input values. The method in the prior

art was based on a formula involving a multiplication step. The improvement in Iwahashi was based

on the fact that a close approximation of the correct

coefficient values could be obtained without multiplication by using instead a stated formula. This

eliminated circuitry necessary to perform the multiplication function. All of the elements in the claim

were in means-plus-function form, except for a read

only memory containing certain necessary values.

The Federal Circuit found that while the claim

recited a mathematical algorithm, the preemption

aspect of the two part test was not met because the

mathematical algorithm was physically implemented

to define structural relationships between physical

elements of the claim. Even though the read-only

memory unit in the computer stored a mathematical

formula for calculating the square of numbers, the

claim defined more than a mathematical algorithm.

The Federal Circuit reversed a finding of nonstatutory subject matter.

As discussed previously in this chapter, the PTO

in the 1960s was seriously concerned about a variety

of administrative problems confronted by the office,

citing long pendency periods for applications prior

to issuance of a patent, a backlog of applications, and

problems with classification and maintenance of

prior-art search files which ultimately would affect

the quality of patents issued. These complaints and

similar ones are not new, nor have the patent

community and industry ceased to voice them. They

81 In re de Castelet, 562 F.2d at 1244.

SZIn re Grams, 888 F.2d 835 (Fed. {Uk. 1989).

83fn re lwahushi, 888 F.2d 1370 (FwI. Cti. 1989).

s.i one ~omentator ~offer~ ~ a possible reconcfl~tion of tie Abele and Grams decisions that the pre-algoriti step of Abele, when combin~

with the post-algorithm step, defined a physical process. III Grams the algorithm merely replaced the subjective mental processes of a physician. See

Ronald S. Laurie, “Patentability of Computer Programs in the USA,” The Law of Information Technology in Europe 1992: A Comparison With the

[JSA, Computer Law Series.

Ss]n re fwafiashi) 888 F.2d 1370 (l+d. C~. 1989)
Chapter 2—The Law . 55

are also not exclusive to the U.S. system. In as early

as the 1850s royal commissions in Britain investigated the operation of the patent system. Testimony

damaging to the reputation of the patent system led

to passage of a patent reform bill.86

Presently, the PTO is again under scrutiny due to

concerns about the patent system in general, as well

as its implementation with respect to software, In

addition to the problems cited in the 1960s which

apparently persist, recent concerns also include the

competence of examiners to make fair and proper

decisions about applications for software-related

inventions, citing in particular the controversy over

the educational requirements for examiners, difficulty in training and retaining adequate technical

staff, and the resulting insufficient number of

examiners to address the huge and growing volume

of incoming applications for software-related inventions. There are, in addition, ongoing concerns about

the quality of the prior-art database, and problems of

classification. 87 (For statistics regarding issuance of

patents for software-related inventions, see table

2-l).

In response to these concerns within the software

community and beyond, the Secretary of Commerce

established in August 1990 the Advisory Commission on Patent Law Reform.88 The Commission’s

objective is to advise the Secretary on the state of the

patent system in the United States and the need for

any reform, as well as to advise the Secretary on the

need for any changes in U.S. law relating to

enforcement and licensing of U.S. patents. The

Commission is to consist of 8 to 15 members,

serving for 2 year terms, appointed by the Secretary

of Commerce to represent corporations involved in

filing patent applications, members of the bar, and

the general public.89 The Secretary may appoint

official observers from various government agenTable 2-l—Number of Patents Issued for SoftwareRelated Inventions, 1970-91

Year Number

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

27

51

70

35

11

14

5

7

30

23

25

21

52

64

136

153

187

227

131

193

599

602

SOURCE: Electronic Data Systems Corporation (EDS). The data in this

table given for 1972 through 1989 reflect statistics compiled by

EDS by examining notices published in the Official Gazette.

Information given for 1990 and 1991 was collected using

artificial intelligence technology involving a natural language

interface created by EDS. Official database tapes purchased

from the PTO were read using this technology to characterize

each patent and determine which involved software-related

inventions. When there was some difficulty ascertaining the

nature of patent, EDS personnel referred to the Official Gazette.

cies, such as the U.S. Trade Representative, the

Office of Science and Technology Policy, the

National Science Foundation, and the Small Business Administration.90

On May 16, 1991, the Patent and Trademark

Office published in the Federal Register a ‘‘Request

for Comments for the Advisory Commission on

Patent Law Reform. ”91 In that request, the PTO

solicited comments about whether current U.S.

patent laws provide adequate and appropriate pro86 us conge~~, Semtc su~o~tteeon paten~, Tra&~~ ~d cop~ghts of the co~ttee on be Judiciary, An Economic Review of the Patent

System, Committee Print, 1958, p. 4,

87 Office of T~hnology Assessment Workshop on June 20, 1991; Eliot Mmshal, “The Patent Game: Raising the Ante, ” Science, vol. 253, July 5,

1991.

13S us, D~~ent of Commerce, Charter of the Advisory Commission on Patent hw Reform.

8Y As of this ~ltlng, adviso~ cornmision members are as follows: industry represenfutives: John E. Pepper, Presideng Procter and Gamble; Keith

R. McKennon, Exeeutive Vice presiden~ The Dow Chemical Co,; Vincent J. Rauner, Senior Vice President, Motorol~ Inc.; Howard G. Figueroa, Vice

president, IBM Corp.; Ardon B. Judd, Vice President, Dresser Industries, Inc.; Mike Pantuliano (representing Edmond Pratt), Pfizer, Inc.; academic

representatives: Roland Schmitt, President, Rensselaer Polytechnic Institute; Edward L. MacCordy, President, Association of University Technology

Managers; patent bur representuti}’es: Douglas W. Wyatt, Wyatt, Gerber, Burke & Badie; Donald R. Dunner, Finnegan, Henderson, Farabow, Garrett

& Dunner; antitrust bur representative: Robert P, Thylor, Pillsbury, Madison & Sutm; small business represenrati~e: Juan A. Bcnitcz, President,

Life-Stream Diagnostics; public representatives: William Keefauver, Edward H. Baxter.

m Ibid.

9156 Federu/ Register 22702 (May 16, 1991).
56 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

tection of novel computer-related inventions, and

the relationship of patent protection for computer

Program-related inventions to other intellectual property protection. In addition to these questions

specific to computer software, the request sought

public comment on broader issues critical to the

patent system generally, e.g. Federal protection for

trade secrets, cost and complexity of patent enforcement, frost to file system, automatic publication of

applications, and the term of patent protection.92

In response to this invitation for public comment,

the PTO received over 545 letters from individuals,

small and large businesses, trade associations, academics, patent attorneys, and bar associations.

While the responses addressed the range of questions raised by the PTO request, the majority focused

on the issues surrounding computer-related inventions.

Many of the issues raised by the Patent Reform

Commission are addressed by the efforts of World

Intellectual Property Organization (WIPO) to harmonize patent laws in member countries. WIPO’S

Committee of Experts on the Harmonization of

Certain Provisions in Laws for the Protection of

Inventions is considering a draft treaty which

contemplates instituting requirements that would

require changes in U.S. law. These would include a

change from a first to invent to a first to file system,

awarding the patent to the applicant who has the

earliest filing date. Such a change would signifi

cantly reduce the U.S. interference practice. The

WIPO treaty also contemplates a term of patent of 20

years from the date of filing a patent application, as

opposed to the 17-year term from date of grant

provided by the U.S. law.93

One attempt by the private sector to address the

problem of the prior art is the formation of a

Software Patent Institute (SPI) as a mechanism to

provide access to prior art in the software area and

to further the PTO’S knowledge of software.94 The

proposed near-term objectives of SPI are: 1) to

establish a database of prior art in the area of

software and to encourage contributions to the

database; 2) to facilitate searches and other appropriate access to the prior-art database by interested

parties, including the PTO, potential applicants,

potential challenges to issued patents, and others

with similar needs; 3) to facilitate the advancement

of the PTO’s knowledge of the nature of software

and software engineering by organizing educational

and training opportunities for PTO personnel; and 4)

to disseminate information about services of the SPI

to the broad software community .95 (See box 2-E for

discussion of Analagous Patent Law in Foreign

Countries.)

Copyright law

author to control

Copyright

in the U.S. protects the right of an

the reproduction, adaptation, public distribution, public display, and public performance of original works of authorship of every kind,

ranging from books to sound recordings.96 While

copyright comprises only one aspect of intellectual

property protection for computer software, its role in

that protection is a major one.

Goals of U.S. Copyright97

A fundamental goal of U.S. copyright law is to

promote the public interest and knowledge-the

“Progress of Science and useful Arts. ’ ’98 Although

~ Ibid.

93 For further discussion of the WIPO draft tr~ty, S& Edwtid G. Fiorito, “WIPO Experts Make Progress on Patent Harmonization DrafL BNA’s

Patent Trudemark & Copyright Journ,zi, vol. 41, No. 1013, Jan. 10, 1991, pp. 231-241.

94 critics of such ~ id~ note that al improved database of prior art is a common respo~e to criticism of so~~ patents. These critics cl- rather,

that such a database would have little practical effect in part because of the frequency with which techniques were developed in the past and never

published, and in part because such a proposal assumes that it is sound policy to decide that the techniques patented today should be unavailable to the

programmer provided they were in fact not published at an earlier date. kichard Stallmm The League for Progy-amm@ Freedou personal

communication September 1991.

% Be-d G~ler, ~ofessor of El~:~~ Engin~@ ad computer Science, University of mchig~ persOti COUmn.UliCatiO~ September 1991.

% she~ et al., Computer Sofrwwre Protection Luw, op. cit., footnote 67.

97 ~s ~ten~ is a~pt~ from U.S. Conw=s, ()~, copyright & H~~ copy~~g: Technology challenges the LUW, OTA-~T-422 (Washingto~

DC: U.S. Government Printing OffIce, October 1989).

98 The constitution provides that:

Congress shall have Power. . . to Promote the Progress of Science and useful Arts, by securing for limited Times to Authors and

Inventors, . . the exclusive Right to their respective Writings and Discoveries.

This provision arguably distinguishes authors from inventors and writings horn discoveries, suggesting a fundamental distinction between copyrightable

works of authorship and patentable works of utility. For fiuther discussion of this question of scope, see Computer Sojlware Protection LUW, op.cit. at

footnote 1, Section 204,6(a).
—.

Chapter 2—The Law. 57

Box 2-E—Analogous Patent Law in Foreign Countries

The Pacific Rim

Patent laws of Japan,l Taiwan, Korea and Thailand are all silent on the issue of patentability of computer

programs. In theory, patent law does not provide protection for a computer program itself. However, Japan and

Taiwan have granted patents for certain computer programs, especially if the computer program is described in

conjunction with a method or computer in which the program is used in the specification of an application.2

Western Europe

The European Communities have agreed in their Software Directive that the prescribed protection of computer

programs under copyright law does not prejudice the application of other forms of protection where appropriate.

Computer software may be protected under patent law in addition to copyright in European Community member

nations. 3

France—French patent law provides that computer programs are not patentable. This rule is narrowly

interpreted so that computer program standing alone is not patentable, while a process including software may be

patentable. The patent protects the process, but not the software; the software can be used independently or in

another process. Hardware may be patented.4

Switzerland-Swiss law does not provide patent protection for computer software.5

Latin America

Argentina-In Argentina software was not known or considered when the patent Law was enacted so that it

is not specifically mentioned in the law. The Patent Office may allow patent protection when it is part of the essence

of an invention.6

Brazil—While under Brazilian law hardware is subject to patent protection, software is not considered

patentable and is expressly excluded from patentable subject mater by the Industrial Property Code.7

I swa~ ~viewm ~ve volc~ pmcdm COIICern regar~ what they believe to be aspects of the Jqmese patent system that We ~~

to United States applicants. An investigation of such charges is outside the scope of this report. However, Senator Lloyd Bentsen and Senator

John D. Rockefeller IV plan to ask for an investigation into charges that Japanese companies use their patent program to acquire foreign

technologies. This request was made in a letter to General Accounting OffIce Comptroller General Charles Bowsher. “Washington

Technology,” October 10, 1991, p. 4.

2 pau] c. B+ Liu, “computer sof~~ md htcll~~ Property Law in the Pacflc Rim cOuXMIitX,” cOXlt.tWtOr RepoII for the Offlu of

lkchnology Assessment, Mmch 1991, p. 37-38.

3 COUnCd Directive of WY 14, 1991 on the legal protection of computer programs (91/250/EEC) preamble, p~a. 3Q pubhh~ in the

Official Journal of the European Communities, No. L 122/42, May 17, 1991.

4 Cw she- et ~., Covuter So@are Protection LQw (Washington DC: Bureau of Natioti Afffi,~. 1990) P. ‘-26.

5 Ibid. at p. CH-3.

6 rbid, at p, AR-41-42.

7 Ibid. at p. BR-20,

copyright is a property interest, its primary purpose

was not conceived of as the collection of royalties or

the protection of property; rather, copyright was

developed primarily for the promotion of intellectual pursuits and public knowledge. As the Supreme

Court has stated: a

efforts by personal gain is the best way to advance

public welfare through the talents of authors and

inventors in Science and the useful Arts.99

Therefore, the congressionally mandated grant of

limited monopoly for authors is based upon a

The economic philosophy behind the clause empow- dualism: the belief that the public should benefit

ering the Congress to grant patents and copyrights is from the creativity of authors and the belief that a

the conviction that encouragement of individual copyright monopoly is necessary to stimulate the

~ Mazer v. Stein, 347 U.S. 201, 219 (1954).
58 ● Finding a Balance: Computer Software, intellectual Property, and the Challenge of Technological Change

Box 2-F—Early Protection Against Copyingl

Professional copyists have long reproduced famous or popular works to sell to those who could not afford

originals. Forgers have copied works of well-known artists, or more commonly have produced works that imitate

their styles. Paintings and drawings have been reproduced as prints, sculptures as plaster or bronze casts. With the

rise of prints in the early Renaissance came the first measures to protect against copying.

The increased attention given to copies by art theorists in the 17th and 18th centuries reflects the rise of the

professional copyist, catering to the expanded art market that resulted from the general public’s rising interest in

art. Many young artists of this period, particularly in tourist centers like Rome, worked in the mass production of

copies of famous or popular paintings. Given the prevalence of copying, artists often sought ways to protect the

authenticity of their works. One such attempt was the liter veritatis, ‘‘the book of truth,” of Claude Lorrain, an often

imitated artist. The art historian Baldinucci recounts:

Not only was his composition cribbed by some envious persons desirous of unfair earnings, but, through imitation

of his manner, copies were sold in Rome as originals by his brush; but this the master was being discredited, the patron

for whom the pictures were painted badly served, and the buyers defrauded since they were given copies instead of

the originals. . . . Poor Claude did not know from whom to guard himself among the numerous persons who came to

his studio nor what decision to take. Everyday similar pictures were brought to him so that he might recognize whether

they were by his hand or not. Thereupon he decided to keep a book and began copying the composition of all the

pictures which left his studio.2

The most famous instance of a complaint by one artist against another for copying his work is recounted by

Vasari of Durer and the engraver Marcantonio Raimondi. Marcantonio, visiting Venice, found a set of Durer’s

engravings for sale there and was so impressed that he spent almost all of the money he had brought with him to

purchase them:

Marc ’Antonio, having considered what honor and profit might be acquired by one who should apply himself to [the

art of engraving] in Italy, formed the determination to give his attention to it with all possible assiduity and diligence,

I ~~ ~~~ is excerpted from: “Copying in the Visual Arts in Europe Since the Renaissance: Forms, Functions, Response and

Restrictions,” contractor paper, Robex’t Echols, July 1991.

2 Rudo~ ~d -got wi~l>wer, Born u~er Samrn: The Character and Co?kiuct of Artists (London: 1965).

greatest creativity of authors.l00 A direct corollary to the introduction of the printing press in England in

this concept is that the grant of a monopoly would

not be justifiable if the public did not benefit from

the copyright system.

101 Thus, policy arguments that

equate copyright with royalty income, or theories

that assert that copyright is necessary in order to

secure royalty income, run counter to this theory and

appear to be inconsistent with the intent of the

Framers.

Development of U.S. Copyright102

Much of the structure and basis for American law

is derived from its British legal antecedents. After

the late 1400s, the Crown’s first response was to

control what writings were printed or copied. The

earliest British copyright laws were enacted in the

1500s to promote censorship by the government in

cooperation with a monopolistic group of printers

known as the Stationers’ Guild.103 This system

collapsed when the company failed to exercise

discretion as censor, but used its monopoly power to

set high prices. Parliament’s response in 1695 was to

allow the Stationers’ copyrights to expire, but this

resulted in a period of anarchical publication. In

1709 Parliament responded to the situation by

100 me supreme Coti commented on ~s d~sm ~ Sony Covorarion of Amen’ca V. universal city Smdios, 464 U.S. 417, 429 (1984), wherein it

discussed the:

difficult balance between the interest of authors and inventors in the control and exploitation of their writings and discoveries on the

one hand, and society’s competing interest in the free flow of ideas, information and commerce on the other hand,

101 Melvd]e N~er observed tittie Fr~~s of he co~ti~tion reg~&d he syst~ of private prop- M existig per Sc fOr the public inttXeSt.

Therefore, in recognizing a property stntus in copyright the Framers extended a recognition of this public interest into a new realm (Melville Nimmer,

Nimrner on Copyright (New York, NY: Bender, 1991), vol. 1, sec. 1-32.1).

102 ~s matefi~ is a&p[ed from Copyrighr & Ho~ copying: Technology cha//enge~ the &ZW, OTA-CIT-422, op. cit., footnote 97.

103 see us congeSs, Office of ~~~olo~ Assessment, {~~e//ec~/ f’rope~ Righf~ in an Age of ~~ecrr~~ics ad Information, OTA-CIT-302

(Melbourne, FL: Kreiger Publishing Co., April 1986), pp. 34-36.
Chapter 2—The Law ● 59

He thus began to copy those engravings by Albrecht Durer, studying the manner of each stroke and every other detail

of the prints that he had bought, which were held in such estimation on account of their novelty and their beauty, that

everyone sought to have some. Having then counterfeited on copper, with engraving as strong as that of the woodcuts

that Albrecht had executed, the whole of the said Life and Passion of Christ in thirty-six parts, he added to these the

signature that Albrecht used for all his works, which was “A.D.,” an they proved to be so similar in manner, that,

no one knowing that they had been executed by Marc’ Antonio, they were ascribed to Albrecht, and were bought and

sold as by his hand. News of this was sent in writing to Albrecht, who was in Flanders, together with one of the

counterfeit Passions executed by Marc’ Antonio; at which he flew into such a rage that he left Flanders and went to

Venice, where he appeared before the Signoria and laid a complaint against Marc’Antonio. But he could obtain no

other satisfaction but this, that Marc’ Antonoio should no longer use the name or the above-mentioned signature of

Albrecht on his works.3

Marcantonio continued to produce copies of Durer’s engravings with his own monogram in place of Durer’s.

Perhaps as a result of this expedience, when Durer published his wood cuts of the Life of the Virgin in 1511,

he prefaced the edition with the warning:

Woe unto him who ventures to assail us and lay hands on the toil and invention of another!

The next year the Town Council of Nuremberg issued a notice stating that:

$,. a foreigner is taking the liberty of selling pictures bearing Durer’s mark, but these are counterfeits; he shall be

compelled to remove all the marks, or everything shall be confiscated.4

It was in fact in Venice that the first protections akin to modern copyright were issued. The concept of an

exclusive right to publish a text or image for a fixed period of time, known as a privilege, originated during the rapid

rise of publishing in the 15th century in centers like Venice and Nuremberg. The Venetian Senate issued the first

recorded privilege in 1469 and soon began to grant privileges for prints as well.5

q Gi~@~ Msti, T’& Lives ~ffhe Artists, trans. George Bull (Penguin BOOkS: 1965) (vo1. 1) and 1987 (vo1. 2).

4 Michel Melot et al., Prints (Geneva: 1981), p. 47.

5 SUsan tire, The ]~ge Multiplied Five Centures of Printed Reproductions of Paintings and Drawings (hmion: Abaris Book.s,

1987).

enacting legislation known as the Statute of Anne. Delaware enacted some form of copyright statute,

This statute granted a copyright to authors, as

opposed to printers, for a period of 14 years. The

copyright was renewable for an additional 14 years

if the author was still alive. After the expiration of

the copyright, the writing became part of the public

domain, available for use by anyone. This first

modem copyright law became the model for subsequent copyright laws in English-speaking countries. l04

After severing political ties with Great Britain, the

former American colonies sought means to secure

copyright laws. In 1783, the Continental Congress

passed a resolution encouraging the various States to

enact copyright legislation. All of the States except

although the various State laws differed greatly.l05

Because of the differences in the State copyright

laws and the ensuing difficulties, the Framers of the

Constitution, notably James Madison, asserted that

the copyright power should be conferred upon the

legislative branch.106This concept was ultimately

adopted, and Congress was granted the right to

regulate copyright (art. I, sec. 8, cl, 8).107

The First Congress in 1790 enacted the frost

Federal copyright act.108 This legislation provided

for the protection of authors’ rights. Commentators

have written that the central concept of this statute

is that copyright is a grant made by a government

and a statutory privilege, not a right.l09 The statute

1~ Ibid,

10S Lpm Ray pattcmon, Copjrighf in Hi$torica/ Perspective (Na.shvillc, TN: %dcrbilt UnlWrSity ~css, 1968), p. 1 ~3

106 Ibid, pp. 192-193.

lf.)T congress ~onstitutioml ~rmt of copyright Icgulation is more res~ctcd th~ its English ankccdcnt.

1~~ Ch. 15, SCc. 1, 1 Stat. 12. See: OTA-CIT-302, op. cit., footnote 103, p. CA.

l[~y p:lttcrson, op. cit., pp. 198-199.

, II 1, J [
60 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

was substantially revised in 1831110 to add copyright

coverage to musical compositions and to extend the

term and scope of copyright. A second general

revision of copyright law in 1870111 designated the

Library of Congress as the location for administration of the copyright law, including the deposit and

registration requirements. This legislation extended

copyright protection to artistic works. The third

general revision of American copyright law in

1909112 permitted copyright registration of certain

types of unpublished works. The 1909 legislation

also changed the duration of copyright and extended

copyright renewal from 14 to 28 years. A 1971

amendment extended copyright protection to certain

sound recordings.

113 The fourth and most recent

overhaul of American copyright law occurred in

1976, after years of study and legislativeactivity.114

The 1976 legislation modified the term of copyright

and, more significantly, codified the common law

fair-use concept as a limitation on the exclusive

rights of the copyright holder. In 1980, following

recommendations made by the National Commission on New Technological Uses of Copyrighted

Works (CONTU), legislation explicitly extended

copyright to computer programs.115

The Scope and Nature of Copyright Protection

The copyright statute116 interprets the Constitutional term ‘‘writings’ broadly, defining it as:

works of authorship. . . fixed. in any tangible medium

of expression, now known or later developed, from

which they can be perceived, reproduced or otherwise communicated, either directly or with the aid of

a machine or device.

Copyright protection is expressly provided for

eight categories of works: literary; musical; dramatic; pantomimes and choreographic; pictorial,

graphic, and sculptural; motion picture and other

audiovisual works; sound recording; and architectural; however, the legislative history indicates that

these categories are not meant to be exhaustive.

Computer programs are copyrightable as “literary

works’ as defined in 17 U.S.C. 101.117 The term

‘‘computer program‘‘ is also defined in section 101

as ‘‘a set of statements or instructions used directly

or indirectly in a computer in order to bring about a

certain result.

Copyright protection subsists from the time a

work of authorship is created in a fixed form. The

copyright in the work becomes the property of the

author immediately upon creation. Only the author,

or one deriving rights through the author, can

rightfully claim copyright.

In the case of works made for hire, the employer

rather than the employee is presumptively considered the author. A work made for hire is defined as:

1. a work prepared by an employee within the

scope of his or her employment; or

2. a work specially ordered or commissioned for

use in a variety of circumstances enumerated

by the statute.118

Copyright does not protect ideas, but rather the

expression of ideas. Copyright protection does not

extend to any:

. . . procedure, process, system, method of operation,

concept, principle, or discovery, regardless of the

form in which it is described, explained, illustrated

or embodied.119

Copyright protects the writings of an author

against unauthorized copying, distribution, etc., and

protects the form of expression rather than the

subject matter of the writing. Unlike patents, it does

1

104 Stat. 436.

111 Act of July 8, 1870, C. 230, 16 !3W. 198.

112 ~t of ~ch 4, 1909, C. 320, 35 Stat. 1075.

I 13 ~blic ~w 92.140, Oct. 15, 1971, 85 s~t 391,

114 Public IAW 94-553, (la. 19, 1976, 90 Stat. 2541, codified at 17 U.S.C. 101, et seq. (1982).

115 In tie 1980 ~en~enW, a def~~tion of ‘‘Computm pm~m’ WU added to s~tion 101 of tie Copyright Act of l$YIG md a new section ] 17 W&S

added, limiting computer-program copyright holders’ exclusive rights. The owner of a computer program may make another copy or adaptation of that

program if the copy is needed for a specific step in using the computer program or if the copy is for archivaJ purposes.

’16 17 U.S.C. 102(a)

11717 U,SC. 101 Provides fi ~~~,:nt pm: S ‘Liteq wor~’ me wor~, o~er ~audiovisu~ works, expressed in words, numbers, or other verbal

or numerical symbols or indicia, regardless of the nature of the material objects, such as books, periodicals, manuscripts, phonorecords, film, tapes, disks

or cards, in which they are embodied.

11817 U.s.c. 101.

11917 U.S.C. 102(b),
—. — .—— ———

Chapter 2—The Law

not protect against independent creation. Copyright

grants the owner the exclusive right to do and to

authorize others to do the following: 120

reproduce copies of the copyrighted work;

prepare derivative works based on the copyrighted work;

distribute copies of the copyrighted work to the

public by sale or other transfer of ownership, or

by rental, lease, or lending;

perform the copyrighted work publicly; and

display the copyrighted work publicly. 121

The statute does, however, specify certain limitations to the copyright owner’s exclusive rights tha t

are noninfringing uses of the copyrighted works.

These limitations include the “fair use” of th e

wor k

122 (17 U.S.C. 107 (1988)), certain kinds o f

reproduction by libraries and archives (17 U.S.C .

108 (1988)), certain educational performances and

displays (17 U.S.C. 110 (1988)), and certain other

uses (17 U.S.C. 117 (1980)).

It is an infringement of the copyright for anyone

to engage in any of the above activities without the

authorization of the copyright owner. The copyright

statute provides that the copyright owner may

institute an action for infringement against the

alleged infringer (17 U.S.C. 501(b) (1988)). A court

may issue an injunction against the copyright

infringer to prevent further infringement of the

copyright (17 U.S.C. 502 (1988)). An infringer of a

copyright may be subject to the payment of actual

damages and profits to the copyright owner (17

U.S.C. 504(b) (1988)); or in certain circumstances

the copyright owner may elect specified statutory

damages within specified ranges in lieu of actual

damages and profits (17 U.S.C. 504(c) (1988)). In

addition, in certain cases the court may permit the

. 61

recovery of legal fees and related expenses involved

in bringing the action (17 U.S.C. 505 (1988)).

Criminal sanctions may also be imposed for copyright infringements in certain cases (17 U.S.C. 506

(1988)).

The 1976 Copyright Act and Fair Use123

The tension between the stimulation of intellectual pursuits and the property interests of the

copyright owner has been a central issue in the

development, implementation, and interpretation of

American copyright laws. Moreover, the concept of

copyright presents a seeming paradox or contradiction when considered within the context of the first

amendment freedom-of-speech guarantees: while

the first amendment guarantees freedom of expression, it can be argued that copyright seems to restrict

the use or dissemination of information. It can be

argued, however, that copyright, to the degree that it

stimulates expression and encourages writing and

other efforts, furthers first amendment expression

values by encouraging the quantity of speech’ that

is created.124 In attempting to resolve these conflicting interests, the courts have adopted a test that

weighs the interests of freedom of expression and the

property interests of the copyright holder to arrive at

an acceptable balance.

125 An extensive body of case

law has been developed that weighs and counterbalances first amendment concerns and the rights of the

copyright holder.126

Hence, the American copyright system is based

on dual interests: intellectual promotion and property rights. Combined with these factors is the first

amendment freedom-of-expression concern. Courts

have balanced and assessed these seemingly con120 Not ~ ~or~$, however, enjoy all ~ght~. For eX~ple, sound recordings ~ve no public pxforrnance right. 17 U,S,C, lo6(~),

12117 U.s.c. 106.

122 Before ~~lficatlon of tie ‘‘ fak.use’ exuptlon in tie 19’7G copy-@t act, & f~-use concept was upheld in a common law Copfight action in

Hemingway v. Random House, Inc., 53 Misc.2d 462,270 N.Y.S. 2d 51 (Sup. Ct. 1967), aff d on other grounds 23 NY.2d 341,296 N. Y.S.2d 771 (1968).

The common law concept of ‘fair use’ was developed over many years by the courts of the United States. See, for instance, Folsom v, Marsh, 9 F.Cas.

342 (N. 4901) (C.C.D. Mass. 1841); and Mathews Conveyor Co. v. Palmer-Bee Co., 135 F.2d 73 (6th Cir. 1943).

123 ~is material 15 adapted from copyright & Home copyi~g: Technology challenges the I!.UW, op. cit., foomote 97.

124 It is also ~gu~ ~a[ freedom of sp~ch ~anteestie s~&~ tie ri@t [o sp~k ~s OWTI expressio~ and titit does not give him thC right tO SpCilk

(or copy) someone else’s expression. Nor does it prevent a speaker from using the ideas or information in someone else’s ideas, facts, or information.

Copyright requires the speaker to arrive at his own expression for the ideas he wishes to express. The resulting conflict or balance between these interests

is part of copyright itself—limited protection with the limitations specifically designed to encourage publication and access to information. The

remaining conflict, it is argued, may be resolved by fair use. Mary Jensen, University of South Dakota School of Law, personal communication, Sept.

29, 1991.

1~ Nimmer, op. cit., foomote 101, VO1. 1, sec. 1.10.

126 ~ec Harper & ROB, Pub[itrherkr, IrIc. v, Nation Enterpn”ses, 471 US 539 (1985)” .
62 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 2-G Copying in Renaissance Artl

Copying has appeared in many guises in the history of the visual arts. Artists have produced multiple originals,

sometimes identical, sometimes variants of the same composition, with varying degrees of assistance from others

in their workshops. Students have copied masterworks as part of their training. Mature artists, even the greatest, have

copied the works of other artists as a way of enriching their own styles. Compositions or individual motifs invented

by one artist have reappeared in the works of others, transformed to a greater or lesser extent, and questions about

the roles of imitation and innovation in art have been among the most frequently debated in the many treatises about

art theory written since the Renaissance.*

The present day tendency to prize originality of form and content, while denigrating art that relies on earlier

art as derivative and retrogressive is inconsistent with the practice of art in the past.3 One scholar writes:

Art into art, the acquisition of style by limitation, is the way almost all artists learned their skills until very

recently. Certainly they worked from life, taking inspiration whenever they found it but the fundamental techniques

of design, of drawing and modeling, were gained from other art. The study of plaster casts, the visit to the church or,

in later centuries, to the museum to copy the works of others, the examination of illustrated woods, these were part

of the experience of every Western artist. Copying was the right and logical thing to do. It was the way one learned,

and it kept the artist in touch with the wellsprings of the past.4

The Paduan painter Cennino Cennini advises the young artist to begin by:

constantly copying the best things which you can find done by the hand of the great masters. . . . You will eventually

acquire a style individual to yourself, and it cannot help being good. ...5

A century later, Leonardo da Vinci prescribed a course of study in which the young artist turned to nature only after

copying first from drawings, then from paintings, then from sculpted reliefs.6

Renaissance art theorists prescribed copying as a way of reaching beyond the imperfections of the real world

to achieve the ideal. Leonbattista Alberti, the most important theorist of the 15th century, first applied the

Aristotelian idea of imitation (mimesis) to painting, defining the goal of art to be the imitation of nature as it ought

to be. Models for this perfected nature could be found in the art of antiquity and of modem masters who had

themselves learned from antiquity. Over the course of the 16th century art became increasingly self-referential,

1 ~Smmis excerpted tire: “Copying in the Visual Arts in Europe Since the Renaissance: Forms, Functions, Response and

Restrictions,” contractor paper, Robert EchoIs, July 1991.

21bid., p. 1.

3 Ibid., p. 2.

4BIUW Co]e, The RenaiwcmceArti,st at Work (New York, NY: Harper& ROW, 1983) p. 31.

5Cennino Cenrdr& The Cra@man’s Handbook: ‘

(

I1 libro dell’arte (trans. Daniel V. Thompsoq Jr., New York NY: Dover, 1954), p.

15.

6@& ~v=~pBegenm~ ~lp~m ‘C~ative copi~: Interpretive Drawings frOI.U Michelangelo to Picasso,’ efibition

catalogue, The Drawing Center, New York 1988, p. 17.

flicting elements, and Congress has considered them the fair-use doctrine. It has been said that the

in enacting copyright legislation. doctrine of ‘fair use’ allows the courts to bypass an

Much of the historical balancing has occurred in inflexible application of copyright law, when under

the context of the fair-use doctrine. The doctrine of

certain circumstances it would impede the creative

fair use as codified in the “1976 Copyright Act has activity that the copyright law was supposed to

stimulate. 128 Indeed, some commentators have

antecedents in English law of the 18th and 19th .

centuries and in 19th-century U.S. case law.127 viewed the flexibility of the doctrine as the ‘‘safety

Various approaches have been adopted to interpret valve” of copyright law, especially in times of rapid

127 For &orough ~ea~ent of tie evolution of fair use and an analysis of case law and the fair usc factors, see wilkim Patry, The Fair Use Pn”viiege

in Copyn’ghf Law (Washington, DC: The Bureau of Nationat Affairs, 1985).

128 see Haver & Row, publishers, Inc, v. Nation Enterprises, 471 U.S. 539 ( 1985); Iowa State UniversiV Research Foundation, Inc. V. American

Broadcasting Co,, 621 F.2d 57 (2d Cir. 1980).
Chapter 2—The Law ● 63

especially in Rome and Florence; the imitation of styles and the quotation of forms from the work of past masters

was the basis of the maniera “the correct way of painting. ’ Later in the century the reform movement led by the

Carracci reacted against overreliance on past masters, but advocated not a rejection of the past by greater

“invention” in imitating its models. In the 17th century the influential critic Bellori returned to the Aristotelian

notion of imitation:

The idea, originating in nature, supersedes its origin and become the origin of art.

The idealized nature found in the great works of art, ancient and modem, was thus the appropriate source of

inspiration for the artist.7

Such theories of art were codified and put into practice in the art academies that gradually became the principal

institutions controlling the production of art: Lorenzo de’ Medici’s informal school for artists in Florence, where

Michelangelo studied the antique sculptures in the Medici collection; the Academy of the Carracci in Bologna; the

Accademia di San Luca in Rome; the French Academy, founded in 1648; numerous academies in Germany; and

eventually the Royal Academy in England. In Vienna, the Empress Maria Theresa opened the Imperial Gallery to

students, providing them with a room in which to make their copies. Although copying as a mode of art instruction

has gone out of present day fashion, visitors to museums can observe that the practice still has its adherents.8

The “translation of images” from artist to artist extends beyond copying to what is generally referred to as

“quotation” or “borrowing’ ’-the use of compositions or motifs taken from other works of art. A typical

monograph or catalogue on a Renaissance subject lists many instances of this practice. The National Gallery of Art’s

1979 catalogue entry on Tintoretto’s Conversion of Saint Paul identifies motifs in the painting taken from Leonardo,

Pordenone, Titian, Schiavone, and Raphael, and notes that the influence of Tintoretto’s painting may be seen in a

work by Rubens.g One critic states that:

During the Renaissance and long after it, imagery was still largely shared, . . . The sense, to which we attach so much

importance, of the personality of the artist with its incumbent personal baggage of imagery and manner was in embryo

and the vocabulary of images was datively small. 10

The English artist Fuseli said that he found William Blake “damn good to steal from.’ ’11 Manet took the basic

funeral motifs of two of his most avant-garde paintings, Olympia and Le dejeuner sur l’herbe, from Titian’s Venus

of Urbina and a print by Marcantonio Raimondi after Raphael, respectively. Such practices have continued into the

20th century in various forms of paraphrase, parody, quotation, collage, and most recently, “appropriation.”

7 The summary of artistic theories of imitation in this paragraph is based on overviews provided in Haverkamp-Begemann ibid., pp.

16-20; and Rosario Assunto, “Mimesis,” Encyclopedia of World Art, vol. 10 (New York, NY: McGraw-Hill, 1%5), pp. 93-117.

8 Children of ~ercury: The Education of Artists in the Sixteenth and Seventeenth Centuties (Providence: Brown UtiVen@, 1984).

9 Fern R. Shapley, CataZogue of the Italian Paintings (Washington DC: The National GMw of A% 1979), PP. 468-469.

10 AflOn ~ K-E. Maison, Theme ad va~ations: Five Centuries of Master Copies and Interpretations, 2d ti. ~ndon: H-N. A~~*

1966), p. 16.

11 Ibid., p. 21.

technological change. Others have considered the 1. the purpose and character of the use, including

uncertainties of the fair-use doctrine the source of

unresolved ambiguities.

In codifying the fair-use exception in the Copyright Act of 1976, Congress did not formulate a

specific test for determining whether a particular use

was to be construed as a fair use. Rather, Congress

created statutory recognition of a list of factors that

courts should consider in making their fair-use

determinations. The four factors set out in the statute

are:

whether such use is of a commercial nature or

is for nonprofit educational purposes;

2. the nature of the copyrighted work;

3. the amount and substantiality of the portion

used in relation to the copyrighted work as a

whole; and

4. the effect of the use on the potential market and

value of the copyrighted work (17 U.S.C. 107

(1988)).

Congress realized that these factors were ‘in no case

definitive or determinative” but rather “provided
64 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

some gauge [sic] for balancing equities. ’’129 It

appears that Congress developed a flexible set of

criteria for analyzing the circumstances surrounding

each fair-use case, and that each case would be

judicially analyzed on an ad hoc basis. Therefore,

courts seem to have considerable latitude in applying and evaluating fair-use factors.130 Courts have

given different weight and interpretation to the

fair-use factors in different judicial determinations.

The following illustrations demonstrate how some

courts have interpreted certain fair-use factors.

In evaluating the first factor, the purpose and

character of the use, courts have not always held that

use ‘‘of a commercial nature’ precludes a fair-use

finding, 131 nor does a “nonprofit educational”

purpose mandate a finding of fair use.132 A defense

of fair use on the basis of the first criterion will more

often be recognized, however, when a defendant

uses the work for educational, scientific, or historical purposes.133

Consideration of the second factor, the nature of

the copyrighted work, must be based on the facts and

circumstances of each particular case. For instance,

courts have interpreted the scope of the fair-use

doctrine narrowly for unpublished works held confidential by their authors.134

In examining the third factor, the amount and

substantiality of the portion of the work used, courts

have looked at both the quantitative aspect-how

much of the work is used 135—and the qualitative

factor—whether the “heart” or essence of the work

is used.136 The fair-use doctrine is usually not

considered to be applicable when the copying is

nearly a complete copy of the copyrighted work, or

almost verbatim.137 Prior to the Court of Claims’

decision in Williams & Wilkins”ns Co. v. United

States,138 courts as a rule did not allow fair use for

copying of entire works or substantial portions of a

work. However, the issue of copying entire works

was the topic of significant debate prior to passage

of the 1976 act. The result of this debate, which

allows for this kind of copying under limited

circumstances, is found in section 108, which sets

out guidelines for classroom copying, and in interpretation of fair use in the legislative reports.139

In assessing the fourth factor, courts have examined the defendant’s alleged conduct to see whether

it poses a substantially adverse effect on the

potential market for, or value of, the plaintiff’s

present work.l40 These considerations are used with

great care by the courts in applying the fair-use

doctrine on a case-by-case basis.

Congress looked to the issue of copyright fair use

at some length in 1991, examining whether the fair

use doctrine and the First Amendment permit

biographers to make unauthorized use of their

subject’s unpublished letters and manuscripts. The

courts have decided this issue on the basis of the

specific facts of each case, but emphasizing the

unpublished nature of the work in denying fair use.

In 1991 the Senate passed S. 1035 to clarify that

the unpublished nature of a copyrighted work does

129 H.R. Rep. No. 1476, 94th Cong,, 2d Sess. 65 (1976).

130 For a historic~ @ysis of the fair-use factors, see William Patry, op. cit., footnote 127, ch. 17.

131 Harper& RowPubli~her~, Inc. ~. Nation Ente~ri~es, 471 U.S. 539,593 (1985) @~~, J., dissenting); consumers Union of U.S., Inc. V. General

Signal Corp., 724 F.2d 1044 (2d Cir. 1983).

lszMarcus V. CroW/q, 695 F.2d 11.71 (9th Ck. 1983).

IN See lta/ian Book COW. v. Amen’can Broadcasting COS., 458 F. SUpp. 65 (S.D. N.y. 1978).

134 A ~cent ~= ~ic~a~tie ffi.use d~~e ~volv~ tie perso~ comes~nden~ of author J.D. s~ing~. The COWI determined tktt the author

had a copyright interest in his correspondence. Salinger v. Random House, Inc., 811 F,2d 90 (2d Cir. 1987), cert. denied, 108 Sup. Ct. 213 (1987).

135 Consumers Union of U. S., Inc. v. General Signal COT., 724 F.2d 1044 (2d Cfi. 1983).

~sbMm~one-Graham v. Burtchaell, 803 F.2d 1263 (2d Cir. 1986).

137 Wa/f Disney ~roductions v. Air }~irares, 581 F,2d 751 (9~ c~. 1978), cert. denied 439 U.S, 1132 (1978). But .WX Universal City Studios, Inc. V.

Sony Corp. of America, 480 F. Supp. 429 (D.C. Cal. 1979, rev’d, 659 F, 2d %3 (9th Cir. 1981), rev’d, 464 U.S. 417 (1984). It might well be noted,

however, that with respect to the questions of ‘amount and substantiality of the portion used” in the area of computer programs, this aspect of the fair

use limitation is argued by some to be of little use, because, as they assert, copies of only part of a program are rarely useful. Mary Jense~ University

of South Dakota, School of Law, personal communicatiorL September 29, 1991.

138 Wi//iam & Wi/kin$Co, v. Unifedsrates, 172 UCS.P.Q. 670 (ct. cl. 1972), 487F.2d 1345, 180 U. S.P.Q. 49 (Ct. Cl. 1973), afldbyan equally divided

court, 420 U.S. 376, 184 U. S.P.Q. 705 (1975).

139 Wfillm paw, op. cit,, footnote 127, pp. 449~50.

140 ~sfWtor was of ~omidtiable finP~ce ~ universal Cio Stiios, Inc, V. Sony Corp. ofAmetica, 480 F. SUpp. 429 (D.C. Cd. 1979), rev’d, 659

F.2d 963 (9th Cir. 1981), rev’d, 464 U.S. 417 (1984). See also Consumers Union of U.S., Inc. v. General Signal Corp., 724 F.2d 1044 (2d Ck. 1983).
Photo credit: U.S. Library of Congress

The Copyright Office is housed in the James Madison

Building of the Library of Congress.

not per se preclude applicability of the fair use

defense to infringement. A similar measure was

deleted from H.R, 2372 when a district court ruled

in favor of a biographer in Wright v. Warner

Books. 141

The Copyright Office

The Copyright Office is charged with administration of the copyright law, and is an influential source

of legal authority in the field of copyrights. Courts

give weight to the Copyright Office’s interpretation

of the copyright statute.

The 1976 act authorizes the Copyright Office to

issue regulations concerning the requirements for

registration of claims for copyright and concerning

fixation and placement of copyright notice.142 These

regulations contain authoritative interpretation of

the copyright statute, which has been cited with

approval by the courts.

The Copyright Office may issue certificates of

registration for deposited material only if it determines that it constitutes ‘‘copyrightable subject

matter. 143 Thus, the Copyright Office’s decision to

register a work is evidence that a work is copyrightable. Likewise, a denial of registration indicates that

the work is not eligible for protection. l44 Weight is

given by the courts to the Copyright Office’s

determination about registrability of a particular

category of works. The Copyright Office maintains

Table 2-2—Copyright Registrations, Generally:

1974 to Present

Year Number

1974 . . . . . . . . . . . . . . . . . . . . .... ...372,832

1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . 401,274

1976 . . . . . . . . . . . . . . . . . . . . .... ...410,969

1976a . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,762

1977 . . . . . . . . . . . . . . . . . . . . . ......452,702

1978 . . . . . . . . . . . . . . . . . . . . .... ...331,942

1979 . . . . . . . . . . . . . . . . . . . . .. .....429,004

1980 . . . . . . . . . . . . . . . . . . . . . ......464,743

1981 . . . . . . . . . . . . . . . . . . . . . ......471,178

1982 . . . . . . . . . . . . . . . . . . . . . ......468,149

1983 . . . . . . . . . . . . . . . . . . . . ....... 488,256

1984 . . . . . . . . . . . . . . . . . . . . .... ...502,628

1985 . . . . . . . . . . . . . . . . . . . . ....... 539,165

1986 . . . . . . . . . . . . . . . . . . . . ... ....560,212

1987 . . . . . . . . . . . . . . . . . . . . .... ...581,276

1988 . . . . . . . . . . . . . . . . . . . . ....... 565,801

1989 . . . . . . . . . . . . . . . . . . . . .... ...611,328

1990 . . . . . . . . . . . . . . . . . . . . .... ...617,241

1991 (January to June only) .. ....332,582

aTransitional qUarter—Registrations made July 1, 1976, through September 30, 1976, reported separately owing to the statutory change making

the fiscal years run from October 1 through September 30 instead of July

1 through June 30.

SOURCE: U.S. Copyright Office.

Table 2-3-Copyright Registration, Computer-Related

Works: FY 1986 to Present

Unpublished

Year Textual textual works

1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,565 4,744

1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,137 4,433

1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,124 6,046

1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,397 5,412

1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,350 5,214

1991 (1st quarter only) . . . . . . . . . . . . . . . 2,441 4,519

NOTE: “Textual works” is a Copyright Office Administrative classification

which, in the case of computer-related works, includes such items

as user manuals, floppy disks, and program code, i.e., all aspects

of computer-related works which are written.

SOURCE: U.S. Copyright Office.

statistics regarding the rate of issuance of copyrights

generally and for computer-related works. (See

tables 2-2 and 2-3.)

To facilitate efficient issuance of copyright and to

be of assistance to the public, the Copyright Office

issues forms and instructions for copyright registration, as well a series of circulars discussing copyright issues. Of particular interest is Circular R61,

141 Wn’ghr V. Warner Books, 74$ F. Supp. 105 (DC SNY 1990). The Second CirCuit affii~.

142 me Beme Convention ~plemen~tion At (now pm of Titie 17) mends tie U.S. copyright notice requirements. See discussion of the Beme

Convention, ch. 3.

143 Regls~ation is not ~ Perquisite for Copfight Protmtlom but my be quired for CO~ enforcement of the copyright.

la Such deni~ is not a Corrcfusive finding of l~ck of eligibility for pmtedion.
66 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

which deals with copyright registration of computer

programs, discussing regulations, policy, and practice related to software. In addition, the Copyright

Office publishes a more general document, the

Compendium of Copyright Office Practices, which

sets forth guidance of the Office in making registrations and recording documents. While these forms

and guidelines reflect practices, policies, and legal

interpretations, the positions contained in the documents are not necessarily adopted by the courts.145

CONTU Recommendations Regarding

Registrations and the Rule of Doubt

CONTU’S Final Report included recommendations for regulations concerning the registration and

deposit of databases and other works fixed in

computer readable media, These state that the

registration and deposit regulations should permit

and encourage registration and periodic updating of

identifying material rather than the actual databases.

With respect to computer programs, the CONTU

report suggests that regulations relating to deposit

and registration requirements should “promote public access to computer programs while being flexible

enough to accommodate future changes in computer

technology. Recognizing that repeated deposit of

each version of a program would be burdensome to

the program proprietor and the Copyright Office, the

Commission set forth a variety of options, including

a system of temporary deposit, and permanent

deposit of complete copies of the original version of

the program with subsequent filing of descriptions

rather than complete copies of amended versions.

Rule of Doubt

The copyright law in general requires that an

application for registration be accompanied by the

deposit specified in the statute and the regulations

issued under the statute.l46 The deposit must include

“one complete copy” of an unpublished work or

“two complete copies” of a published work. The

Copyright Office is authorized to issue regulations

permitting the deposit of “identifying material”

instead of the actual copies.

As discussed, CONTU contemplated that the

regulations would permit the deposit of identifying

material other than “actual databases, ’ and asserted

that computer databases were appropriate for exemption from the deposit requirement. Further, the

legislative history of the optional deposit provision

states that the regulations could provide for the

deposit of printouts of computer programs under

certain circumstances.

The Copyright Office will issue a certificate of

registration, even when an applicant for registration

of a computer program containing trade secrets is not

willing to submit source code and submits object

code instead. When it issues such a registration, it

does so under a “rule of doubt” procedure.147 The

“rule of doubt” is more accurately described as the

rule of “the benefit of the doubt” (in favor of the

copyright applicant).148 If the application is otherwise proper, the Copyright Office will issue such a

registration, which makes it clear that no determination has been made concerning the existence of

copyrightable authorship. The Copyright Office

issues its registration on this limited basis because of

its belief that the object code is ‘‘basically unintelligible” to its examiners, so that they cannot make a

definitive determination of its copyrightability .149 In

order to receive such a rule of doubt registration, the

applicant must submit a letter stating that the

program does contain original authorship.

While there is no clear case law delineating how

the rule of doubt registration affects the status of the

registered work in litigation, it is likely that such a

registration would not be accorded the same weight

as a conventional registration. The Copyright Office

has recognized that in making this kind of registration, the burden is placed on the courts to make a

determination about the existence of copyrightable

authorship. This additional burden is especially

important in the case of requests to the court for

preliminary relief in the form of temporary restraining orders and preliminary injunctions.

145 Whelan Associates, Inc. v. Jaslow Dental L.uboratory, Inc., 797 F.2d 1222, 1242, n.38 (3rd Cir. 1986), cert. denied, 479 U.S. 1031 (1987).

146 However, ~der tie Beme Con,(ention ~d tie Beme 1rnplernen~tiOn Ac~ registration and deposit themselves tic not required.

MT 37 C.F.R. 202.20(c) (2)(vii)(B).

Ids Romld ~urie, JVeil, Gotshal & Manges, personal communication+ September 1991.

149 Cary Sherman et al., op. cit. foctnote 90, at Section 208.2(g)(5).
Chapter 2—The Law ● 6 7

CONTU and the 1980 Amendment

Congress established the National Commission

on New Technological Uses of Copyrighted Works

to make recommendations for computer copyright

legislation. The Final Report, published in 1978, is

generally regarded as quasi-legislative history. While

the relevance of the report is somewhat discounted

or even ignored by some courts, 150 it is used by many

courts as an aid in interpreting the 1980 amendment.

In carrying out its congressional charter, CONTU

made specific recommendations for legislation dealing with computer software or programs, databases,

and works created by the use of computers.

With respect to computer software or programs,

CONTU recommended that the new copyright law

should be amended:

1. to make it explicit that computer programs, to

the extent that they embody an author’s

original creation, are proper subject matter of

copyright;

2. to apply to all computer uses of copyrighted

works by the deletion of section 117; and

3. to ensure that rightful possessors of copies of

computer programs may use or adapt these

copies for their use.

CONTU also recommended that the 1976 act be

amended to apply to all computer uses of copyrighted databases and other copyrighted works fixed

in computer media, and that works created by the use

of computers should be afforded copyright protection if they are original works of authorship within

the 1976 act.

These recommendations allayed doubts concerning the copyrightability of programs under the 1976

act,151 as the 1980 act expressly added a definition

of ‘‘computer program’ in section 101.152 Further,

the old version of section 117153 was repealed and

replaced by what is now section 117 of the current

statute, which provides a defense to a claim of

software copyright infringement if the defendant’s

activity falls within its scope. Section 117 insulates

from infiingement liability certain steps that CONTU

considered essential in the utilization of a computer

program in conjunction with a computer.154

Section 117 of the Copyright Act now provides as

follows:

Notwithstanding the provisions of section 106, it

is not an infringement for the owner of a copy of a

computer program to make or authorize the making

of another copy or adaptation of that computer

program provided:

1. that such a new copy or adaptation is created as

an essential step in the utilization of the computer

program in conjunction with a machine and that it is

used in no other manner, or

2. that such new copy or adaptation is for archival

purposes only and that all archival copies are

destroyed in the event that continued possession of

the computer program should cease to be rightful.

Any exact copies prepared in accordance with the

provisions of this section may be leased, sold or

otherwise transferred, along with the copy from

which such copies were prepared, only as part of the

lease, sale, or other transfer of all rights in the

program. Adaptations so prepared may be transferred only with the authorization of the copyright

owner.

Only the ‘‘owner of a copy of a computer program’

may take advantage of the privileges set out in

section 117. An owner is one who purchases a disk,

diskette, or other medium in which a program is

stored. A person who does not own a copy of the

plaintiff’s computer program may not take advantage of a section 117 defense. The licensee who

acquires possession but not ownership of a disk copy

150 see Whelan A$$c)ciafe~, /nc, ~. Ja~/ow Dental ~bora:o~, ]nc, 797 F,2d 1222, 1241, wllich commented that tie report was nOt binding and did

not consider it authoritative legislative history. See also bus v. Paperback So@are, 740 F. Supp. 37 (D. Mass. 1990).

151 me House Repofi of tie 1976 ~t ~~cate~ tit computer Pmpms me to be considered ‘‘fite~ works” @.R. Rep. No. 1476, 94th Cong., 2d

Sess. 54, reprinted in 1976 U.S. Code Cong. & Ad. News 5659,5667 (“literary works’. . . includes]. . . computer programs.”))

152 Section 101 defines ~ ~omputa Progmas a ~t of statements or ~~ctio~ to be used directly or &dil-ecfly iII a computer iII order to bring about

a certain result. Some commentators maintain that this amendment merely suggested that writings othemvisc copyrightable could be in the form of a

computer program. Stephen Y. Chow, personat communication, Cesari and McKem Sept. 27, 1991.

153 me o~~~ text of Section 117 stated:

Notwithstanding the provisions of sections 106 through 116 and 118, this title does not afford to the owner of copyright in a work

any greater or lesser rights with respect to the use of the work in conjunction with automatic systems capable of storing, proecssing,

retrieving, or transferring information, or in conjunction with any similar device, machine, or process, than those afforded to works

under the law, whether title 17 or the common law or statutes of a State, in effect on December 31, 1977, as held applicable and

construed by a court in an action brought under this title.

154 See Com Report at 13.
68 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

of a licensed program is not entitled to exercise these

privileges. There must be a transfer of title, as

provided for under applicable State law, for the

privilege to obtain.

This requirement of ownership in section 117 is a

change in the statutory language from the CONTU

recommendation. CONTU would have allowed a

rightful possessor of a copy of a program to perform

or authorize the acts permitted by the section. There

appears to be no legislative history on the reasons for

this change; however, those who were involved in

the congressional hearing on the 1980 amendments

say that the change reflected concerns of the Justice

Department relating to antitrust considerations.155

Evolution of Case Law

Complete coverage of software copyright case

law is beyond the scope of this report. However,

protection of software via copyright has involved

several key issues. Three of the most important are:

1) whether object as well as source code is protected;

2) whether a program’s structure, sequence, and

organization is protected (and what such protection

implies); and 3) whether the user interface is

protected. A summary of the evolution of cases

addressing these three key issues follows.

Apple v. Franklin

The case of Apple v. Franklin156 specifically

addressed the question of whether a copyright can

exist in a computer program expressed in object code

as well as source code. The court described source

code as usually written in a higher-level programming language and object cede as the version of the

program in which the source code language is

converted into (binary or hexadecimal) machine

language. The court determined that both the source

code and the object code are copyrightable.

In its decision, the court traced the legislative

history which, it stated, suggests that computer

programs are considered copyrightable as literary

works under section 102(a) of the Copyright Act.157

CONTU later recommended that the copyright law

be amended “to make it explicit that computer

programs, to the extent that they embody an author’s

original creation, are proper subject matter of

copyright. ’ 158 In accord with the CONTU report

recommendations, the 1980 amendments to the

Copyright Act included a definition of a computer

program:

A “computer program” is a set of statements or

instructions to be used directly or indirectly in a

computer in order to bring about a certain result. (17

U.S.C. 101.)

The court further noted that language of 17 U.S.C.

117 carves out an exception to normal proscriptions

against copying of computer programs, thus indicating that programs are, in fact, copyrightable and are

otherwise afforded copyright protection. Indeed, the

Third Circuit Court of Appeals had, in the prior case

of Williams Electronics, Inc. v. Artic International

Inc.,159 concluded that “the copyrightability of

computer programs is firmly established after the

1980 amendment to the Copyright Act. ”

In arriving at its finding that object code as well

as source code are copyrightable, the court in Apple

v. Franklin also stated that, under the statute,

copyright extends to works in any tangible means of

expression “from which they can be perceived,

reproduced, or otherwise communicated, either directly or with the aid of a machine or device. 160 As

stated above, the definition of a ‘‘computer program” adopted by Congress in the 1980 amendment

is a “set of statements or instructions to be used

directly or indirectly in a computer in order to bring

about a certain result. ’ 161 Since source code instructions must be translated into object code before they

can be utilized by the computer, only instructions

expressed in object code can be used “directly’ by

the computer, and as such, object code falls under the

definition in the statute. Further, the court emphasized that a computer program in object code could

be classified as a literary work, since the category

“literary work,” one of the seven copyrightable

155 pemo~ comm~cation, Ronald Laurie, Weil, Gotshal & Mi?nges, September 1991.

ISb,@p/e V. Frati/in 714 F.2d 1240 (3rd C~. 1983).

157s= H~ Rq. No, 1476, ~COW;., ~ sex. 54, ~~~ in 1976 U.S. Code Cong, & Ad. N~s 5659,5667 (’ ‘literary works’. . .include[s]. . computer

programs”).

158 Natio~ Commis sion on New Ethnological Uses of Copyrighted Works, Final Report.

159 Wi[llam Elec~onics, Inc. v. Artic International Inc., 685 F.2d 870 (31d CU. 1983).

la 17 U.S.C. Swtion 102(a).

161 17 U.S.C. Section 101.
.. .

Chapter 2—The Law ● 69

categories in section 101, includes expression not

only in words but also ‘‘numbers, or other . . .

numerical symbols or indicia. ’ Thus, the court held

that a computer program, whether in object code or

source code or whether an operating system or

application program, is a ‘‘literary work’ and is

protected from unauthorized copying. The court

cited Midway Mfg. Co. v. Strohon162 and GCA Corp.

v. Chance163 as in accord with its holding.

Apple v. Franklin addressed the issue of copyrightability of operating and application systems.

While Franklin conceded that application programs

are an appropriate subject of copyright, it contended

that operating systems are not the proper subject of

copyright regardless of the language or medium in

which they are freed, and that operating system

programs are per se excluded from copyright protection under the express copyright terms of section

102(b) of the Copyright Act and under the precedent

and underlying principles of Baker v. Selden.164

According to the court, ‘‘an application program

usually performs a specific task for the computer

user” (e.g., word processing, checkbook balance

function) while “operating system programs generally manage the internal function of a computer or

facilitate the use of an application program” (e.g.,

translates an application program from source code

to object code.) Franklin based its argument on the

grounds that an operating system program is either

a ‘‘process, ’ ‘ ‘system, ’ or ‘‘method of operation’

and hence uncopyrightable, since section 102(b)

specifically precludes copyright protection for these.

In Apple v. Franklin, the court found that operating system programs are copyrightable. The court

pointed to prior courts which rejected the distinction

between application programs and operating system

programs. The court also cited the CONTU majority

and the Congress, neither of which distinguished

between operating system and application programs.

The court reasoned that, since both operating system

programs and application programs instruct the

computer to do something, it should make no

difference under section 102(b) whether these instructions tell the computer to prepare an income tax

return or translate high level language from source

to binary object code. The court stated that, “Since

it is only the instructions which are protected, a

process is no more involved because the instructions

in an operating system program may be used to

activate the operation of the computer than it would

be if instructions were written in ordinary English in

a manual which described the necessary steps to

activate an intricate complicated machine. ’ 165 The

court found no reason to afford any less copyright

protection to the instructions in an operating system

program than to the instructions in an application

program.

Structure, Sequence and Organization166

The concept of ‘structure, sequence, and organization’ is found outside the area of computer

software in elements such as the plot, subplot,

sequence of scenes, setting characterization and

patterns of dialogue in works of fiction or drama; or

in the detailed outline and organization and selection, coordination and arrangement of information in

textbooks or other nonfiction works. In computer

software, structure, sequence, and organization include the arrangement of computer program modules in relation to each other, as opposed to the literal

text of the program.

167 The cases addressing the

issue of the protectability of the structure, sequence,

and organization of a program have found that courts

must look beyond the literal text of the defendant’s

program to determine whether there is substantial

similarity to the plaintiff’s program.

Whelan Assocs., Inc. v. Jaslow Dental Laboratory, Inc.

168 presented the issue of whether there can

be “substantial similarity’ of computer programs

when the similarity exists in the structure, sequence,

and organization of the program and there is no

line-for-line copying. The case involved a program

designed by the plaintiff to run a dental laboratory

162 Midway Mag. CO. v. Strohon 564 F. Sllpp. at 75@751.

163 GCA COT, V. Chance 217 U. S.P.Q. at 719-20.

l~Baker v. Se/den, 101 U.S. 99, 25 L.Ed. 841 (1879).

lesApp/e v. Franklin, 714 F.2d at 1251.

166 ForamOre ~xtemivedis~ssion of issu~ of s~ctue, sequence, and org anizatiom see Morton David Goldberg, ‘Copyright Prolectionfor Computer

Programs: Is the Sky Falling?” American Intellectual Property Assn. Quarterly Journal, vol. 17, pp. 294-322 (1989).

167 Ibid.

]68 WhelanAs~o~s,,Inc, “, Jaslow Dental~boratoq, [nC,, (j09 F. Supp. 1307 @.D. Pa. 1985), q$fd, 797 F.2d 1222 (3d Cir. 1986), cert. denied, 479

U.S. 1031 (1987).
70 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

business, written for the IBM Series 1 computer in

Event Driven Language (EDL). The defendant’s

program was written in BASIC for the IBM PC

computer. The evidence demonstrated the defendant’s access to the plaintiff’s source code.

The court found that computer programs were

protected under copyright against “comprehensive

nonliteral similarity, ” and held that “copyright

protection of computer programs may extend beyond a program’s literal code to its structure,

sequence and organization. In the particular case of

Whelan, copyright did protect the structure, sequence, and organization. The court defined the

protectable expression in the structure, sequence,

and organization to include everything about the

program’s construction and design except its basic

purpose or function (i.e., ‘ ‘efficient operation of a

dental laboratory ’’).l69 Thus, it was possible to

infringe the copyright of” a computer program

without verbatim copying of the computer code. In

a significant footnote, the court stated that it did not

intend to imply by this characterization of copyrightable expression that the idea or purpose behind every

utilitarian or functional work will be exactly what it

accomplishes, so that structure and organization

would therefore always be part of the expression of

those works. It drew the distinction between the

situation in Whelan, and instances where the idea or

purpose behind a utilitarian work is to accomplish a

certain function in a certain way, such that the

structure or function of a program is essential to that

task. 170

Other cases reflect the court’s reasoning in

Whelan. 171 In SAS Institute, Inc. v. S&H Computer

Systems, Inc. 172 the court found that S&H infringed

the copyright held in a program called SAS 79.5,

which was written to run on IBM and IBMcompatible computers by converting it to run on

Digital computers. The court cited instances of

‘‘literal, near literal and organizational copying,’ of

structural detail and nearly exact duplication of the

SAS structure and organization. The court also

discussed the idea of merger of idea and expression,

stating:

. . . throughout the preparation of a complicated

computer program such as SAS, the author is faced

with a virtually endless series of decisions as to how

to carry out the assigned task. ., At every level, the

process is characterized by choice, often made

arbitrarily, and only occasionally dictated by necessity. Even in the case of simple statistical calculations, there is room for variation, such as the order in

which arithmetic operations are performed. . . As the

sophistication of the calculation increases, so does

the opportunity for variation of expression.

Finding that the processes of SAS could be expressed in a variety of ways, the Court stated that:

. . . to the extent that similarities between the SAS

and the S&H product have existed, they represent

unnecessary, intentional duplication of expression.

Q-Co. Industries, Inc. v. Hoffman173 reflected the

idea/expression merger concept. The defendants’

program was written to run on an IBM PC in Pascal

and IBM Assembler language. The court found that

the defendants’ program did not infringe plaintiff’s

program, written in Basic and Atari to run on an

Atari 800-XL,” in spite of similarities in the structure,

sequence, and organization of the program, in

addition to similarities in the program text between

plaintiff and defendants’ programs. In making this

finding, the court stated that the similarities between

the two programs were similarities in ideas rather

than in expression. The use of functionally similar

modules in the same sequence in the two programs

was an inherent part of any program of the type

developed by the plaintiff.

169 ‘T& ~Wct of tie Whelan decis;ion has been the subject of heavy criticism.

17~ Whelan i4wocs. v. Jaslow Dental Laboratory, 807 F.2d 1256, 1260, footnote 34.

ITI A n~~r of cases uphold structure, sequence and org anization protection as a legal principle and fmd substantial similarity on at least some of

the facts in each case. See Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173 (9th Cir. 1989); Broderbund Software, Inc. v. Unison

World, Inc., 648 F. Supp. 1127 (T4.D. lb. 1986); Dynam”c Solutions, Inc. v. Planning & Control, Inc., [1987] Copyright L. Dec. (CCH) Para. 26,062

(S.D.N.Y. 1987); Pearl System, Inc. v. Competition Electronics, Inc. 8 U. S.P.Q. 2d 1520 (S.D. Fla. 1988); Soft Computer Consultants, Inc. v.

Lulehzarzadeh, [1989] Copyright L. Dec. (CCH Par. 26,403 (13.D.N.Y. 1988); Manufacturers Technologies, Inc. v. CAMS, Inc., 706 F. Supp. 984 (D.

Corn. 1989); Lotus Development Corp. v. Paperback Sojlwarelnt’1. 740 F. Supp. 37 (D. Mass. 1990); Customs Semice Decision 90-40 (Jan. 10, 1990)

File: HQ 732291 CPR-3 CO: R:C:V 732291 SO. 24 Cust. B & Dec. No. 14, p. 28, [1990] Guide to Computer Law (CCH) Par 60,212 (Apr. 4, 1990).

172 SAS Instimte, Inc. v. S&H Computer Systems, Inc., 605 F. Supp. 816 (M.D. lkrm. 1985).

173 Q-Co. Industries, Znc. v. Ho~an, 625 F. Supp.608 (S. D.N.Y. 1985).
Chapter 2—The Law ● 71

In Healthcare Affiliated Services, Inc. v. Lippany

174 the court held that the result of very general

creative decisions were not protectable structure,

sequence, and organization. Basing its findings upon

plaintiff comparison of the first 50 lines of the two

programs, the court stated:

The evidence merely documents that certain choices

were made among factors at a gross level, e.g., the

scope of the system, the number of variables to be

used or the portions of the work force to be included

in calculations of labor hours. The result of these

choices, however, do [not] constitute the programs’

structure, sequence and organization within the

meaning of Whelan.

The Fifth Circuit Court of Appeals did not follow

Whelan in Plains Cotton Cooperative Ass’n v.

Goodpasture Computer Serv., Inc. 175 Relying on

expert testimony, the court found no copying when

an allegedly infringing program, designed to run on

a personal computer rather than a mainframe computer, was found very similar to the plaintiff’s

program on the functional specification. Even

though the court found the two programs very

similar with respect to programrning and documentation levels, and found that portions of the design

appeared to be direct copies, the court looked to

other evidence and found no copying. The court did

not adopt the Whelan holding that the structure,

sequence, and organization of a computer program

is copyrightable. The court held that similarities in

the two programs--each of which was designed to

perform the same particular task within the agricultural cotton market-were dictated by the “externalities of the market. The record indicated that the

market significantly affected the determination of

the sequence and organization of cotton marketing

software, since both programs attempted to provide

the same information to the user. The court did not

hold that such patterns could not constitute an idea

in the context of computers. Thus, the decision in

Plains Cotton narrowed Whelan such that the

defendant can show that similarities in structure and

organization may be dictated by market factors—

externalities-so that the same information must be

presented to the user.

NEC Corp. v. Intel Corp.176 involved two parties

whose microprocessors both utilized the Intel 8086/

88 instruction set. NEC’S V-series microprocessors

contained similarities to the hardware of the 8086/88

microprocessor, but also had additional hardware.

Intel claimed that NEC’S microcode violated its

8086/88 microcode copyrights, but not that the

hardware similarities or use of the microinstruction

set violated its copyright. The court found no

infringement, basing its holding on the following

findings:

1.

2.

3.

4.

no substantial similarity of the works ‘ ‘considered as a whole;

insufficient evidence that NEC copied important parts of Intel’s microcode;

programming “constraints” accounting for

similarities between the two microcodes; and

the limited number of ways in which to express

the ideas underlying some of Intel’s more basic

microroutines.

The findings of the court were particularly well

supported through the evidence of ‘‘Clean Room’

microcode presented to the court. NEC had contended that many of Intel’s micro sequences were not

copyrightable because they were made up of only a

few obvious steps and thus lacked the originality

necessary for copyright protection. NEC focused on

cases cited by Melville Nimmer, in which copyright

protection was denied to fragmentary words or

phrases, noncreative variations of musical compositions, and forms of expression dictated solely by

functional considerations, The court looked to Clean

Room microcode, developed by a third party, as

compelling evidence that the similarities between

the NEC microcode and the Intel microcode resulted

from constraints. It found that the Clean Room

microcode was governed by the same constraints of

hardware, architecture, and specifications as applied

to the NEC microcode, and that copying was not

involved. The developer of the 8086 microcode for

Intel acknowledged that the microarchitecture of the

174 Healfhcure ,Afi~iufcd ,$erki~.e$, ]rtc. v. Lippany, 701 F. Supp, 1142 (W.D. Pa. 1988). Additional cases have upheld s~ctme, s~ucncc, and

organization as a principle but found the evidence or pleading insufficient. See Q-Co lndustn’es, Inc. v. Hojj$nan, 625 F. Supp. 608 (S. D.N.Y. 1985);

Digital Communications Associates, Inc. v. Softklone Distributing Corp., 659 F. Supp, 449 (N.D. Ga. 1987); Telemarketing Resources v. Symantec

Corp., 12 U. S.P.Q. 2d 1991 (N.D. Cal. 1989); BuZ1 HNlnfiJrmation Systems, inc. v. American Express Bank Limired, [1990] Copyright L, Dec. (CCH)

Par. 26,555 (S. D.N.Y. 1990).

175 p/alnS Coft[jn C[}[)perati;,e A$s’n v, Goodpasturc Compufcr Ser},, InC,, 807 F,2d 1256 (Sth Cir,) cerf, denied, 484 LJ,.S, 821 (1987).

176 NEC Corp. v. Intel Corp , 645 F. Supp. 590 (N. D.Cal. 1986), ~’acated, 835 F.2d 1546 (9th Cir. 1988), 10 U, S.P.Q. 2d 1177 (N.D. Cal. 1989).
72 ● Finding a Balance: Computer Software, Intellectual Property, aria’ the Challenge of Technological Change

8086 microprocessor affected the manner in which

he created his microcode, and that he would expect

that another independently created microcode for the

8086 would have some similarities to his. The court

found that the similarities between the Clean Room

microcode and the Intel microcode must be attributed in large part to these constraints.

With respect to the issues of copying and the

limited number of ways in which to express ideas

underlying basic microroutines, the court cited

testimony that independently created microcode for

the 8086 would have fewer similarities in the longer

sequences than in the shorter sequences, because

more opportunities exist for longer sequences to be

expressed differently. The court found that this was

borne out: the longer sequences in NEC’S code and

in Intel’s microcode were not nearly so much alike

as the shorter sequences.

The court in Computer Associates International,

Inc. v. Altai, Inc.177 rejects the Whelan test of

‘‘structure, sequence and organization’ to determine similarities in computer programs. Instead, the

court applied the “levels of abstractions test”

articulated by Learned Hand in Nichols v. Universal

Pictures,178 which, they stated, was the law of the

Second Circuit Court of Appeals. The “levels of

abstractions test’ of Nichol’s reads:

Upon any work. . . a great number of patterns of

increasing generality will fit equally well, as more

and more of the incident is left out. The last may

perhaps be no more than the most general statement

of what the [work] is about and at times might consist

only of its title; but there is a point in this series of

abstractions where they are no longer protected,

since otherwise the [author] could prevent the use of

his “ideas” to which, apart from their expression,

his property is never extended.179

Applying this test, the court found no infringement of computer Associates’ copyright,

User Interface (the Screen Display Cases)

Courts have also addressed copyright issues in

disputes relating to computer program screen displays, distinguishing copyrightable expression from

unprotected elements in the text, menu hierarchies,

command structures, key sequences, and other

aspects of a program’s ‘‘interface’ with the user.

The court in Broderbund Software, Inc. v. Unison

World, Inc.180 held that the structure, sequence and

organization of screen displays in defendant’s ‘Print

Master” infringed the copyright on the audiovisual

displays of the plaintiff’s program, “The Print

Shop. ” Citing Whelan, the court upheld protection

for the ‘‘overall structure of a program, including its

audiovisual displays [emphasis added]. ’ According

to the court, the idea of creating printed materials

(which may vary infinitely in their combination of

text and graphics) is the concept behind “The Print

Shop” and “Print Master. ” The created printed

materials may vary indefinitely in their combination

of text and graphics, and thus the idea is separable

from the expression in the screens.

Broderbund differs from the earlier case of

Synercom Technology, Inc. v. University Computing

C0.,

181 in which the court considered the issue of

whether the sequence and ordering of plaintiff’s

input formats used in a structural analysis program

was protected expression or an unprotected idea.

Synercom supplied its customers with instructions

describing the order in which data should be entered

in the analysis program. University Computing,

providing its users with similar printed input instructions, filed suit. The court held that the sequence and

ordering of data was inseparable from the idea

underlying the formats. These were not, therefore,

copyrightable.

In the case of Digital Communications Associates

v. Softklone Distributing Corporation 182 the court

was confronted with the question of what elements

in a single menu screen constituted an idea and what

elements constituted expression. The court concluded that the copied elements of the defendant’s

program that were nonessential to program operation constituted expression and therefore were infringements. It rejected Softklone’s arguments that:

177 ComPurerA~~ocjate~ ~nrernatio M/, Inc. v. A/tai, ]nc. No, ~ 89.0811, U.S. Dis&ict Corn, E.D. New York Aug. 9, 1991. This decision has been

appealed; arguments were to be heard January 9, 1992.

178 N1c~o/S v, ~njverSa/ ~icfureS 45 F,zd 119, 121 (z~ c~. 1930), cert. denied, 282 U.S. 9(X? ( 193 1).

ITgNichol~ v. unlver~al pictures, /45 F.2d at 121.

180 Broderbund Sofiare, Inc. v. Unison World, Inc., 648 F. SUpp. 1127 (N.D. cd. 1986).

181 Synercom Technology, )nc. v. University Computing CO., 462 F. SUPP. 1~3 @D. Tex. 1978).

182 Digital comunicanon~ A~~oclate~ v. Sofikione Dis~”buling Corporation, 659 F. SUpp. 449 (N.D. Ga. 1987).
Chapter 2—The Law ● 73

1) the idea and expression of the Crosstalk screen

merged because the screen was a‘ ‘necessary expression of its idea, ’ and 2) the status screen was nothing

more than an unprotectable ‘‘blank form’ designed

to record the user’s choices of parameter values.

This issue was most recently addressed in Lotus

Development Corporation v. Paperback Software

International. 183 The Lotus decision extended the

copyrightability of the nonliteral elements of computer programs to menu command structures. The

structure, sequence, and organization of the menu

command system were all found copyrightable—

including the overall structure, the choice of letters,

words, or symbolic tokens’ used to represent each

command, the structure and order of the command

terms in each menu line, the presentation of the

command terms on the screen, and the long prompts.

Lotus brought suit in 1987 against Paperback

Software International for copyright infringement of

Lotus 1-2-3 by Paperback’s VP-Planner, which was

advertised by Paperback to be a ‘‘workalike’ of

Lotus 1-2-3. The programs were similar in appearance, and knowledge of Lotus 1-2-3 could be

transferred to VP Planner without retraining. Although Paperback had not copied the literal elements

of Lotus 1-2-3 (the source code or object code), the

court found Paperback had copied the copyrightable

nonliteral elements of the program.

The Lotus court established a three-part test for

determination of the copyrightability of a particular

nonliteral element. Applying this test, the court held

that the idea of an electronic spreadsheet was not

copyrightable. The rotated “L’ at the top of the

screen used by Lotus to represent the headings and

columns normally found on a paper spreadsheet the

court found, was a format used by most other

electronic spreadsheet computer programs. For these

reasons, the court held that the rotated ‘‘L’ was not

copyrightable. The court also held that the use of the

slash key to evade the menu, the ‘‘enter’ key to

invoke a command, and the arithmetic symbol keys

were not copyrightable, because of the limited

number of keys remaining on the computer keybourd

which had not already been assigned some specific

purpose (such as an alphabetical or numerical value.

The court in Lotus also concluded that the menu

command structure is not essential to the idea of an

electronic spreadsheet and that, as a result, Lotus

1-2-3’s menu command structure was copyrightable

expression and infringed by VP-Planner. The court

emphasized that each nonliteral element of the user

interface may or may not be protectable and that the

computer program must be viewed as a whole. ‘‘The

fact that some of these specific command terms are

not quite obvious or merge with the idea of such a

particular command term does not preclude copyrightablity for the command structure taken as a

whole. ’ To determine if illegal copying had occurred, the court found that it need only identify

copyrightable elements and decide if those elements

considered as a whole had been copied.

In the recent case of Engineering Dynamics, Inc.

v. Structural Software, Inc. and S. Rao Guntur,184

the court, in spite of plaintiff’s urgings, did not

follow the reasoning of Lotus, looking instead to the

Fifth Circuit for guidance. Citing Plains Cotton, the

court held that formats are not copyrightable.

Engineering Dynamics claimed defendants infringed

several of its manuals in the development and

marketing of defendant’s product StruCAD. It also

claimed the defendants infringed its copyright in the

‘‘user interface, ’ comprised mainly of input and

output reports, The court found that the scope of

infringed materials included the text, pictures, diagrams, illustrative examples and flow charts depicted in the manuals, but not the input and output

formats since the law of the Fifth Circuit provides

that a user interface in the form of input and output

reports is not copyrightable.

Databases

Databases are protected under copyright law as

compilations. Under the copyright law, a compilation is:

A work formed by the collection and assembling of

preexisting materials or of data that are selected,

coordinated, or arranged in such a way that the

resulting work as a whole constitutes an original

work of authorship (17 U.S.C. Section 101).

Copyright protection in a compilation does not

provide protection for every element of the compilation. Section 103(b) of the Copyright Act provides that:

The copyright in the compilation. . . extends only to

the material contributed by the author of such work,

181 ~tus De\~[~pmenl corporation” v. Paperback Software International, 7L$0 F. SUPP. 37 (D. MZS. 19~).

184 Enqlneerlng Dl,namicLY, Inc, V. ,~truc~ra/ Sofiuare, Inc. and S. Rao Guntur, Civ. ht. No. ~9”1655.

.
74 ● Finding a Balance: computer Software, Intellectual Property, and the Challenge of Technological Change

as distinguished from the preexisting material employed in the work, and does not imply any exclusive

right in the preexisting material. The copyright in

such work is independent of, and does not affect or

enlarge the scope, duration, ownership or subsistence of, any copyright protection in the preexisting

material.

Circuit courts of appeal have been inconsistent in

their treatment of compilations. The Ninth Circuit

Court of Appeals has consistently held that the

discovery of a fact, regardless of the necessary input

of labor and expense, is not the work of an author, so

that verbatim repetition of certain words in order to

use the nonprotectible facts is also noninfringing. To

hold otherwise, according to the Ninth Circuit,

would extend copyright protection to facts.185 It is

well established that copyright law never protects

the facts and ideas contained in published works.186

Indeed, the Ninth Circuit in Cooling Systems &

Flexibles Inc. v. Stuart Radiator, Inc.187 stressed the

narrow range of protectable expression in factual

works, acknowledging that to whatever extent the

arrangement and expression of facts is original, an

author is protected against its copying. 188 similarly,

the Second Circuit requires that selection, coordination or arrangement is necessary to forma copyrightable compilation.189

The Eighth Circuit case of West Publishing Co. v.

Mead Data Central190 expands the scope of what is

protectable as a compilation. West publishes texts of

cases decided in State and Federal Courts and has

developed a citation system in which cases can be

found by reference to the volume number of the

West volume and the page number on which that

case appears. Mead Data publishes Lexis, a computer database of cases published by West as well as

other Federal and State Court decisions. Mead Data

uses the West citation system to locate cases, placing

in its databases the first page on which a case appears

and also the ‘‘jump pages” for each case. West

claimed that the page numbering system of its

reporters was copyrightable and the court agreed,

holding that the compiling and arranging of the cases

meets the originality requirement of the copyright

law. Mead Data’s infringement consisted of taking

the arrangement of the cases, not the numbers

themselves. However, by using the citation system

Mead had infringed West’s copyright in the arrangement and selection of cases.

The Seventh Circuit, on the other hand, took into

consideration the author’s industry, or ‘sweat of the

brow” in producing a compilation. In Schroeder v.

William Morrow & Company, 191 

an action for

infringement of a copyright on a gardening directory, the court stated that copyright protects not

individual names and addresses but compilation, the

product of the compiler’s industry [emphasis added].

In making its finding of infringement, the court

stated that:

[i]t is clear ., . that the bulk of compilations in

plaintiff’s directory were made with substantial

independent effort and not by merely copying from

other sources. The use of another copyrighted

directory to obtain sources of information or for

verification and checking, to the extent it occurred,

was not wrongful and did not put plaintiff’s compilation beyond the protection of the statute.192

The Supreme Court finally addressed this issue in

Feist Publications Inc. v. Rural Telephone Service

Co., Inc.193 in which it rejected the “sweat of the

brow’ basis for copyrightability in fact-based works

such as compilations. The court concluded instead

that the Copyright Act of 1976 indicated that

originality is the proper test in such cases. The Feist

case involved the suit by Rural Telephone against

Feist for copyright infringement, on grounds that

Feist had illegally copied Rural Telephone’s phone

listings.

185 Woflh V. Selchow & Righter Co , 827 F.2d 569 (9th Cti. 1987).

186 Harper & ROW,, Publisher, Inc ,{. National Enterpn”ses, 471 U. S,539, 105 Sup. Ct. 2218,85 L. Ed. 588 (1985); Mazer V. S;ein, 347 U.S. 201, 217,

74 Sup. Ct. 460,470, 98 L. Ed. 630, re}~’g denied, 347 U.S. 949, 74 Sup. Ct. 637, 98 L. Ed. 1096 (1954).

187 Coollng systems & Flexibles Ire-. v. Stuart Radiator, Inc., 777 F.2d 485 (9th CU. 1985).

188 Ibid, ~ 492; s= ~1~0 ~ndsber,g v. sCrabb[e crossword Game players Inc., 736 F.2d 485 (9th CU. 1984) cert. denied 469 U.S. 1037 (1984).

189 Ec~e~ v. Cardpn”ce’s update, 736 F.2d 859 (Zd cu. lg&$), Financia[ [nfor~~on, Inc, V. Moody’s Investor Sen’ice, Inc., 751 F.2d 501 (2d CU.

1984); 808 F. 2d 204 (2d Cir. 1986).

lx West F’ub/ishing CO. v. Mead Data Central, 799 F. 2d 1219 (8th Cir. 1987).

191 Schr<>cder v. William Morrow & Company, 566 F.2d 3 (7th Cir. 1977).

192 see ~]so Gel/eS.widmer CO. v. Milton Bradley Co., 313 F.2d 143 (7ti Cir. 1963).

~p~ Feis; Pub[icutiOns Inc. v. Rural Telephone Service CO., Inc., — U.S.—, 111 Sup. Ct. 1282 (1991).
Chapter 2—The Law ● 7 5

The Court noted that the case involved two

propositions of law which are traditionally in

tension: first, that facts are not copyrightable and

second, that compilations of facts generally are. The

court concluded that while Feist clearly appropriated

a significant amount of factual information from

Rural Telephone’s directory, Rural Telephone’s

selection, coordination and arrangement of its white

pages did not satisfy requirements for copyright

protection. The Court, therefore, held that Feist’s

taking of the listing could not constitute an infringement

Two new cases flow from Feist and appear to

establish an emerging line of authority regarding the

treatment of spreadsheets. The Second Circuit, in

Kregos v. Associated Press,194 found baseball pitching forms to be sufficiently original in the selection

for copyright protection of nine categories out of the

universe of pitching statistics. In Key Publications

Inc. v. Chinatown Today Publishing Enterprises

Inc.,195 the Second Circuit upheld the copyright in

the yellow pages of a Chinese-American community

directory. The copyright was based upon the compiler’s original selection and arrangement of business listings. At the same time, the court found the

copyrighted directory not infringed by a competing

directory that used a different arrangement of

categories and principles of selection for included

listings. This finding of non-infringement suggests

that thin protection exists in a compilation.196

Other Concerns About Copying

Software developers, especially packagedsoftware developers, have also been concerned

about two issues related to unauthorized copying:

software rental and States’ sovereign immunity from

money damages for copyright infringement. These

concerns have received congressional attention resulting in new legislation in the 101st Congress:

Title VIII of Public Law 101-650 makes it an

infringement of copyright to rent computer software

without the copyright holder’s permission; Public

Law 101-553 allows Federal courts to hold the

States and their agencies and employees liable for

copyright infringement. Before the latter was enacted, Federal courts had refused to hold the States

or their agencies (e.g., State universities) liable for

money damages for copyright infringement, on the

grounds that the copyright law does not clearly show

the intent of Congress to abrogate the States’

sovereign immunity under the 1 lth Amendment.197

The rental legislation was motivated by software

industry concerns that most software rentals would

be motivated by the desire to copy, rather than to

“try before buying,” and that software rental to

potential copiers would displace sales. Similar

concerns had previously resulted in the record-rental

provisions of the current copyright law.

The Semiconductor Chip Act-The Semiconductor Chip Protection Act of 1984 was enacted to

extend legal protection to a new form of statutory

subject matter, semiconductor chip products and

mask works,198 According to the legislative history,

the Semiconductor Chip Protection Act is intended

to combat the problem of chip piracy, 199 as Congress

perceived that the existing law failed to address that

problem. In effecting this purpose, Congress attempted to incorporate the goals of the U.S. Constitution regarding copyrights and patents: to reward

authors and inventors for their labors, to provide

them with an incentive for future creativity, so as to

ultimately benefit the public.

The Chip Act is a special or sui generis law,

creating a statutory scheme to provide proprietary

protection for chip products separate from and

194 KregOS V. Assoclu[ed Press, 937 F.2d 700, 19 U. S.P.Q. 2d 1161 (2d C~. 1991).

195 Ke) publications Inc. v, Chinatown To&zy Publishing Enterpn”ses Inc., 20 USPQ 1122 (2d CU. 1991).

196 A num~r Ofother rulings have fIOWed from Feist. Bellsouth Adve~”sing & Pub. Corp. V. Donnelly Info. Pub., 933 F.2d 952 (1 lth Cti. 1991) held

that copying the categories of a yellow page directory infringed that directory even though the copying was for unrelated use. Victor Lalli Enterpr. v,

Big Red Apple, Inc., 936 F.2d 671 (2d Cir. 1991) held that an particular format for reporting racing-related data was not copyrightable because it was

a format used by many others and was dictated entirely by the intended use as a means to gamble on the numbers game.

197 See BNA patent, Trademrk, and Copyright Journal, VOI. 41, JaII~ 1991, pp. 301-302.

198 Semiconductor chips we integated cficult~ ~ontai~g ~~istom, resistors, capacitors and the~ interconnection, fabricated into a very SIId SIIlgle

piece of semiconductor material. A mask work is a set of images fixed or encoded at a later stage of manufacturing, that produces the circuitry of the

fiml chip product. Stanley M. Besen and Ixo J. Raskind, ‘An Introduction to the J-aw and Economics of Intellectual Property, The Journal of Economic

Perspectives, vol. 5, No. 1, pp. 3-27, at 19.

199 me le~slatlve histoV indicates tit ~centives for Puacy Me ~at ~~c is a ~eat disp~ty between the cost of developing a chip and thC Cost

of copying it; the legislative reports indicate that initial development can cost as much as $100 millio% while copying costs as little .as $50,000.
76 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

independent of the Copyright Act.200 Protection for

domestic products attaches upon fixation and commercial exploitation.

201 Registration with the copyright Office is a condition of mask work protection.

Protection is forfeited if the mask work is not

registered within 2 years after the date of first

commercial exploitation. The Copyright Office

makes provisions for registration. The act provides

for a 10 year term. Owners of a protected mask work

are granted the right to bar reproduction of the mask

work by any means and the right to import or

distribute a semiconductor chip product in which the

mask work is embodied. The Act establishes reverse

engineering as a defense to a claim of infringement.

The reverse engineering provisions provide an

exemption from infringement liability in spite of

proof of unauthorized copying and striking similarity, as long as the resulting chip product was the

result of study and analysis and contained technological improvement. The act also provides remedies similar to those associated with copyright

protection. However, criminal penalties are not

available, and the limit on statutory damages is

higher than that provided for by the Copyright

Act. 202

Design Patent Protection-Design patents provide protection for designs for an article of manufacture that are new, original, and ornamental. The

design may be surface ornamentation, configuration

or a combination of both. Courts have defined a

patentable ornamental design as one that must

‘‘appeal to the eye as a thing of beauty. ’203 As with

other inventions granted patent protection, the subject of design patent protection must undergo an

examination process in the Patent and Trademark

Office and meet the standards of novelty and

nonobviousness. The configuration of a useful

object may constitute a patentable design, so that the

elements of a design may be functional. However, a

design dictated by considerations of function is not

a proper subject for a design patent. A design is not

patentable if the only points of novelty or nonobviousness over prior designs are dictated by fictional

improvement or alteration.

204 once a patent is

granted for a design, the term of protection is 14

years. For infringement of a design patent to exist,

the accused article must be so similar to the

protected one ‘‘as to deceive an observer, inducing

him to purchase one supposing it to be the other. . .“205

Industrial Design Bills in the United States—

Industrial design protection is crafted to protect

designs inadequately protected under patent, trade

dress and copyright law. The history of proposals in

the Congress of this method of protection is long.206

Several proposals to protect industrial designs

were presented to the 100th Congress.207 These

proposals use a similar modified copyright approach. All three would have amended Title 17 to

protect designs that are “original.” The bills provided for copyrightlike registration process, rather

than a patentlike examination process. Commonplace designs, those “dictated solely by utilitarian

function’ were excluded from protection. All provided for a term of protection of 10 years. Design

rights, under the statute, would not affect any rights

under patent, trademark, or copyright law. The bills

required that notice of protection appear on the

article. Copying an article without knowing that it

was a protected design would not constitute an

infringement. 208

~ See Ro~rt W. Kmtenmeiffand Michael J. Rerningtoq “The Semiconductor Chip Protection Act of 1984: A Swamp Or Firm Ground?’ Minnesota

l.uw Review, vol. 70, No. 2, December 1985, pp. 417-470. According to Kastenrneier and Remingto@ while working in hamnony with the copyright law,

The Semiconductor Chip Protection Act avoids tailoring copyright principles to accommodate the singular character of the use of chip designs in the

manufacturing process so as to distort the way in which copyright was applied to other categories of copyrightable works. At the base of their theory

is the proposition that dissimilar things should not be treated in a similar fashion. See especially pages 443-444.

201 ForelW products we *mted protection by me p~si&nt upon a fiiding that a foreign nation extends to U.S. nationals the same protection as the

United States accords to the foreign nationals.

202 Ibid.

203 Wabern Packaging Indu~,, Inc. v. Cut Rate Plastic Hangers, Inc,, 652 F.2d 987,2 lt) U. S.P.Q. 777 (2d CU. 1981) Bliss V. Gotham Idus., Inc., 316

F.2d 848, 137 U. S.P.Q. 189 (9th Cir. 1%3).

~Ctisu patents, Section 1.04[2][d].

ms Gorham MJg. CO. v. White, 81 U.S. (14 Wall.) 511, 20 L. Ed. 731 (1872).

206 See, Jaques M. D~“Design ~ot~tion: w-g he fiate Plti?” Bu//etin, copyright Socie~ of the U.SA., VO1. 12, No, 6, Au~st 1%5;

Note, ‘‘Protection of the Design of Useful Articles: Current Inadequacies and Proposed Solutions,” Hofstra Luw Review, vol. 11, spring 1983, p. 1043

at p, 1065.

20T See H.R. 902, HR. 3017, H.R. 3499.

‘8 “Court Rescinds Ruling That clBase Copyright Is Invalid,” BNA Patent, Trademark & Copyright Journal, vol. 4, p. 543.
Chapter 2—The Law . 77

Opponents of the industrial design bills have

argued that there is already sufficient incentive for

production of articles of industrial design.209 Other

critics of the bills maintain that industrial design bill

might, by virtue of its characterization as ‘ ‘industrial, ’ cover functional designs, such as automobile

windshields, replacement parts, and product packaging, thus favoring original equipment manufacturers

and brand name marketers over the makers of

less-expensive after-market auto parts and store

brand consumer products. Publishers are concerned

about liability for publishing books that contain type

face designs protected under the legislation.210

H.R. 1790, the Design Innovation and Technology Act of 1991, was introduced in the 102d

Congress. This bill would amend the copyright law

to provide for the protection of industrial designs of

useful articles, including typefonts.2

11 The bill sets

the term of protection at 10 years and provides for

requirements for marking, application, and fees. The

bill specifies criteria for determination of infringement of a protected design and grants the owner of

a protected design the exclusive right to make,

import, or distribute for sale or use in trade any

useful article embodying the design.

H.R. 1790 addresses concerns raised during

hearings on design legislation held in 1990. As a

result, it requires that protected designs meet a

standard of ‘originality’ if they are to be protected,

such that the design must be the result of a designer’s

creative endeavor that provides a ‘‘distinguishable

variation over prior work pertaining to similar

articles. ” This variation must be more than trivial

and must not have been copied from another source.

The bill also expands an exemption for certain

replacement parts for automotive and other products. The bill protects distributors and retailers who

innocently trade in infringing products. Publishers

are not subject to infringement actions under the

legislation for reproducing, modifying or distributing printed materials even if these contain an

infringing typeface. The aggrieved party must seek

a remedy from the actual infringer. Finally, the

legislation requires that the registrant for design

protection forego simultaneous protection under the

patent and copyright laws.

Design protection granting the designer or other

owner of the design exclusive rights in the use of his

creation has been enacted in foreign countries

including Canada, France, the Federal Republic of

Germany, India, Italy, Japan, the Netherlands, and

the United Kingdom.212 Such legislation in the

United Kingdom and Canada has been recently

enacted. Other laws, such as those of Germany and

Italy, have been amended in recent years, The

definition of industrial design may vary from

country to country. However, it appears that generally design protection involves elements such as

configuration, shape, pattern, and combinations of

lines and colors which provide a product with a new

or aesthetically improved appearance. Novelty and

the industrial application of the design are generally

required to obtain protection. In the countries listed

above, the term of protection ranges from 8 to 15

years. The laws in these countries are enforced and

provide for civil remedies in cases of infringement

of exclusive rights. In some cases, the law provides

for imposition of sanctions for criminal offenses.213

Hybrid Design Protection

One intellectual property scholar, Professor Jerome Reichman, has suggested that software is, like

industrial design, an example of a ‘ ‘legal hybrid’

falling between the patent and copyright systems.214

Other examples are biotechnology and medical

processes. These hybrids are characterized by the

fact that considerable investment is required to

xw For ~ discussion of some of tie economic considerations associated with the protection of industrial desig% sec Robcfl C. Denicolt\ ‘‘Applied Afi

and Industrial Design: A Suggested Approach to Copyright in Useful Articles, ’ Minnesota Law Review, vol. 67, pp. 707, 721-727.

210 Ibid.

21 I me bill spwific~ly excq~ d~i~~ tit we: 1) not ol-igi~; 2) s~ple or ~mmonpl~e; 3) different from commonplace or skiple designs ill

insignificant ways; 4) determined solely by a utilitarian functiom 5) embodied in a useful article that was made public by the designer or owner in the

United States or in a foreign country more than one year before the date of application for registratio~ 6) composed of three dimensional features of

shape and surface in wearing apparel; 7) a semiconductor chip product already protected under another provision; 8) embodying a process or idea or

system; or 9) for motor vehicle glass.

212 See Giovanni Salvo, ‘‘Industrial Design Protection,’ document of the Law Library of Congress, European Law Division, March 1990, LL90-23,

pp. 1-2.

2

1

3 Ibid.

214 J. H. Reichman, “Computer Programs as Applied Scientific Know-How: Implications of Copyright Protection for Commercialized University

Research,” knderbilt L.QUI Review, vol. 42, No. 3, April 1989, p. 655,
78 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

achieve incremental innovation, and the “knowhow” is vulnerable to rapid duplication by competitors who bear no part of the development expenditure. However, these products have fallen outside the

copyright regime, and patent protection would not

be available because the innovation is incremental,

not ‘‘non-obvious. ’

Reichman believes that a sui generis know-how

law built on modified copyright principles could

provide adequate protection to this kind of legal

hybrid without embracing the full copyright paradigm. He believes that this approach would eventually unify the treatment of innovations such as

computer software and industrial design.

Reichman has written that:

[t]he fundamental problem remains that of rewarding or simply recompensing large expenditure

for incremental innovations that fall chronically

short of the current legal threshold for patentable

inventions. 215

These technologies are not adequately protected

because they deviate from the assumptions underlying the classical forms of intellectual property.216

The solution, in Reichman’s view, is a new intellectual property paradigm that provides this incremental innovation with artificial lead time in which

investors can recoup their investment and turn a

profit. *17

Other commentators have also argued that the

patent and copyright laws are not appropriate for

computer software, and that a sui generis law based

on a modified copyright approach would be better.218 However, while Professor Reichman argues

that software belongs to a larger class of “legal

hybrids’ requiring a new intellectual property

regime, these commentators favor the creation of a

law specifically directed at computer software. One

of the arguments which has been advanced against

a sui generis regime for software is that it risks being

obsoleted by changing technology.

Other arguments have been advanced for continuing to work within the existing patent and copyright

regimes. First, it is argued that the present regimes

are working well, and their economic effects are

appropriate.

219 The CONTU report concluded that

copyright law was an appropriate mechanism for

protecting computer programs and, they claim, the

case law has been evolving properly.220 Further

arguments against sui generis protection are that a

new regime would create uncertainty, and that

international copyright agreements provide a framework for the protection of computer programs in

other countries.221 (See box 2-H for discussion of

Analagous Copyright Law in Foreign Countries.)

Trade Secret Law

Introduction

Trade secret law protects certain types of confidential technical or business information against

unauthorized use or disclosure. Some believe that

the object of the trade secret law is to protect

confidential relationships,222 and promote ethical

standards of competitive behavior while others

subscribe to the theory that its purpose is to protect

the secret information itself. As with copyright and

patent, the proprietary interest in the information

215 Ibid., at p. 653.

216 Ibid., at p. 661.

217 J. H. Reichman, 6 ‘proprietary Rights in tie New Landscape of Intellectual Property Law: ArI Ang@-knericrm Perspective, ’ study prepared for

the International Literary and Artistic Association (ALAI), Congress of the Aegean Sea II, Athens, June 19-26, 1991.

218 sepme~smuelson, ‘BenstJnRevisited: TheCase Against Patent Protection for Algorithms and OtherComputer Program-Related kventiOnS, ’

Emory L.uw Journal, vol. 39, No. 4, p. 1025, p. 1150; Richard H. Stem, “The Bundle of Rights Suited to New ‘Rdmology,” University of Pittsburgh

Luw Review, vol. 47, No. 4, p. 1229. Professor Paul Goldstein argues that copyright law runs the risk of providing too much protection to functional

aspects of works belonging in the domain of patents. He fhrther perceives problems with patent protection for software (prior art problems, problems

of patenting obvious subject matter, etc.) so tha~ he asserts, subject matter is being protected which is not appropriately covered by patent or copyright

law. He believes that, if improperly apptied, the law will result in consum ers paying higher prices for software than warranted, among other dislocations.

See generally, Paul Goldste@ “Infringement of Copyright in Computer Programs,” University of Pittsburgh Law Reviewy vol. 47, No.

4, Summer 1986.

219 Ro~d T. ReiLing, Chairmam proprietary Rights Committee, Computer and Business Equipment Manufacturers Association lkstimony at

Hearings before the House Subcommittee on Courts, Intellectual Property and the Administration of Justice, Nov. 8, 1989, Serial No. 119, p. 167.

~ Morton David Goldberg, op. cit. at footnote 166.

221 Rotid T. Rei@, op. cit. at footnote 218.

222 See Rockwell Graphic System,s, Inc. v. DEVIndustries, Inc., 925 F.*d 174 (7th Cu. 191).
Chapter 2—The Law ● 79

may differ from a proprietary interest in the physical

object embodying the trade secret.223

Trade secret law is generally based on common

law and contractual provisions. State law addresses

all trade secret claims, even when a trade secret

claim is tried in Federal court. As a result, the fine

points of trade secret law may vary from state to

state. However, a Uniform Trade Secrets Act (UTSA)

has been adopted in about half the States.224 In States

where it has been adopted, the UTSA operates as a

statute and is part of the State civil code. In spite of

this state to state variation of trade secret law, one

accepted definition of a “trade secret” is that of the

Restatement of Torts:

A trade secret may consist of any 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 or use it. It maybe a formula for a chemical

compound, a process for manufacturing, treating or

preserving materials, a pattern for a machine or other

device, or a list of customers.225

The UTSA sets out a simpler definition of trade

secret than that contained in the Restatement.

According to the UTSA, a trade secret may be any

kind of information, including but not limited to, “a

formula, pattern, compilation, program, device,

method, technique or process. , .’ A trade secret

must derive independent economic value, actual or

potential, from the fact that it is not generally known

tO the public or competitors. The UTSA does not

require absolute secrecy; the information may derive

actual or potential economic value from relative

secrecy. However, the information must be ‘‘the

subject of efforts that are reasonable under the

circumstances to maintain its secrecy. ’ Thus, even

if information is not leaked, protection may be lost

if it is not treated as secret.

The law of trade secret generally focuses on

inequitable use of the information, whether by abuse

or breach of confidence or trust, impropriety in

obtaining or using the information, or breach of

contract or other express obligation not to disclose

the information. The indicia for establishing a claim

of misappropriation of a trade secret or confidential

information set forth by the Restatement of Torts are

that:

1. There must be a protectable interest i.e. a trade

secret;

2. The plaintiff must have a proprietary interest in

the trade secret or information;

3. The trade secret must be disclosed to the

defendant in confidence or it must be wrongfully acquired by the defendant through improper means;

4. There must be a duty not to use or disclose the

information; and

5. There must be a likely or past disclosure or use

of the information, if in a different form, which

is unfair or inequitable to the plaintiff.

Under the UTSA, two major types of trade secret

misappropriation are prohibited:

1. Simple acquisition of trade secrets, regardless

of whether the information is used, by a person

who knows or has reason to know that the trade

secret was acquired by improper means.

2. Misappropriation based on use or disclosure:

●

●

●

use of improper means to obtain a trade

secret;

use or disclosure of a trade secret knowing or

having reason to know that the secret was

improperly obtained;

use of information acquired by accident or

mistake after learning, and before materially

changing position, that the information is a

trade secret.

Characteristics of a “Trade Secret”

In order to qualify as a trade secret, information

must possess certain characteristics. First, the information that is the subject of trade secret protection

must be of some minimal competitive value or

advantage to the owner or his business. Trade secrets

can include technical information, customer lists,

suppliers, or accumulated business wisdom. The

information must also be the result of some minimal

investment or expense, and must not be generally

known to the public. Courts also consider the

amount of effort that is invested in creating a

223 FOrex~ple, ~vCn fipOp]e OmC@fi CN& On ~hiCh ~omtion is printed, they do not necess~ly ~ve a right to use tic confi&ntial information

on those cards. American Republic Ins. Co, v. Union Fidelity Life Ins. Co., 470 F.2d 820, 825 n. 3 (9th Cir. 1972).

~d Ro~d Abr~soL 1‘Trade Seaet ~otection for Computer Software-Proeedures for Protection: Recent Decision On Its Scope, ’ computer

Soffware 1990 Protection and fUurkefing (New York NY: Practicing Law Institute, July 1990) p. 479.

~sRe~(afemenf ofTo~fS, section 757, comment b, at 5 (1939)
80 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 2-H—Analogous Copyright Law in Foreign Countries

The Pacific Rim

Japan—To ensure inclusion of computer programs as protectable subject matter of copyright, Japanese revised

copyright law defines computer programs as “a set of instructions for a computer which are combined in order to

function [sic] the computer so that one result can be obtained.”l This definition establishes four requirements for

a copyrightable computer program. First, the set of instruction must function to operate a computer. Second, the

minimum requirement for a copyrightable program is a set of instructions which can effect one result.2 Third, a

program consists of a set of instructions to be input into a computer.3 Fourth, a program must be an expression; to

be the subject matter of copyright law, a program must be the expression of an idea.

Under Japanese law, both source code and object code are copyrightable. Translation from source code to

object code constitutes a reproduction of the source code.4 A report prepared by the Japan Copyright Committee

in January 1984 defines a set of instructions stored in read only memory to operate a preselected operation as a

microprogram, making them subject to Japanese copyright. This definition is not widely accepted, leaving some

doubt as to the copyrightability of microprograms.

Japanese Copyright Law further provides that the author shall have the exclusive right to reproduce his work.

The law provides that the author shall have the exclusive right to translate, arrange, transform, dramatize,

cinematize, or otherwise adapt his work. In principal, a person who possesses a copy of a program is prohibited from

making another copy or adapting the original copy without the copyright owner’s consent. However, like U.S. law,

Japanese Copyright Law limits the scope of the author’s exclusive right of reproduction regarding a program work,

by allowing copies or adaptation to the extent deemed necessary for the purpose of using the work in a computer

to be made by the owner of a program for his own use.5

The period of protection for computer software in Japan is life of the creator plus 50 years.6 For unpublished

software, the copyright endures 50 years after the creation of the work.7

Korea—In Korea computer programs are defined as a set of instructions and commands, expressed in a specific

manner, to be used directly or indirectly in a computer to bring about a certain result. The scope of protection

afforded software by Korean law is similar to that granted to software in Japan.

The term of protection for software in Korea is 50 years from the time at which the program is created.

Taiwan—Taiwan law defines a computer program as a set of instructions to be used in a computer in order

to bring about a certain result. The Ministry of the Interior published a document in 1986 clarifying the coverage

of software by the copyright law. Prior to release of that document, software registrations were accepted but no

explicit provision provided for software.8

Taiwanese copyright law provides protection for the life of the author plus 30 years. If the work is created by

an employee, 30 years of protection are provided.9

1 Paul C.B. Liu, “COmpUler !loftwm and Intellectual Property Law in the Pacific Rim Countries,” contractor report prepared for the

OffIce of lkchnology Assessmen~ p. 20, citing copyright law, art. 2, para. 1, item 102 (Law No. 48, 1970), translated by EHS (Eibun-Horei

Sha Inc.), Law BuUetin Series, Japau Vol. 3. ‘Ihe definition has also been translated as: “an expression of combined instructions given to a

computer so as to make it function and obtain a certain resul~” Atsuo lbrii, Legal Protection of Computer Software in Japan, AIPPI Journal,

December 1985, p. 150.

2 ~~one res~t~* is ~fiir=~t of Om &m processing function. For example, if a whole program idudm a set of Subroutim, -h

subroutine is protectable as a copyrightable program.

3 nus, ~tefi~ titten in _ge other than machine-readable language, such as a flow CX is not a computer program under Japanese

copyright law.

4 Liu, op. cit. footnote 1, citing 14 (3) Mu~en Kankei Minji Gyosei Saiban Reishu 7% (Tokyo District Ct., Dec. 6, 1982).

5 J~p~ese Cop@@t hw, ~. 470).

6 Ibid., ~. 53, p-. 1

7 mid., art. 53, pm. 3.

8 R. ~c~l Gad~w, et ~., l~ellec~l prope~ Rights: Glo~l (j!onsensus, Global Conflict.7 (Bo~der, CC): Westview press, 1988)

p,374.

9 Ibid.
Chapter 2—The Law ● 81

Western Europe

The European Communities have adopted a directive on the legal protection for computer software, which

must be implemented by each of the EC member states. This directive requires that software be protected by

copyright as a literary work within the meaning of the Berne Convention.10

Each of the member states must adopt legislation necessary to comply with the directive by January 1, 1993.

However the following are examples of copyright protection for software as it now exists in the EC member states

of France and in Switzerland, which is not a signatory to the EC treaty.

France—The French legal system, based on statutory law rather than case law, did not address the question

of copyright in its Civil Code Law of March 11, 1957. The law of July 3, 1985 modifies the copyright law to take

into account modem technologies such as computers. The July 3, 1985 law expressly provides that software is

copyrightable, but leaves to the courts the task of defining software (referred to in France as ‘‘logiciel’ ‘). The law

of July 3, 1985 differs in several respects from the normal rules of copyright. A decree of December 22, 1981

proposes a definition of software as:

the combination of programs, processes and rules, and possibly the documentation, relevant to the functioning

of a system for the treatment of information.

This text is not strictly regarded by the courts.

Copyright protects not the idea of a creation but the form or expression of the creation. French law has no

requirements for registration, deposit or notice. While there is no value requirement for protection, the creation must

be original; i.e., it must reflect the personality of the creator.

The owner of a copyright has rights of reproduction and adaptation. While the buyer of software is entitled to

make one backup copy of software, any other unauthorized copy or unauthorized utilization is an infringement.

The term of protection under copyright in France is 25 years from the date of creation of the software.

Switzerland--Opinion as to whether computer programs are copyrightable in Switzerland is mixed. However,

generally, in order to be protected under Swiss law, a work: 1) must be a creation, 2) must be in the literary or artistic

field, and 3) must have an original character, Swiss law lists explicitly the exclusive and absolute rights of copyright

holders. Among these are the right to reproduce a protected work, and the right to sell, offer for sale, or put into

circulation copies of the work Protection extends for the life of the author plus 50 years. Switzerland has no

formality requirements.

Latin America

Brazil-Copyright law in Brazil pertains to all “creations of the mind. . . regardless of their form of

expression. 11 Software programs are not included in an enumerated list of creations subject to protection, and are

not registered by the National Copyright Council of the Ministry of Culture.

A work is protected by copyright in Brazil for the life of the author plus 60 years after the author’s death.

Registration is not required for copyright protection.

Argentina--Argentine law protects all traditional forms of creative expression. Source code programs may

have copyright protection. While the Argentine National Copyright Registry allows for registration of source code

programs and object code programs, the courts have not made a specific ruling on this practice. Draft laws grant

protection to both object code programs and source code programs, as well as to the operating system software and

application software.12

Mexico-Mexican law now includes computer programs as a category of protected works under the copyright

law. Mexican law includes no private use or “fair use” type of limitation.

10 see Couch Directive of my 14, 1991 on the leg~ protection of computer pqy~ (91/250/EEc), preamble, para. 30; published in

the Ofllcial Journal of the European Communities, No. L 122/42, May 17, 1991. For further discussion on the European Economic Community’s

treatment of computer software in the software directive, see ch. 3.

11 G~baw, et al. op. cit., footnote 8, p. 172.

12 G~baw, ibid, p. 133; Cary Sh~ et. al., Computer Sojlware Protection Luw (Washington DC: Bureau of National Affairs, Inc.,

1990), p. AR 8-9.

SOURCE: OTA, 1992.
82 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

program when determining whether a trade secret

exists. 226 Finally, the owner of a trade secret must

affirmatively maintain the secret.

The Need to Maintain the Trade Secret

A critical requirement for establishing the existence of a protectable trade secret is that the

proprietor has exercised a substantial effort to retain

secrecy that was reasonable under the given circumstances. While the trade secret owner must take

affirmtive, concerted and continuing action to

protect his trade secret, the requisite level of secrecy

is characterized by relative secrecy:

‘‘The owner of the secret need only take reasonable precautions to ensure that it would be difficult

for others to discover the secret without using

improper means. ’227

There are several widely recognized indicia as to

whether the information is entitled to protection as

a trade secret:

1. the extent to which the information is known

outside the company;

2. the extent to which it is known by employees

and others involved in the business;

3. the extent to which the owner has gone to

assure its secrecy;

4. the value of the information to the owner and

his competitors;

5. the cost of developing the information; and

6. the ease with which the information could be

properly duplicated or acquired by others.228

General disclosure of protected information will

entail permanent loss of its character as a secret.

However, the ‘‘necessary element of secrecy is not

lost if the holder of the trade secret reveals the trade

secret to another in confidence, and under an implied

obligation not to use or disclose it,’ or under a

similar express obligation.229 Thus, licensing of

software or its disclosure to an employee will not

void the secrecy of the information embodied in it,

provided that the recipient is subject to an implied or

express obligation to maintain confidentiality. While

one court has held that secrecy remains when

software is distributed in object code only,230 the

question remains how wide a distribution vitiates

requisite secrecy.

Employment contracts through which employees

are placed under an obligation to maintain secrecy

are governed by State law and are an important tool

in implementing trade secret protection. It is suggested that the prevalence of such contracts is one

argument against a Federal trade secret law, since to

attempt to regulate such contracts on the federal

level would impinge upon the power of the States to

govern employer/employee relations.

Software and Trade Secret Law

Trade secret law is one of the most widely used

forms of legal protection for intellectual property

interests in computer software. Numerous courts of

a variety of U.S. jurisdictions have ruled that trade

secret properly protects computer software.231

When software is distributed to relatively few

customers, licenses establishing the confidential

relationship and obligations necessary for trade

secret can be obtained through signed written

agreements. 232 Developers of computer software

have attempted to address the more difficult problem

of maintaining trade secrecy in mass marketed

226 Cybertek computer prod~ts, Inc. V. Whitfield, 203 U. S.P.Q. 1020, 1023 (Cal. Super. Ct. 1977) Computer Print Systems, Inc. V. Lewis, 422 A.2d

148, 153-54 & n. 2 (Pa. Super. 1980),

227 Henry Hope x-Ray Prods., Irlc, V. Marron Carrell, Inc., 674 F.2d 1336, 1340 (9th Cir. 1982), Jostens, Inc., v. National Computer SYS., Inc. 318

N.W. 2d 691,700 (Minn. 1982). Sirndarly, the UTSA provides that the tiormation as discussed alier in this sectiom must be “the subject of efforts

that are reasonable under the circumstances to maintain its secrecy.” Information must be consistently treated as a secret, as otherwise it may lose its

trade secret status even if it does not leak out.

228 Restatement of Torts, section 7!j7, Cement b, at 6 (1939), rqfited ~ app. D.; SI Handling system V. Heis[ey, 753 F.2d 1244 (3rd Ck. 1985).

22g KeWanee Oil CO. v. Bicron Corp., 416 U.S. 470, 475 (1974).

230 see, e,g., Q.co ]ndusrrjes ~ne. V. Ho@nan, 625 F. SUpp. 698, 617-18 (S.D.N.Y. 1985).

231 Telex COT. v. Inter’l Business Machines COT., 510 F.2d 894 (1M CU.), cert. di~”ssed, 423 U.S. 802 (1975); University Computing CO. V.

Lykes-Youngstown Corp., 504 F.2d 518 (5th Cir. 1974); Q-Co. Indusm”es, Inc. v. Ho~n, 625 F. Supp. 608 (S. D.N.Y. 1985); Cybertek Computer

Products, Inc. v. Whi@eM, 203 U. S.P.Q. 1020 (Cat. Super. Ct. 1977); Corn-Share, Inc. v. Computer Complex, Inc., 338 F. Supp. 1229 (E.D. Mich. 1971),

affd., 458 F.2d 1341 (6th Cir. 1972).

232 comider~le Scholmhip efists &CuSS~g ~euseof con~ctabove ~d~yond tie prot~tionprovid~by the traditional intellectuidproperty kVS.

Such modes of providing protection for software and software related inventions are of importance, given the European Community’s Directive on legal

protection for computer software, which in article 9 specifically provides that contractual provisions contmry to article 6 or to the exceptions provided

for in article 5(2) and (3) are nulhfled by article 9. For further discussion of contracts in this are% see box 2-I.
Chapter 2—The Law ● 83

Box 2-I-Contract Law Protection of Electronic and Computer Technology

Apart from the provisions of the intellectual property law, contractual agreements are used to provide the terms

for the distribution of computer goods and services. These agreements have allowed the vendor or licenser to define

its relationship with the user or licensee concerning the goods and services. Traditionally, a considerable amount

of service and maintenance was required in connection with computer goods. Contracts covered this aspect of the

relationship and defined certain obligations which existed on the part of the vendor/licensee and the user/licensee,

including warranties, limitation on liability, risk of loss and damages.

As computer technology evolved, both in terms of its cost-effectiveness and the extent of its distribution, the

nature and breadth of contractual agreements also developed. In the area of mass-marketed software for

microcomputers, the industry adapted the contractual relationship and developed the so-called shrink-wrap license

agreement. The shrink-wrap license does not necessarily require that the user/licensee formally execute the

agreement and return it to the vendor/licensee. Instead the contract may become binding upon use of the licensed

program by the user/licensee.l

According to some sources, the distinction between hardware, software, and data is beginning to blur

significantly at the same time that more and more resources are being invested in their development. Typically, the

relationships between the buyers and sellers regarding their rights in these are set forth between parties in written

agreements. 2

The Interface Between State Contract Law and Federal Patent Law

While Federal patent law preempts State-based protection that provides patentlike protection,3 Federal patent

law does not preempt State-based protection of trade secrets4 and does not prohibit States from enforcing valid

contracts that provide protection for unpatented products.5 In the case of Aronson v. Quick Point Pencil Co. the

Supreme Court stated:

Commercial agreements traditionally are the domain of state law. State law is not displaced merely because the

contract relates to intellectual property which may or may not be patentable, the states are free to regulate the use of

such intellectual property in any manner not inconsistent with federal law. [citations omitted In this as in other fields,

the question of whether federal law preempts state law ‘‘involves a consideration of whether that law ‘stands as an

obstacle to the accomplishment and execution of the full purposes and objectives of Congress. ’ [citations omitted]. ”

If it does not, state law governs.6

The Court of Appeals for the Federal Circuit has adopted the principles expressed by the Supreme Court in

Aronson in a number of decisions.

In Universal Gym Equipment v. ERWA Exercise Equipment,7 the Federal Circuit held that parties to a contract

may limit their rights to take action they previously had been free to take. For example, a licensee or licenser may

contract to prohibit the licensee from reverse engineering or manufacturing any features of a licenser’s

product-even after the agreement is terminated. Before contracting, the licensee may have reverse engineered and

manufactured the licenser’s unpatented products without violating the licensor’s rights.8

In PowerLift, Inc. v. Watherford Nipple-Up Systems, Inc., 9 the Federal Circuit, in deciding a preemption issue,

stated:

1 me S~.Wap license is discussed in further detait in thh chapter, ad ~ box 2-J.

2 RObeII Greene Steme, Sterne, Kessler, Goldstein and Fox, personal COmmUtdCatiOn, Nov. 20, 1991.

3 kdeed, not all forms of s~te-based protwtion are preempted by Federat patent law. For example, Bonito Boafs did not prohibit States

froIu protecting trade dress ./30nito Boars, Inc. v. Thunder Craft, Inc., 489 U.S. 141 (1989); 376 U.S. 225 (1964); and Compco Corp. v. Day-Bnfe

Lighfi’ng, Inc., 376 U.S. 234 (1964).

4Keewunee oil Co. v. Bicron COW., 416 U.S. 470 (1974).

5 Ar~n~on V. Quick Point Pencil CO., 440 U.S. 257 (1979).

~ Aronson v. Quick Point Pencil Co., 440 Aronson v. Quick Point Pencil CO., U.S. 257 (1979) at 301-3~.

7 Universal Gym Equipmem v. ERWA Exercise Equipment, 827 F.2d 1542 (Fed. CU. 1987).

s Universal Gym Equipment v. ERWA Exercise Equipment, 827 F.2d 1542 at 1550. S= alSO Richardson V. Suzuki Motor CO., 868 F.zd

1226, 124142 (Fed. Cir. 1989), which held that where parties contract to limit the use by the recipient of features, designs, technical information

or know-how disclosed under the contract, such a contractual ararngement is not incompatible with the patent law.

9 Power L.J~, Inc. v. Wathe~ordNipple-Up System, Inc., 871 F.2d 1082 (Fed. CU. 1989)

Continued on next page
84 ● Findng a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 2-I--Contract Law Protection of Electronic and Computer Technology--Continued

[w]e follow the Supreme Court guidance in Aronson which binds all circuits addressing federal preemption of state

contract law.10

The Interface Between State Contract Law and Federal Copyright Law

The Copyright Act preempts private contracted arrangements between parties that affect their rights in

copyrighted works, only in a few limited circumstances specified in the statute. The legislative history of section

301 of the act states:

nothing in the bill derogates from the rights of parties to contract with each other and to sue for breaches of

contract. ..11

In the instances in which Congress intended in the Copyright Act to create exceptions to individuals’ freedom

to contract, it did so unequivocally. Section 203 grants authors the right to terminate transfers or licenses to their

works after 35 years, and section 203(a)(5) explicitly limits an author’s ability to contract that termination right

away, providing that:

[termination of the grant maybe effected notwithstanding any agreement to the contrary. . .

The legislative history is clear on the effect of the provision:

[A]lthough affirmative action is needed to effect a termination, the right to take this action cannot be waived in

advance or contracted away. 12

Contracts that impose restrictions beyond the immediate scope of the rights granted under section 106 of the

Copyright Act have been upheld. For example, in SAS Institute, Inc. v. S & H Computer Systems, lnc.13 the court

found the defendant liable for violating specific terms of a license agreement, among them a prohibition against

using the computer program on an unauthorized central processing unit. In addition, agreements that relate to subject

matter that is not protected under any form of intellectual property protection are not uncommon.

Providers of copyrightable and uncopyrightable databases rely on contracts to protect against unauthorized

reproduction and use of their data.14 Particularly since the Supreme Court’s decision in Feist Publications, Inc. v.

Rural Telephone Service C0.,

15 contractual protection is considered by some to be essential to the development and

marketing of databases.l6

IOpower Lifi, [nc. v. Wathe@ord Nipple-Up Systems, Inc., 871 F.2d 1082, at 1085, footnote 5.

11 HR. Rept. No. 941476 at 132 (1976).

12 HR. Repte No. 94-1476 iit 125 (1976).

13 SA~~nsfifute, Inc. v.s & H Computer Systems, Inc., 605 F. Supp. 816 (M.D. ~M. 1985)

14 ~~ ~meof~elerate~y$ rem, Inc. “t Caro (689 F. Supp. 221 (S.r).N.Y. 1988)) onamotion forpre- injunction the co~found

that ‘lklerate, a fwcial database provider, was likely to succeed on its claim for tortious interfereme with contract. The claim was brought

against the developer of a soflware package that allowed speedup and manipulation of ‘lklerate data but which required that foreign equipment

be interfaced with ‘lMerate equipment in violation of TkIerate’s contract with its subscribers.

15 Feist Publications, Inc. v. Rural Telephone Service CO. 111 S.Ct. 1282 (1991).

16 me fight t. ~~e aPWnKnts ~sp~~ a copyrighted work may& limited by a ju~cial doc~e of copy@t misuse. The CO@ h

LasercombAmerica, Inc. v. ReynoMs, 911 F.2d 970 (4th Cir. 1990) refused to enforw a copyright where plaintiff employed a license agreement

with some of its licensees other than the defendant which prohibited the other licensees from independently creating a competing program.

However, in Atari Games Corp. v. Nintendi) of America, Inc. (Nos. C-884805 -FMS, C-89-(U)27-FMS, slip opinion (N.D. Cal. Mar. 5, 1991))

the court rejected a misuse defense and distinguished Lusercomb v. Reynolds. For further discussion of the defense of copyright misuse, see 3

Nimmer on Copyright section 13.09, II; P. Goldstein, Copyright: Principles, Lcaw & Practice section 9.6 (1989 & 1991 Supp.).

SOURCE: OTA, 1992.

software, extensive distribution of which might narily require intermediate steps to recover a higher

otherwise destroy requisite secrecy, by use of what level language representation of the program (see ch.

is known as a ‘‘shrink wrap”’ license. (See box 2-J.) 4). Distributing the code in such a form is intended

Theoretically, such a license is used in conjunction to maintain the secret nature of the information. In

with the practice of publishing program code in addition, it invokes the provisions of the copyright

object code form. Object code is understandable to law, since recovering a high-level language version

people only after extensive effort, and would ordi- may involve the making of a copy or derivative work
.—

Chapter 2—The Law ● 85

Box 2-J—The Shrink-Wrap License Controversy

Considerable controversy surrounds the practice of using shrink-wrap licenses to maintain trade secret status

for mass-distributed software. Questions arise both from the perspective of the trade secret and the copyright law.

The decision in Bonito Boats would indicate that for products sold on the mass market there is a Federal policy

that favors allowing the buyers to examine a distributed product and use any unpatented and noncopyrightable

aspects of that product. But it is argued that copyright protection limits this buyer right by preventing reverse

engineering.

From the perspective of the trade secret law (which requires reasonable efforts to maintain secrecy for trade

secret protection to exist), some observers believe that the degree of difference in the level of secrecy maintained

in limited distribution products and in mass-marketed products is so great that a shrink-wrap license alone does not

qualify as the requisite effort to establish trade secret status. These observers also question whether any form

contract can establish the kind of contract or confidential relationship that would enable the publisher to sue the end

user who simply reverse engineers the work.l

From the perspective of the copyright law, some hold that copyright does not prevent reverse engineering of

software. They believe that fair use may well permit the copying of an entire work where the sole purpose of the

copying is that it is a necessary part of making the work perceptible to humans so that they can perceive and use

the underlying ideas which are not protected by copyright. Further, there is concern that a shrink-wrap license allows

a licenser to extend his or her right beyond the underlying property right on which the license is based; i.e. the license

is based on copyright and yet attempts to prevent the licensee from copying the noncopyrightable expression in the

work.

In keeping with the requirement that effort be made to maintain secrecy for trade secret protection to exist, these

observers believe that a trade secret is only enforceable to the extent that mass marketing can be determined to be

a reasonable action for someone attempting to keep the idea secret, Some would argue that any trade secret status

would be lost when a program was put on the market, because the secret could be obtained through recompilation.

The copyright law’s prohibition on copying, they assert, would not prevent a court from finding that information

related to computer program, e.g., how a particular step in the program is configured or the sequence of steps used

to obtain a particular result, was readily accessible because the program in question was mass marketed without copy

protection. A shrink-wrap license, they believe, might be enforceable as a contract, but likely would not be found

adequate to show the proprietor of the secret information in a mass-marketed computer program had taken

reasonable steps under the circumstances to maintain the secrecy of the information.2

1 Raymond N~er, ~of~sor of hw, l_Jniversity of Houston hw Center, personfd com-mticatioq Aug. 9* 1991.

2 MW Je~e~ Ufiversiv of SOUth Dakota School of bW, pel_sOIUd co~~catio~ Sept. 29* 1991”

SOURCE: OTA. 1992.

of the object code program. The making of such a license generally prohibit recompilation, disassemcopy or derivative work is believed by some to be a bly or copying of a program for any reason except for

violation of the copyright law, and is not given use and backup purposes, so that copying of the

explicit treatment under Section 117 of the Copy- object code in the process of obtaining a higher level

right Act, or the doctrine of fair use.233 language version of the program arguably becomes,

The shrink-wrap license further signals secrecy, in addition to a violation of the copyright law, a

and is established by marketing software in a sealed breach of the shrink-wrap agreement, assuming that

package with a notice and a license agreement that the agreement is enforceable. Some shrink-wrap

is visible on the exterior of the package. The agreements contain an express prohibition on ‘‘reagreement generally provides that the user, by verse engineering” or decompilation/disassembly.

opening the package, is deemed to have accepted the Occasionally a card is provided which must be

license terms and conditions. The terms of such a signed and returned in order to receive information

233 see, ~,g,, SAS InSn”tDtc, 1nc, v, S& H Computer SyStem, Inc,,e05 F, Supp, g 16, 828.831 (M.D. Rm. 1985); Hubco Data prods. Corp. v.

Management Assistance Inc. 219 U, S.P.Q. (BNA) 450, 455-56 (D. Idaho 1983). But compare VauZt Corp. v. Quaid Software Ltd , 847 F.2d 255 (5th

Cir. 1988). For further discussion of the technical aspects of decompilatiow See ch. 4.
86 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

on product updates or extended warranty, thus

securing the user’s consent to the terms of the

license. The more traditional shrink wrap procedure

allows the user to either agree to the contract terms

or to return the product.

The enforceability of shrink wrap licenses remains in question, and has not been tested specifically by any courts. In the case of Vault Corp. v.

Quaid Software Ltd.,234 the district court ruled on the

enforceability of the shrink wrap license, stating that

the contract was an unenforceable contract of

adhesion under state law, so that it could only be

enforced through special statute. The Fifth Circuit

held that certain provisions of the shrink-wrap

license at issue were unenforceable because they

conflicted with the Copyright Act by attempting to

avoid the provisions of the first sale doctrine and to

extend the term of copyright protection indefinitely.

The court did not address the issue of the enforceability of the shrink-wrap license itself. Other cases

raising this issue have been filed and settled, so that

they do not provide guidance on the issue.235

Other arguments cited as grounds for a finding

that such licenses are not enforceable are that

shrink-wrap licenses do not provide for proper offer

and acceptance, the agreement is unconscionable,

the agreement violates State consumer protection

legislation, or the agreement is a sham intended to

circumvent the provisions of the Copyright Act of

1976, particularly the restrictions of the first sale

doctine .

236 -

Some believe that while the issue has not been

addressed from the standpoint of trade secret law, it

is unlikely that a court would find that a shrink-wrap

license constituted reasonable efforts on the part of

the trade secret proprietor, under the circumstances

of mass marketing, to keep the information secret.237

Still others assert that section 117’s adaptation right

permits the copying necessary to disassemble and

recover higher level code than object code for

purposes of fixing a bug or adapting a program to the

user’s specific needs or even to determine the ideas

embodied in the program and not protected by

copyright. 238

Relationships Among Patent/Trade Secret/

Copyright Laws

In the Kewanee Oil case, the Supreme Court

expressly ruled that State law may protect trade

secrets and that trade secret law is compatible with

patent law. However, the Supreme Court also ruled

recently that State law may not prohibit copying of

utilitarian and design ideas that the patent laws have

otherwise left unprotected. 239 State law further may

not provide protection akin to the patent laws and

may not set down a rule in favor of legal protection

where Congress has ‘‘struck a balance’ in favor of

nonprotection.240

When a patent is granted, the patent itself, which

must disclose the ‘‘best mode’ for practicing the

invention, becomes a public document and the file

wrapper, consisting of supporting materials on file

(specifically, the prosecution history of the application), becomes available for public inspection. As a

result, the trade secret status of the matter disclosed

in the patent or related PTO file is destroyed. These

submitted materials remain secret unless and until

the patent is granted, so if the patent is not granted

or is withdrawn by the applicant prior to issuance,

the secret is maintained. This is the case only in the

United States; in foreign countries applications are

published after 18 months, whether or not the patent

ultimately issues. Some believe that with harmonization under WIPO, the confidential system in the

United States is likely to change.241

zw vault cow v. QWid Sof#are Ltd., 847 F.2d 255 (5~ Cti. 19**).

235 Micropro Int’1 COW. v. United Computer Corp., Civ. Action No. C-893-3019 W.D.S. (N.D. cd. filed June n’, 19/33; f.OtUS Dev. c’0~. V. Rixon

(D. Mass. fded Jan. 31, 1984).

~c k ws contex4 sw StepSaverData Sys. v. Wyse Tchmdogy, 939 F.2d 91 (3d Cir. 1991), which holds that a‘ ‘package license’ did not kome Pm

of the contract between two merchants. In effect, there was an oral contract for sale followed by the packaged form. Applying standard Uniform

Commercial Code analyses, the court stated that this does not alter the primary contract. The new terms in the form do not become part of the agreement

unless the vendor makes clear through its actions that it will not proceed with the transaction unless the buyer consents to the new terms.

nT G. wskil~gto~ Atice zd~ U.S. Patent and Trademark Office, Office of Legislation and h)te~tioti Affairs, persorud commti~tio~ Sept.

27, 1991.

~g Mary JenX~ University of South Dakota School of Law, personat cornmunicatiom Sept. 29, 1991.

mgBonito Boats, Inc. V. Thunder Craji Boats, inc., 109 SUp. Ct. 971 (19*9).

~Boni~o Boat~, supm; sears Roebuck& Co. “. Stiffel Co., 376 U.S. 225 (1964); Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964).

xl J. Jan@ America Bar Association, personat Communication Sept. 22, 1991.
Chapter 2—The Law ● 8 7

Because of the ‘‘secret’ nature of the protected

subject matter, inventions maintained as trade secret

are not made of public record and necessarily do not

function as prior art for purposes of the patent system

(although earlier filed, secret, patent applications are

prior art). 242 AS a result, inventions maintained as a

trade secret cannot, for the most part, preclude

issuance of a patent on the basis of lack of novelty

or obviousness unless the invention is described in

an earlier filed patent application. Thus, while a

patent requires complete disclosure, it allows the

rightholder to exclude everyone else from practicing

that invention, even if independently invented.

Conversely, while trade secret law allows, and

indeed requires, that an idea be held in secrecy, the

fact that the trade secret cannot be used as prior art

against a third party patent application precludes

protection from independent invention by another,

who may then obtain patent protection. Some,

however, maintain that, because the requisite level

of secrecy required for trade secret protection is not

total, i.e., the information which constitutes a trade

secret must only nor be generally available or readily

ascertainable, situations exist in which a trade secret

may be available as prior art. 243 In any case, once a

U.S. patent is granted, it can be used as prior art from

the filing date of the corresponding patent application notwithstanding the secret status of the application during prosecution.

In contrast to the mutually exclusive effect of the

patent and trade secret law, and despite the arguments of some commentators that the benefits of

copyright protection should not be granted except in

exchange for full disclosure of a work,244 copyright

and trade secret protection are simultaneously available for computer software, The legislative history

of 17 U.S.C. 301 (the preemption section) under the

Copyright Act of 1976 and the software amendments

of 1980 make this clear. When it enacted the

Copyright Act of 1976, Congress stated that the

evolving common law rights of, among others, trade

secrets,

would remain unaffected as long as the causes of

action contain elements. . . that are different in kind

from copyright infringement. Nothing in the bill

derogates from the rights of parties to contract with

each other and to sue for breaches of contract. . .

however, to the extent that the unfair competition

concept known as ‘interference with contract relations’ is merely the equivalent of copyright protection, it would be preempted.

Congress reaffirmed its position on the limited scope

of preemption of ‘‘remedies for protection of computer software under State law” when it passed the

software amendments of 1980. Trade secret law

provides protection for the underlying ideas, concepts, processes and algorithms (as well as the form

in which expressed), while copyright law protects

only the form of expression. Thus, some observers

believe that the simultaneous protection of software

by copyright and trade secret arguably affords

coverage for both idea and the expression and avoids

the idea-expression dichotomy of copyright law.245

By contrast, others assert that this is seldom the case,

and that few ideas, concepts, processes, and algorithms underlying mass-marketed computer programs would not be generally available or readily

W2 one cornmen~ator observed that in many cases a sOftWare “invention’ is not published for reasons other than maintenance of a trade secret. He

cited among the common reasons why programmers do not publish the techniques they develop the following: techniques maybe circulated informally

among progr ammers; techmques may be ‘‘so obvious that scholarly credit is impossible;” the developer may lack the motivation and writing skill to

write a paper suitable for magw.ine publication, and may not see the purpose in any other kind of publication; the developer may not reaIizc that he has

developed anything worth publishing; the developer may keep the source code of a program secret to coned the overall design rather than any particular

technique. Richard Stalhnan, The League for Programrn ing Freedom, personat communication, September 1991.

Another spoke of progr amming tmhniques not described in patents or the generat technical literature that are known generally to progr ammers as

the ‘‘folk art. ’ Le(terof John L. Pickitt, President, Computer and Business Equipment Manufacturers Association, to E.R. Kazenske, Executive Assistant

to the Commissioner, U.S. Patent and Trademark Office, July 15, 1991,

‘3 For example, the inforrnationm@t appear inaprintedpublication that is obscure because of age or because it has not been translated into a language

understood by many Americans. If the publication was in the ITO’S Scientific Library, however, it could be cited as prior art to show 1ack of novelty

or to show obviousness of an invention claimed in a patent application. These same commentators assert that when the validity of a patent is challenged

in patent litigation, trade secrets might also be considered prior art. G. Lee Skillingto~ Alice Zal~ U,S, Patent and Trademark Office, Office of

Legislation and International Affairs, personal communicatio~ Sept. 27, 1991,

‘M See, e.g., Pamela Samuelsow “CONTU Revistied: The Case Against Copyright Protection of Computer programs in Machine-Readable Form,”

1984 Duke Luut Journal, 663, 705-27. By contrast, the actions of Congress and the courts would indicate that that these bodies have rejected this point

of view. The grant of copyright to unpublished works in the 1976 act and provisions for registering unpublished works under the 1909 acts are evidence

that Congress did not intend to require full disclosure for copyright protection. Some observers comment that the limitation in the copyright law and

the idea/expression dichotomy as opposed to the fuller protection granted by patent are the reasons why Congress might not have seen fit to require full

discosure for more limited protection.

245 Office of TCXhnOIOu Assessment Workshop on June 20, 1991.
88 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

ascertainable to those in the industry. Further, as

discussed above, this dual protection potentially

addresses the problem of loss of trade secret

protection through mass distribution of software. If

the extensive marketing of” the software arguably

destroys the secrecy requisite for trade secret protection, some believe that copyright law may be

invoked to protect the unpublished source code of

the program, with its relatively easily understandable ideas by prohibiting illegal copying of the

published object code which must be copied or

transformed to allow for easy understanding of the

underlying idea.

246 Indeed, copyright law also provides a safety net in the event that trade secret

protection is lost by accidental or public disclosure.

Foreign countries grant trade secret protection

under a variety of provisions and to differing extents.

While some countries provide specifically for trade

secret protection, others allow for similar protection

under unfair competition law and the law of contracts (see box 2-K).

us Offlce of ~kolo~ Assessment workshop on June 20, 1991. However, one observer believes that the exclusive reproduction right Cm never &

used to preclude indirect access to nonprotectable matter excluded by section 102(b) merely because use of the unprotected matter entails an unauthorized

reproduction, He believes that this was the holding of Baker v. Se/den, whiclL he asserts, already guaranteed “reverse engineering’ if the utilitarian

feature of a functional work can only be used by making a copy. Jerome Reic- Wnderbilt University, personal communication September 1991.
Chapter 2—The Law ● 89

Box 2-K—Analogous Trade Secret Law in Foreign Countries

The Pacific Rim

Japan—Japan is the only Pacific Rim nation whose law provides for trade secret protection. The Japanese law

defines a trade secret as technological or business information useful for business activities, controlled as a secret,

which is not publicly known art. Under the law, if a computer program properly qualifies as a trade secret, the owner

of a computer program who is damaged or is likely to suffer damage by unauthorized use or disclosure of his

program may require the offending party to stop the unauthorized use or disclosure of the program. The owner of

a trade secret may request that the media on which the program is stored be destroyed (However, since there are

no ‘‘protective orders “ in court proceedings, the secret may be lost as a result of bringing the litigation.) Unfair

activity includes acquisition of a trade secret by stealing, deception, or threats, or acquisition from a third party while

aware that the trade secret was originally acquired by an unfair activity.l

Korea-The Republic of Korea has committed itself to the future adoption of a law of trade secrets. Presently

there is some recognition that trade secrets should be protected from unlawful encroachment or misappropriation

under tort theory. There is also some recognition of a law of trade secrets in the criminal code.2

Taiwan—There is no specific law protecting trade secrets in Taiwan.3 Taiwan’s criminal code enables an

employer to obtain criminal sanctions against an employee in violation of a secrecy agreement made with the

employer. However, there is no current provision of the law allowing one company to take action against another

for misappropriation of a trade secret.4 A district court in Taiwan determined that know-how is not an intellectual

property right nor a property right recognized in the civil code, and that there is no legal obligation to keep such

knowledge secret.5

Thai/and-Thailand has no specific law covering, nor a clear definition of, trade secrets. Protection of this kind

comes from the Penal Code or Consumer Protection Law. The Penal Code covers only industrial secrets, scientific

discoveries, and scientific inventions which may include industrial know-how. The Consumer Protection Act

prohibits unauthorized disclosure of business secrets.6

Western Europe

The European Communities have agreed in their long debated Software Directive that the prescribed protection

of computer programs under copyright does not prejudice the application of other forms of protection where

appropriate. Thus, computer software is properly protected by trade secret in addition to copyright in European

Communities member nations.7

1 Pau] C.B, Liu, “COrnpUt~ Software and Intellectual Property Law in the Pacific Rim Countries, ” Con&actor repofi prepared for tie

Office of lkchnology Assessmen4 March 1991, pp. 37-38.

2 Ibid., pp. 38-39.

3 ~. ~c~el ~~w, et ~+, Inte//ectW/ proper~ Rjght~: cl~~l con~e~~, G/o/xz/ conflict.? @oUlder, Co: Westview press, 1988),

p. 374.

4 Ibid., pp. 374-375.

5 Liu, op. cit., foomote 1, p. 39 (footnote 16).

6 Ibid.

7 CoWcil D~ctive of my 14, 1991 on tie leg~ prot~tion of computer progr~ (gl~so~c), pr~ble, para. 30; publishti in the

Ofllcial Journal of the European Communities, No. L 122/42, May 17, 1991.

Continued on next page
90 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 2-K—Analogous Trade Secret Law in Foreign Countries-Continued

France—French law presents two independent aspects of trade secret protection. In the first instance,

divulgence of a trade secret is a criminal offense under the Penal Code. The circumstances giving rise to such a

criminal offense are narrowly drawn, making prosecution under this provision difficult. Unauthorized disclosure

of a trade secret may also be actionable under the law of tort or contract. For the most part, however, in the absence

of contractual agreement, divulgence of a trade secret will not give rise to liability. Under French law an invention

not protected by copyright or patent is considered an idea only, which is believed to be in the public domain. An

action brought in tort must rely on theories of unfair competition, which requires proof of misconduct beyond theft

of ideas.8

Switzerland-Trade secret protection in Switzerland is derived from three major sources. The Swiss Penal

Code provides that a person who discloses an industrial or commercial secret which he is under a duty to keep secret,

and the person who benefits from the disclosure, will be punished by fine or imprisonment. The Swiss Code of

Obligations provides that employees and agents are bound to secrecy with respect to confidential business

information obtained in the course of the contractual relationship. The 1986 Federal Act makes it an offense for a

competitor to entice employees or agents to discover a secret, and another offense to use or disclose trade secrets

which have been improperly revealed. In addition to these statutory provisions, a body of case law exists in

Switzerland in which a trade secret holder is protected on the basis of contract law and by the fact that the other party

is bound by a nondisclosure agreement.9

Latin America

Brazil—Brazil has no specific law of trade secret protection. Case law and Brazilian scholarship have

concluded that three identifiable elements of trade secret law exist. First, a trade secret must give its owner a

competitive advantage and must have commercial value. Second, a trade secret involves an element of innovation.

Third, parties must sign contracts in which the confidentiality requirement is set forth.l0 Brazilian courts have

dismissed the majority of trade secret cases brought under this law, usually because the original trade secret holder

was found not to have taken proper measures to protect his trade secret. Thus, scholars have maintained that article

178 of the Code of Industrial Property provides protection for trade secrets. Under this provision a company may

sue an employee for disclosure of trade secrets and may take action against a third party for acquiring secrets by

unfair means.ll

Argentina-There is no Argentine law directed specifically toward protection of trade secrets. Disputes about

unauthorized divulgence of confidential information are addressed by enforcement of secrecy agreements between

employers and employees.12

Mexico-Mexican law protects generally industrial secrets, or industrial application information kept

confidentially by an individual or corporation when sufficient measures or systems have been adopted to preserve

the secrecy and restricted access. No specific provisions are made for trade secrets in computer software.

8 Cq she- et ~., ConPuter So@We Protection tiw (Washington DC: BUtXW of National Aff*, ~., lm), P. ~-16.

9 Ibid., p. SW-16

10 Ibid., p. BR-17

11 G~baw, et al., op. cit., footnote 3, p. 141 (footnote 17).

121bid., p. 141.

SOURCE: OTA, 1992.
Chapter 3

The International Arena
Contents

Page

The Global Software Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

What Do We Mean by the “Software Industry’’?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Global Markets, Global Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

The Issue of Piracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Estimates of Financial Losses From Piracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Examples of Retail Piracy and Counterfeiting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

End-User Piracy in Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Examples of Piracy Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Piracy and Trade Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

The Berne Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

The General Agreement on Tariffs and Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

The U.S. Trade Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Trade-Related, spects of Intellectual Property Rights and the U.S. Proposal

to the GATT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Draft Final Act Embodying the Results of the Uruguay Round and Trade-Related

Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Participation by the United States in Other International Treaties . . . . . . . . . . . . . . . . . . . . 114

The European Economic Community’s Directive on Legal protection for

Computer Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

The Council Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Boxes

Box Page

3-A. A Snapshot of the Domestic Software Market in the Late 1980s . . . . . . . . . . . . . . . . 95

3-B. The Omnibus Trade Act and ’’Special 301’’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

3-C. History of the Uruguay Round.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

3-D. Role of the Congress inTrade Negotiations and the Fast-Track Implementation

Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

3-E. The Green Paper on Copyright and the Challenge of Technology: Copyright Issues

Requiring Immediate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Tables

Table Page

3-1.Top 10 Software Companies in North American Market . . . . . . . . . . . . . . . . . . . . . . . . 94

3-2.Top 10 Personal-Computer Software Companies in 1990 . . . . . . . . . . . . . . . . . . . . . . . 94

3-3. Top 10 Packaged Software Vendors in Europe (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . 97

3-4. Comparison of Software Sales and BSA EstimatesofPC-Software Piracy in

Selected European Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
—— .

Chapter 3

The International Arena

The international nature of the software industry

and market is mirrored in the global significance of

national intellectual property laws and international

treaties and agreements. This ‘‘globalization’ 1 of

the law reflects the reality that the laws of a country

are affected by, and in turn, affect, the laws of other

countries, Influenced by politics, trade agreements,

and the reality that similarly trained professionals,

the same companies, and the same technology issues

exist throughout the world, there is an increasing

tendency for countries to make at least somewhat

similar policy choices. This chapter examines the

nature of the global software industry and the issue

of piracy, multilateral and bilateral negotiations and

treaties entered into to provide protection for intellectual property rights, ongoing efforts at harmonization2

of’ international intellectual property law.

and the United States’ participation in those negotiations and efforts. 3

The Global Software Industrv.

only 15 years ago, computers and software were

not mass-marketed. retail items. The mainframe and

minicomputers of the day were few in number,

compared to the number of microcomputers (personal computers ) in use today, Those machines were

operated by expert staff using expensive, often

custom-developed (almost certainly customized)

software; some relatively sophisticated users (e.g.,

in universities, large corporations and research

organizations) developed and maintained their own

programs. An independent software vendor community had begun to develop in the mid- 1950s;4

nevertheless, much of the application software for

specific tasks like inventory control, payroll, or

‘ ‘number crunching’ was provided by hardware

manufacturers, or custom-developed under contract.

Where software packages were available, they

almost always required custom-tailoring to meet

users’ needs and operating requirements. Although

there were some independent software vendors in

the systems-software marketplace,5 almost all operating-system software to run the computer and

control its input, output, and logic functions was

provided by computer-hardware manufacturers. f] In

the late 1960s, this changed as the ‘‘independent”

software industry began to flourish. By 1990, there

were thousands of independent software developers

of various sizes in the United States. comprising a

$35-billion industry.7

What Do We Mean

by the “Software Industry

Accurate data on software industry revenues and

market shares are difficult to compile. Indeed, there

are many types of ‘‘software industry data being

! For fur(~lcr dIiCUS~IOn of the concept of global imtion, sce Raymond T Nimmcr, ‘ ‘Globalization of Law’: Commcrcd and [ntcllcctual property

%larlccts ‘‘ Paper dclivcrcif at the hw ‘and Society Conference, Amsterdam, June 1991, to be published as ‘‘Global17~tion of Llw: The Lessons of

Software and Intellectual Property Law, ” Lun [n Contc.rf, vol. 10, No, 2, 1992. Nlmmcr characterizes ‘‘globali~~tion’ as ‘ ‘a world process m which

legal concepts, approaches to dcfinmg and solving legal issues, ,and the development of legal Polic} in one country are resolved wl[h expllclt attention

to the Iav+ \ of other countncs and m wtuch unport and export rules arc seen as important factors in commcrcml competition and in (he regulation of that

compct ~t]on and of L [Jmmcrc!.~1 [ransact]on.s by law ‘‘ He further notes the striking ]mpact of globalization in the past dccadc and points [Jut the !Ime

and cncrg} dm otcd to mfl ucnc ing [be law’ ou IS idc of oncs own country and in rcspondmg to such efforts.

~ Ibid ‘‘ ki,u-rnon]~at ion’ IS defined by R, Nlmmcr as a systematic effort to bring about some uniformity of the law. The underlying premlsc 1s that

there are aifvantiigc~ in \ anous areas of law that can be attained by cstablnhm,g a basic symmetry in some .ama of rmtional laws and ,an acceptance of

Icg.il principles from one country to another

1 Such cfft)rts .it glob. d]lat Ion raises issues of tcns]ons bctwccn developed and dcvcloplng countnes in the context of the General Agwcmcnt on T.anffs

,and Trade negol]atmns on Trade Related Intellectual property and North-South tensions. Extensive dlscuss]on of these questions IIcs beyond the scope

of this stud> However. for andl~ SIS of these Issues, set Jerome H, Rcichman, ‘ ‘Intellectual Property in International Trade: Opportunltcs and Risks of

a GATT Connection, ’ \i]tldprhi[t Journal @ Transnutionul hlR’, \ol. 22, ]989, p 747, at pp. 751-769.

q Ronald P;ilcnski, i41>APS0 (The Computer Software and S crvlces Industry A\\oc I:il Ion ), personal communic.~tlon, July 10, 1991. ‘‘Independent’”

dcvclopcry arc not parl of a hardw are manufac[urcr

~ Ibid

6 ;\.}llle thl~ , ~ ~ tll 1 Prcl ~lcnt there i ~ a trend ~iw.a~! from Compu[er 1ll;M1uf:~ctur~r~ pro; id ing op~r:~ting-s~stcms so f(warc !n ~hc pcrson:d computer

rmirkc[ ( c g , NIS,T)OS, DR/DOS ) and in workstiit]ons and mamframes (c g , LInlx) Ibid

“ Input d:it.i provldcd b} ADAPSO (pcrforrnancc of ‘‘softw.arc’ sector). total for ‘‘ In fornmtlon technology’ products and scr~ ices for I 990 1s $100

blll}on

-93-
94 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Table 3-l—Top 10 Software Companies in North

American Market

Table 3-2—Top 10 Personal-Computer Software

Companies in 1990

Estimated revenues ($ millions)

Company 1989 1990

IBM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,424

Microsoft . . . . . . . . . . . . . . . . . . . . . . . . . . 821

Computer Associates . . . . . . . . . . . . . . 1,290

Digital , . . . . . . . . . . . . . . . . . . . . . . . . . . . 825

Oracle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554

Lotus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516

Unisys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875

D&B Software . . . . . . . . . . . . . . . . . . . . . 450

WordPerfect . . . . . . . . . . . . . . . . . . . . . . . 281

Novell . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288

$9,952

1,323

1,311

810

702

635

600

539

452

388

SOURCE: Revenues shown for the Datamation 100 North American

market, Datamation, vol. 37, No. 12, June 15, 1991, p.22.

collected and reported by different organizations.8

These include data about:

●

●

●

●

●

●

software and services, including processing

and professional services, as well as software

products;

application and systems software, including

applications software and systems software,

whether packaged or custom-developed;

packaged software, including applications and

systems software;

custom software, professionally developed or

extensively tailored to meet a customer’s specific needs;

personal computer (PC) software, usually sold

as packaged software (although not all packaged software is for personal computers); and

software from ‘‘independent’ developers, who

are not part of a hardware manufacturer.

This variety of data, collected by different organizations, makes comparison and synthesis difficult.9

Consistency across types of data and years is

usually not possible when drawing from these

published figures. Wherever possible, OTA will

specify the type and source of market data (e.g.,

‘‘software, ‘‘independent software, ‘‘software

and services and estimates. Therefore, estimates

Revenues

Company ($ millions)

Microsoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lotus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,...

WordPerfect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ashton-Tate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Autodesk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adobe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Logitech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Software Publishing, . . . . . . . . . . . . . . . . . . . . . . . . . .., ,

Borland International . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aldus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..,.

$953

556

281

265

177

121

112

110

104

88

NOTE: Network software companies not included.

SOURCE: Data compiled by Soft-Letter (Watertown, MA: 1991),

in this report for a given year may not ‘ ‘add up’ and

different data sources may not be comparable, With

market figures drawn from various sources, box 3-A

provides a snapshot of the U.S. software market in

the late 1980s. In 1987, the largest U.S. software

vendor was IBM, followed by Digital Equipment

Corp. (DEC), Unisys, Computer Associates International (CAI), and Lotus Development Corp. For

comparison, table 3-1 shows 1989 and 1990 revenues for the largest software companies in the North

American market and table 3-2 shows 1990 revenues

for the largest personal computer software companies,

Global Markets, Global Technology

By almost any measure, the United States has a

premier role, both as producer and consumer of

software:

●

●

According to one industry estimate, U.S. demand accounted for 52 percent of world software consumption in the late 1980s.10

According to estimates by the U.S. Department

of Commerce, global revenues from sales of

software were more than $65 billion in 1989

and U.S. software suppliers accounted for more

than 60 percent of global software sales,l 1

8 For example, the Software Publishers Association collects data on packaged PC software; ADAPSO reports data on software and services, usually

(but not always) from independent mainframe and minicomputer software houses; CBEMA reports data on the information technology industry,

including office equipment, telecommunications, electronic data processing equipment, and software and services (including software produced by

hardware manufacturers). Moreover, “hardware” companies also are software producers-sometimes, like IBM, the largest in the world,

9 For instance, a firm whose products include PC applications may have at least some of its revenues included in ‘ ‘PC-application software, ’ or

“packaged software’ it may be included in ‘‘software and services, and may or may not be an ‘ ‘independent software house, But a firm whose main

products are PC networking software is likely not to be included in data on ‘ ‘PC-application software. ”

lo ADApS() estimate in Jeff Shear, ‘ ‘Competitive Software Industry Suits Up for Global Hardball,” ~mri,ght, Julj 10, 1989, p, 38.

1 I ConlmerCe Department estimate cited irl Keeping l~e l.J’.S Computerlndustrj, Compefifi}e D@”ning lhe Agendu, Computer Science and Technology

Board (Washington, DC: National Academy of Sciences, 1990), pp. 3031.
Chapter 3--The International Arena ● 95

—

Box 3-A—A Snapshot of the Domestic Software Market in the Late 1980s

According to the Computer and Business Equipment Manufacturers’ Association (CBEMA), the U.S. software

and services industry earned some $54 billion in domestic revenues in 1987 and about $68 billion in 1988. 1

0f these

figures, revenues from software products (as opposed to processing and professional services) amounted to about

34 percent of the total in 1987 and 40 percent in 1988.2

According to the Association of Data Processing Service Organizations (ADAPSO), application and systems

software from independent software houses comprised a $20.6 billion U.S. market in 1987 and a $25.1 billion

market in 1988, split roughly 50-50 between application and systems revenues.3 If the value of software developed

‘‘in-house’ by businesses and other organizations is taken into account (measured by salaries and other costs), some

estimate that the total domestic U.S. software ‘market’ may be as much as $150 to $200 billion larger.4

According to the market-research firm, Input, application and systems software revenues in the United States

totaled $20.6 billion in 1987. The largest U.S. software vendor overall that year was IBM, with 15 percent of the

U.S. market and $3.1 billion in revenues; next were DEC ($935 million), Unisys ($585 million), Computer

Associates International ($415 million), and Lotus ($396 million).5 The leading applications software vendors in

1987 were IBM ($775 million in applications software), followed by Lotus ($396 million), DEC ($195 million in

applications software), Dun & Bradstreet Corp. ($170 million), and Management Sciences America ($169 million). b

The leading systems software vendors in 1987 were IBM ($2.3 billion in systems software), DEC ($740 million in

systems software), Unisys ($420 million), Computer Associates International ($250 million), and Hewlett-Packard

($190 million).7

The largest independent U.S. software vendor in 1987 was Computer Associates International ($415 million);

next were Lotus ($396 million), Microsoft ($240 million), Ashton-Tate ($170 million), and Management Sciences

America, Inc. ($169 million).8

1 CBEMA, The Computer, Business Equipment, Software and Services, and Telecommunication Industry, 1960-2000 (Wash.ingtom DC:

CBEMA, Industxy Markedng Statistics, 1990), table 4-7, p. 100.

2 Ibid.

3 ~ket res~cb data from Input reported by ADAPSO, 1989. [OTA note: “Independent” software houses are those that are not part

of a hardware manufacturer. For example, as of 1990 Microsoft was the largest U.S. ‘‘independent’ software developer, but IBM was the largest

software vendor in the world.]

4 Michel L. Deflou~s et al., Made in America: Regaining the Productive Edge (Cambridge, MA: MIT Press, 1989), p. 264 (cited h:

Keeping the U.S. Computer Industry Competitive: Defining the Agena2r, Computer Science and lkchnology Board (Washington, DC: National

Academy of Sciences, 1991), p. 30.)

5 Input, “U.S. Software Products Marke4 1988-93,” Mountain View, CA, December 1988.

6 Ibid.

7 Ibid.

8 Ibid.

. According to the International Trade Commis- software industry comprised 1.18 percent of

sion, by 1988, U.S. independent software GNP (gross national product), generated $61.6

developers’ revenues exceeded $25 billion, up billion, and generated $12.1 billion in foreign

from $20 billion in 1987;12 about 40 percent of sales by U.S. firms.14

these revenues were from foreign sales.13 . Sentry Market Research has estimated that

. According to the Business Software Alliance 1990 worldwide sales of U.S. packaged soft-

(BSA), in 1989 the computer programming and ware approach $25 billion.l5

12 ADAPSO fiWrc5 on hdusq pcfio~~ce, 1989. These data for ‘noncaptive ” firms excludes the value of software produced in-house by tidw~e

manufacturers; revenues are split about evenly between application and operating-system software.

For comparison, CBEMA estimates of North American software and scrviccs revenues were about $63 billion in 1988 and $56 billion in 1987.

(’ ‘Information Technology Industry Global Market Amlysis, ” CBEMA, 1989, table 4-22.)

Is U,S. International Trade Commission, ‘‘The Effects of Greater Economic Integration Within the European Community on the United States,’ July

1989, pp. 4-39. IOTA note: “Independent” software houses are those that arc not part of a hardware manufacturer.]

14 BSA press release, oct. 31, 1990.

15 ,$Oftfiare Magazine Executii’e Letter, VO1. 7, No. 2, Mxch/Apfil 1990, p. 2.
96 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

. According to the Software Publishers’ Association (SPA), North American revenues from

packaged software for microcomputers (personal computers) were $4.5 billion in 1990, up

22 percent from 1989.16

Taking a different tack and looking at the market

for software and services:17

●

●

●

The Computer and Business Equipment Manufacturers Association (CBEMA) estimates that

North American demand has accounted for a

substantial and steady share of world consumption—about 50 percent of software and services

between 1973 and 1988. During this period, the

world market for software and services as

estimated by CBEMA grew from $4.7 billion in

1973 to $63.1 billion in 1988 (a compound

growth rate of almost 19 percent) .18

According to International Data Corp. (IDC)

estimates, the worldwide market for software

and services was about $110 billion at the end

of the 1980s, with 57 percent ($63 billion) held

by U.S. companies. The next largest share,

according to IDC, was held by Japan ($14

billion, 13 percent), followed by France ($9

billion, 8 percent), Germany ($8 billion, 7

percent) and Britain ($7 billion, 6 percent) .19

According to CBEMA, the U.S. software and

services industry had domestic revenues of

some $93 billion in 1990, about a 16 percent

increase from 1989 revenues of about $80

billion. Of these domestic revenues, CBEMA

estimates that software products accounted for

about 45 percent of the total--$42.5 billion in

1990 and $35 billion in 1989.20

Although its share of the world software market

has declined over the past decade or so, the United

States is still the world’s leading innovator and 21 

U.S. producers are producer of computer software.

increasingly challenged by competition from developing software industries abroad, particularly in

Europe. Europe has been a very important market for

U.S. firms, which dominated their European rivals.

In the late 1980s, U.S. software producers held

almost half of the European software market, with

IBM being the largest single software vendor in the

European market.22 (See table 3-3.) In 1990, according to SPA, U.S. companies had more than 70

percent of the European PC-software market.23

Growth in the U.S. software market had slowed

from the 50 percent per year (or better) rates of the

early 1980s to about 15 percent per year by 1989,

according to the SPA. But markets in Europe and

Japan are booming. Industrywide, international sales

account for some 34 percent of software publishers’

revenues, according to the SPA. But many companies (like Microsoft) report international sales closer

to half their overall revenues. U.S. software is so

pervasive, in part, because of the head start the U.S.

industry enjoyed and the large size of the domestic

U.S. market.24 Our large domestic market has given

the U.S. industry significant advantages: a nation’s

domestic software market is an important base for

developing the expertise and experience that are

necessary to compete successfully (through exports)

lb Ken wasc~ Nicole Field, md Sara Brow SPA, personal communicatior4 July 30, 1991.

17 UTA ~o~e: Revenue reported for ‘software and semices ‘‘ includes revenues from processing and professional services, as well as from custom and

packaged software products.

la + ‘~omtion Technology Indus~ Global Market Analysis, ’ CBEMA, 1989, table 4-22.

19 DC data repofied in Richard Brandt et al., “Can the U.S. Stay Ahead in Software?” Business Week, Mar. 11, 1991, pp. 98-99.

m O1iver Smoot, CBEMA, Persoml comm~cation, June 30, 1991. See ~so ~EMA, The Computer, Business Equipment, Software a?ld Services,

and Te/ecommunican”ons lndusrry, 1960-2000 (Washingto% DC: CBEMA, Industry Marketing Statistics, 1990), p. 100. (Estimates from BDA Assoc.

forecast.)

21 By 1993, tie ufit~ States is still expected to hold abut half of the world software market. (Robert Schwme, ‘‘Sofwme ~dusq En~ S~te@es

for Developing Countries,’ World Development Journul, vol. 20, No. 2, February 1992, p. 3.) Studies in the late 1980s reported that U.S. producers

held a 70percent share of the global market for software, with European producers holding a 10 percent share and Japanese producers holding a 15 percent

share. (Commission of the European Communities, “Green Paper on Copyright and the Challenge of ‘Ikchnology<opyright Issues Requiring

Immediate ActioQ” June 1988, pp. 1’71-172.) Part of the decline in the U.S. share of the software market has come about naturalty as software use

becomes more widespread abroad and other nation-s’ software industries develop.

22 Accord~g t. some m~ket ~stimates, ~ he mid- 1980s ~M ~Co~fed for 60 Wment of world volume in software sales and 70 percent of world

profit in software. (Market estimates cited by Gene Bylinski, “The High ‘lkch Race: Who’s Ahead,” Fortune, vol. 114, Oct. 13, 1986, p. 28.)

23 Ken wa~~ Ni~ole Field, ad S;ua Bm~ SpA, p~so~ Communication JtiY so, 1991.

m Rachel Parker, “Software Spoken Here, ” InfoWorld, June 25, 1990, pp. 4749.
Chapter 3—The International Arena ● 97

Table 3-3—Top 10 Packaged Software Vendors in

Europe (1989)

1989 sales

Company ($ millions)

IBM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Siemens AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nixdorf AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ICL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bull HN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Olivetti . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unisys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Microsoft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,120

398

374

318

314

279

236

183

152

152

SOURCE: Market research data from Ovum cited in: Ralph Bancroft,

“Europe Strugglingin Software;’ Computerworld, July 23, 1990,

p,97.

in the international marketplace.25 (For more on

global economic competition, with an emphasis on

high technology, see the fall 1991 OTA report

Competing Economies: America, Europe, and the

Pacific Rim.26)

With the prospect of a unified market and

standards in Europe in 1993, U.S. firms are facing

new competition from Japanese software producers

who are establishing themselves in Europe through

acquisitions, as well as invigorated competition

from European vendors. The United States faces

growing competition in Asia from Japanese producers; at the same time, software industries in other

Asian nations are developing rapidly. And in the

United States, U.S. firms face new competition in

the domestic market from foreign competitors like

the Sony Corp. The selected examples of computer

hardware and software initiatives in Europe, Japan,

Taiwan, and Singapore found in appendix A are

intended to give a flavor of the varying stages of

maturity and areas of emphasis in some of the

overseas industries that are competing with the

United States in the global marketplace.

The Issue of Piracy

Creators of commercial software are concerned

about their profitability; an important rationale for

creation and enforcement of intellectual property

rights is to give commercial software developers

adequate market incentives to invest the time and

resources needed to produce and disseminate innovative products. Illegal copying of software results

in financial losses to U.S. software firms both

directly, through loss of sales and/or royalties, and

indirectly, through loss of investment opportunities.27

Retail piracy-duplication of an entire program

for sale by ‘ ‘pirate’ competitors—and counterfeiting are major concerns of most software companies. 28 These concerns can be dealt with fairly

straightforwardly, at least in theory, by copywright

law.29 In practice, enforcement--especially overerseasis difficult. Unauthorized end-user copying may be

of more concern to some segments of the software

industry than to others. For example, noncommercial, private copying by one’s current or prospective

customers (e.g., making an unauthorized copy of a

spreadsheet program for a friend or family member)

is a priority concern for developers of packaged

software, especially personal computer software.30

Unauthorized end-user copying by businesses and

other organizations (e.g., making multiple copies of

packaged software instead of obtaining additional

legitimate copies or arranging for a site license) is a

major concern currently receiving vigorous attention

M See Schware (1992), op. cit., footnote 21. Schware’s analysis concludes that countries without a fairly robust software industry will find it

increasingly difficult to ‘‘catch up’ and that the learning curves for domestic and export market activities are quite different, with the domestic market

providing an important foundation for subsequent export activities. Schware examines software-industry strategies used in India and Brazil and concludes

that both industries are trying to ‘‘walk on one leg—the domestic leg in the case of Brazil and the export leg in the case of India’ (p. 1).

26 u,s Conuess, Offlce of ~~olou Assessment, competing Economics: Ame~”ca, Europe, and the pacific Rim, OTA-ITE498 (Washington, DC:

U.S. Govemrncnt Printing Office, 1991).

27 For discussion of revenue 10SSCS due to piracy, see U.S. International Trade Commission, ‘‘Foreign Protection of Intellectual Property Rights and

the Effect on U.S. Industry and Trade, ” February 1988, ch. 4.

m IOTA note. This text uses the phrase ‘‘retail piracy’ (suggested by BSA) to mean unauthorized copying for the purposes of selling the illegal copies

or close derivatives; ‘ ‘counterfeiting’ to mean passing off illegal copies as the real thing; ‘‘end-user piracy’ to mean copying by users but not to sell

the copies.]

29 Jerome Rcichman notes that Anglo-American law tends to use copyright to redress ‘ ‘piracy” (i.e., slavish imitation) because these countries lack

a general-purpose unfair competition law based on the European model. Rcichman considers that more attention needs to be paid to repression of piracy

through international norms of unfair competition law. (Personal communicatio~ Sept. 17, 1991.) See Jerome H. Rcichman, Proprietary)} Right~ in

Computer-Generu(ed Productions, paper presented at the WIPO Worldwide Symposium on the Intellectual Property Aspects of Artificial [ntclligcnce,

Stanford University, April 1991.

.30 ~stwe of unau~ofi7Xd copying is difficult t. detect and enforce agaimt+opying softw~ at home is rclalivcly easy and incxpcnsivc. ~StimatcS

of losses vary and reports of losses may be somewhat overstated because it is not clear that each unauthorized copy displaces a sale.
98 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

from software publishers. 31 By contrast, developers

are unlikely to worry about end users making copies

of ‘hard-wired’ microprocessor instruction sets at

home or at the office, at least with currently available

technology.

Estimates of Financial Losses From Piracy

Estimates of financial losses due to piracy vary.

ADAPSO (The Computer Software and Services

Industry Association) has, estimated that one of

every two copies of personal computer software

used by corporations in the United States is an illegal

copy. In introducing legislation (S.893) to institute

strong penalties for violation of software copyright,

Senator Orrin Hatch noted that estimates of 1989

losses to the software industry from illegal copying

in the United States amounted to $1.6 billion.32 In

1990, the Software Publishers Association estimated

that developers of packaged PC software lost $2.2

billion to piracy within the United States,33 up from

an estimate of $1 billion in 1986.34

Industry estimates of losses from piracy show

marked increases. In 1988, the International Intellectual Property Alliance (IIPA) estimated that the U.S.

software industry lost $547 million to piracy in 12

“problem” countries; by 1990, the IIPA estimated

that software piracy in 22 “problem” countries

caused software-industry losses of over $2.7 billion. 35 Other estimates of the extent of piracy

worldwide are much higher: the Business Software

Alliance estimates that-looking at all types of

software--software piracy worldwide causes the

U.S. industry to lose $10 to $12 billion annually,

compared to the $12 billion generated by foreign

sales of U.S. software.36

Redress of piracy abroad is often difficult and is

intertwined with issues of technology transfer and

assistance to developing countries. A complete

treatment of issues involved in North-South or

East-West technology transfer and/or international

assistance is beyond the scope of this report. The

following points are intended to suggest some of the

complexities in international agreements on intellectual property standards and enforcement. Most of the

industrialized, developed countries have strong intellectual property protections, whereas many of the

lesser developed countries, where software development itself is much younger,37 either do not have

strong intellectual property laws or do not enforce

them.38 In terms of North-South trade and technology transfer issues, the views of the self-interest of

the more industrially advanced nations often conflict

with those of the lesser-developed nations. Industrialized countries want to protect industries that are

q] me Business sof~~e Ass~iation (BSA) notes that site licenses are not the packaged-software indush-y norm. (Robert W Holleyman and ~ri

Forte, BSA, personal communication, July 12, 1991.)

32 S. 893 would amend Tide lg U. S. C., 2319, to include reproduction or distribution of 10 or more infringing copies of One Or more copyright

programs. See Congressional Record, Apr. 23, 1991, pp. S4862-4863 for Sen. Hatch’s statement and the text of the bill, sponsored by Sen. Hatch and

Sen. DeConcini.

3J Ken Wasch, Nicole Field, and s;ara Brow~ SPA, personal communication JUIY 30, 1991.

SPA’s estimate is based on “average” software prices and an “expected ratio” of software applications to new personat computers purchased in

1990. SPA obtained hardware sales numbers for DOS-based and Apple computers from Dataquest. SPA obtained expectti ratios of software to hardware

from Apple, Microsoft, and Lotus; the expected ratios were 3 software applications per DOS machine and 5 per Apple machine, Actual ratios, based

on software sales, were 1.78 for DOS machines and 2.55 for Apple machines. (Nicole Field, SPA, personal communicatio~ Aug. 14, 1991.)

~ ~c SpA cs~t~ @t micmcamputer-sof~ue producers lost about $1 billion in sales to ‘‘piracy” (defiied by SPA as including both copying

for persoml use and copying for commercial profit) in 1986. (SPA estimate cited in Anne W. Branscomb, “Who Owns Creativity? Property Rights in

the Information Age,’ Technology Rt*view, vol. 91, No. 4, May/June 1988, pp. 39-45.)

35 me ~A’s 1988 es~ate of 10SSM to software piracy considered these ‘problem” countries: China, Saudi Arabia, South Kort% hdia, ptiliPPkti,

Thiwan, Brazil, Egypt, Thailand, Nigcri% and Malaysia. IIPA estimates cited in: “Curbing International Piracy of Intellectual Property,” prepared by

Gary M. Hoffman, Report of the International Piracy project, The Annenberg Washington Program, 1989.

The 1990 IIPA estimate considered 22 “problem’* countries; estimate provided by Robert W. Holleyman and I.mri Forte of the BSA (personat

communieatiou July 12, 1991).

36 ROM W. Ho~eyman and LOri Forte, BSA, personal communication, July 12, 1991. Estimate includes all types of SOfhVare, not JUSt PC Softw=e.

Foreign sales of PC application software are substantially less: SPA estimates that sates of packaged PC application software amounted to $4.5 billion

in 1990--up 22 percent from 1989—and that foreign sales amounted to about $2 billion. (Ken Wasch, Nicole Field, and Sarah Brow SPA, personal

communication% July 30, 1991.)

37 ~ tie Utited Stites d-tie 19’70s, Congess and fie co~s focused on tie application ~d s~pe of copyright for softwwe; issues COnCemiIlg

patent protection for software-relatecl inventions and atgorithrns resurfaced in the 1980s. Subsequently, Western Europe, Japan, ad Taiwan have

developed at least some intellectual property provisions for software. In the Third World, where software development itself is much younger,

development of intellectual property measures for software maybe slower than in nations whose domestic software industries are more advanced.

38 See ~~ond T. Nimmer and Patricia KraUthaUS, “Classification of Computer Software for bgal Protection: International Perspectives, ”

Infernationa/ Lawyer, vol. 21, summcr 1987, pp. 733-754.
Chapter 3-The International Arena ● 99

strong sectors in their economies and want to

promote free trade to benefit from these investments.

Lesser-developed countries want low-cost access to

technology in order to promote and modernize

business; many (e.g., Brazil) also want to encourage

fledgling domestic industries.39

The industrialized countries want international

agreement with high minimum standards and long

periods of protection for intellectual property (for

example, 20-year terms for patents, 50-year terms

for copyright, 10-year terms for semiconductor chip

layouts). 40 Many of these nations also are interested

in pursuing harmonization of laws among countries.

Industrialized countries argue that, in the long term,

‘‘strong’ intellectual property regimes will encourage both domestic innovation and foreign investment by reducing fears of piracy. According to this

view, without an acceptable intellectual property

regime, technology transfer to lesser-developed

countries will suffer because foreign firms will be

unwilling to sell goods there or invest in production

facilities, absent intellectual property protections.

Moreover, proponents consider that adequate protection will also help foster the emergence and

development of a domestic software industry41 and

facilitate access to world-class technology .42

In some newly industrializing countries these

long-term arguments may be well received but in

other countries, where domestic high-technology

development is far from a reality, there maybe more

urgency for nearer-term considerations. These nations argue that tighter protection for intellectual

property will harm development by reducing technology transfer and diffusion in the near term, will

strengthen multinational corporations at the expense

of domestic industries, and will raise prices of goods

(e.g., for patented pharmaceuticals, copyrighted

software, etc.) for consumers who are already poor

by Western standards.43 Therefore, near-term U.S.

threats of trade retaliation against piracy have been

more persuasive than long-term arguments about

foreign investment and technology transfer in encouraging countries in Southeast Asia and Latin

America to strengthen the terms and enforcement of

their intellectual property systems.44

Examples of Retail Piracy and Counterfeiting

In 1984, Apple Computer, Inc. filed civil suit

against Franklin Computer Corp. for copying Apple’s

operating system and other software; Franklin subsequently paid Apple $2.5 million to settle the case.

Since then, Apple has filed criminal complaints

against manufacturers producing ‘‘clones’ of its

popular Macintosh line of personal computers. In

1990, Apple filed criminal complaints against two

Taiwanese manufacturers, Flive Computer Corp.

and Akkord Technology, Inc., for producing and

selling copies of the Macintosh Plus.45

Also in 1990, Novell began concerted efforts to

find and file suit against dealers selling or distributing illegal copies of Novell’s Netware network

software. In announcing these efforts, an attorney

representing Novell stated that many instances of

Netware piracy involve dealers and resellers who

give away illegal copies of Netware to make a

hardware sale or install illegally copied Netware

under value-added applications.46 Novell estimated

39 For discussion of Brazil’s software strategies, see Schware (1992), Op. Cit., foo~ote 21.

40 Minimum cop~ght s~bds are keyed to the Beme Convention’s minimum stickrds.

41 Ro~fiSchwae notes mat, ~ ~di% softwme Plmcy ~sforc~ some comp~es out of be dom~tic pac~ged SOftWLUX market ~d is likely tO force

others out soon. In Braz~l, lack of protection for software prior to the 1987 Software Law (No. 7646) was a serious concern for U.S. companies and the

U.S. Department of Commerce. (Schware (1992), op. cit., footnote 21.)

42 ~e5e ~Went5 me not ~que t. ~tellmt~ prope~ for softwme For discussio~ see Ro&fi M. Sherwoti, Inre//ectua/Property and Economic

Development (Boulder, CO: Westview Press, Inc., 1990).

43 For tier dls~~sion of tie ~ofilc~g self. ~teEsts of ~dmtied ~d less. develo@ Mtions see, for e~ple, ‘ ‘Thought Control: GATT’ ~d

Intellectual Property, ” The Economist, July 7, 1990, p. 68 and Rotxrt Schaffer, “Trading Away the Plane~” Greenpeace, September/October 1990,

PP. 13-16. Sherwood (1990), op. cit., footnote 42, offers a different perspective, looking at cases from Brtil and Mexico.

Schware (1992), op. cit., footnote 21, examines Brazil and India and discusses how both domestic and export-oriented strategiti are necessary for

a country to ‘‘catch up’ in software.

44 Row shemo~ notes tit, t ‘Mexico’s ~ent enac~lent of a compmhemive patent ad fxadeuk law reflm~ the ]Ong-terM Wgllment mOre ~

the near-term threat of retaliation.” (Personal cornrnuncatio~ Aug. 13, 1991.)

45 James Daly, ‘‘Apple Zaps Clone Makers in Taiwan, ’ Computerworld, vol. 24, No. 14, Apr. 2, 1990, p. 96.

% Rox~M Li Nakamura and Margie Wylie, “Novell Goes After Dealers Who Sett Fake Netware,” InfoWorld, vol. 12, No. 28, July 9, 1990, p. 5

(quoting Stephen Tropp of Shea & Gould).
100 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

—.

that each illegal copy of Netware represented from

$1,000 to $8,000 in lost sales.47

According to Microsoft Corp., software counterfeiting-where pirated programs are sold as legitimate copies—is on the rise in the United States.

Microsoft has gathered evidence that its popular

microcomputer operating system, MS/DOS, has

48 (By contrast ,

been hard hit by counterfeiters.

copyright infringement of Microsoft’s other software products usually takes the form of ‘‘end-user

piracy’ by individuals or businesses.) A Microsoft

market-sampling effort uncovered evidence for lawsuits alleging that counterfeit MS/DOS sales displaced more than $1.5 million in legitimate sales.49

In June 1991, a Federal jury awarded Microsoft and

the Everex Corp. (a personal computer manufacturer

and systems integrator) $1.4 million in damages in

a suit against eight defendants accused of counterfeiting Microsoft software.50

End-User Piracy in Businesses

In 1988, a group of six major U.S. software

publishers formed the Business Software Alliance

(BSA) to pursue corporate customers abroad who

distribute unauthorized copies of programs to employees (rather than obtaining legitimate copies or

abiding by license agreements) and to educate users

in the commercial and educat ional markets about the

copyright laws. BSA’S worldwide activities focus

on: 1) litigation on behalf of its members against

infringers of software copyrights; 2) public awareness (encouraging organizations to ensure legitimate

and ethical software use); and 3) government

relations (working with the U.S. and foreign governments to strengthen intellectual property legislation

and enforcement) .51 The BSA, currently comprised

of eight corporate members, has become an ‘ ‘international policing arm’ for the software industry and

works closely with SPA.52

Even prior to 1988, software industry groups such

as SPA and ADAPSO have been addressing the

issues of retail piracy (OTA term: copying to sell the

copies) and end-user piracy (OTA term: to avoid

buying more copies but not to sell copies) b y

businesses and other organizations. SPA continues

to fight domestic piracy by filing lawsuits and

conducting audits of corporations, computer dealers,

bulletin boards, and individuals who allegedly have

illegal copies of software. Over the last 3 years, SPA

has filed over 100 lawsuits for unauthorized copying; in mid-1991 SPA filed suits at a rate of two per

week .53

The SPA estimates that unauthorized corporate

copying of business PC software in the United States

costs software publishers $2.2 billion a year in lost

sales54 and that, for every legal software package in

use in the United States, an unauthorized copy is also

in use.55 According to Ken Wasch, executive director of SPA, “It is most unfortunate that the software

industry, which is a leading international competitor, is faced with enormous losses every year from

individuals unwilling to purchase software legitimately. ’56 Although each unauthorized copy does

not necessarily constitute a lost sale for the industry,

some industry spokespersons judge that the overall

piracy rate is high enough to damage the software

industry by limiting funds available for research and

development and by driving up retail prices.57

4T Ibid.

413 * ‘Coute~ei~g’ refem to illegal copies passed off as “the real tig. ’

49 Rox~a Li Nti~a, ‘‘Software Publishers Crack Down on plraCy, ” InfoWorld, June 25, 1990, p. 39 (quoting Debra Vogt of Microsoft; Vogt

headed the market-sampling project).

50 “Roundup,” The Washington Po.;f, June 13, 1991, p. B12.

51 “BSA ~ofile, ” Business Software Alliance, July 1991.

52 ~~ew Je~, ‘‘As Software Piracy Spirals, Industry Cops Get Tougher, ” Washington Technology, June 13, 1991, p. 16 (interview with Robert

W. Holleym BSA managing director).

BSA has affiliates (“eyes”) in about 30 countries. (Robert W. Holleyman and h-i Forte, BSA, pensonal communication, July 12, 1991.)

53 Ken w~ch, Nicole Field, and Sarah Brow SPA, personal communication, July 30, 1991.

w Ibid.

55 Accor~g t. SpA, o~ers ~ve estimated hat tie ratio is as ~gh ~ five umu~ofiz~ copies for ev~ leg~ one. (Janet MaSOL ‘ ‘Crackdown on

Software Pirates,” Computer-world, vol. 24, No. 6, Feb. 5, 1990, pp. 110-115, quoting Peter Beruk of SPA, pp. 110-1 11,)

56 Ken WaX~ Nicole Field, ad Smti Brow SpA, ~~o~ cornrnunicatio~ July 30, 1991.

57 Janet Mason, ‘‘Waming: Here Come the Software Police, ” Across the Board, October 1990, p. 42, quoting Mary Jane Saunders, then-general

counsel of SPA.
Chapter 3—The International Arena . 101

In 1989, SPA helped five software publishers file

the first multivendor suit against a corporation for

copying their programs. The suit, against a New

York-based publishing company, reportedly

reached a six-figure, out-of-court settlement. SPA

reportedly also settled four other business piracy

cases out of court, with the proviso that the

corporations’ names would not be released.58 As part

of their education and enforcement efforts, SPA and

BSA maintain toll-free piracy hot lines for reporting

of cases of suspected piracy and assist firms in

conducting voluntary software audits and formulating organizational software-ethics policies.59 SPA

provides a free auditing kit, which comes with

diskettes and a license for “SPAudit,” SPA’s

software-auditing program, a list of suggested procedures for a corporate self-audit, sample corporate

memoranda on illegal software use, and educational

brochures about copying and the law.60

In January 1991, SPA announced a $75,000

settlement against a sports management and marketing group based in Northridge, Illinois. In addition

to the settlement, the organization was required to

destroy its unauthorized copies of software.61 The

SPA, accompanied by a U.S. marshal, had staged a

raid in November 1990 and found 80 unauthorized

copies of WordPerfect and Lotus 1-2-3. SPA publicized the raid and settlement to remind the public

that software piracy is illegal: one SPA advertisement pictured handcuffed wrists with the caption,

“Copy software illegally and you could get this

hardware absolutely free. “

62 In February 1991, SPA

announced a $300,000 settlement with a large

construction engineering firm, its largest settlement

at that time. The firm agreed to destroy all unauthorized copies of software published by Lotus, WordPerfect, and Software Publishing, institute formal

internal control procedures in all its offices, and

allow SPA to perform annual audits over the next 2

years. In May 1991, SPA announced a $350,000

settlement with a Seattle-based environmental and

engineering consulting firm. The firm agreed to

destroy the illegal software and institute formal

control procedures.64

Some software publishers have offered “amnesty” programs allowing unauthorized users to

register their copies of software and become eligible

for support and future upgrades. In November 1989,

one publisher of software utilities announced that it

had signed up some 5,000 previously unauthorized

users under the amnesty program; users of unauthorized copies paid $20 and received a registered copy

of the latest version of the program and a user

manual. The firm also signed up an additional

$1OO,OOO in corporate site licenses.65

Examples of Piracy Overseas

The BSA anti-piracy program operates outside the

United States and Canada. For example, in early

1990, BSA identified a major New Zealand bank, an

oil company, and an entertainment group as being

among firms allegedly pirating software in New

Zealand, and announced plans to prosecute one of

these organizations. As a result of BSA activities in

New Zealand, many firms reportedly began requesting software audits and reevaluating their software

acquisition policies.66

BSA estimates the level of unauthorized PCsoftware copying in foreign countries using ratios of

the total numbers of legitimate application software

packages and hardware units shipped and comparing

them to the U.S. ratio. In the United States,

approximately 1.66 legitimate software packages

were shipped for every hardware unit shipped in

1989; by contrast, there is only one software package

58 Janet Mason, “Crackdown on Software Pirates, ” Computer-world, vol. 24, No. 6, Feb. 5, 1990, p. 111.

59 In ~ly 1990, SPA repo~~ tit more b20 people a day were calling SPA’s hot line to report piracy in their companies. (Ibid., quoting MaIY

Jane Saunders of SPA, p. 113.)

60 ~c~el Fitzgerald, “SPA Offers Free (Audit) Software, ” C’ompuferworkl, Dec. 10, 1990, p. 41. The free software kit is available by writing or

calling SPA’s offices in Washington DC.

61 Mic~cl Fitzgerald, “SPA To Crank Up Efforts in Copy Crusade,” Computer-world, Jan. 28, 1991, pp. 1,92.

62 ‘‘Keel~uling Software phateS, ’ Business Week, Feb. 18, 1991, p. 122H.

63 SpA press release, Feb. 25, 1991.

~ SpA press release, May 7, 1991.

65 Rachel Parker, ‘‘Xtree Says Amnesty Program Is an ‘Overwhelming Success, ’ “ InfoWorld, vol. 11, No. 46, Nov. 13, 1989, p. 87.

~ me New fialmd dis~butor for ums sof~~e, a member of the BSA, had estimated that, based on the number of rquests for product updates

and service it received, it had probably supplied only 20 percent of all the Lotus software in use in New Zealand. (Randall Jackson, ‘‘Software Group

Charges Major Firms With Piracy, ” Compu(erworfd, vol. 24, No. 13, Mar. 26, 1990.)
102 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

shipped for every three computers shipped in Italy or

Spain and less than one for every computer shipped

in France. Comparing each country’s ratio with the

U.S. ratio and using an “average unit value” for

software, BSA estimated that lost revenues from

PC-software piracy in 1989 amounted to $628

million in France and $439 million a year in the

United Kingdom-roughly equivalent to the amount

of software sales revenues in each of these two

countries. This method yielded estimated losses in

Italy and Spain of $768 million and $792 million,

respectively; the largest estimated losses ($1.44

billion) were in what was then West Germany.67

(See table 3-4.)

In December 1990, three members of BSA

(Microsoft Corp., Ashton-Tate, and Lotus Development Corp.) filed suits for piracy against RhonePoulenc Films of France and Marconi Instruments,

a division of General Electric Co. PLC of the United

Kingdom. These suits were filed following courtordered searches following tip-offs to the BSA.68

The three software houses also announced settlements of similar copyright suits against units of three

French companies: Banque Parabas S.A., Telediffusion de France, and France Distribution Systems.69

Another suit was filed against Italy’s Montedison

S.p.A. after a 1988 investigation found that 50

personal computers were running Lotus 1-2-3 with

only 1 copy purchased and 20 were running dBase

software with 1 copy purchased. Montedison contended that Italian law permits copying for personal

use and that this provision applied to corporations.70

Using the “ratio” method and assuming that on

average one would expect to find at least two

application programs on each personal computer,

Table 3-4-Comparison of Software Sales and BSA

Estimates of PC-Software Piracy in Selected

European Countries

Software sales- Value of pirated software--

1989 estimate BSA estimate

Country ($ millions) ($ millions)

France . . . . . . . . . . $605 $ 628

Italy . . . . . . . . . . . . . 190 768

Sweden . . . . . . . . . 188 151

United Kingdom . . 795 439

W. Germany . . . . . 581 1,440

SOURCE: Dataquest, Inc. and Business Software Alliance, table shown in

William M. Bulkeley, “Software Makers Are Pursuing ‘Pirates’

Around the Globe With Fleets of Lawyers,” The Wall Street

Journal, Dec. 13, 1990, p. B1.

BSA has prepared estimates of PC-software piracy 71 

in selected Asian countries. For example, BSA

estimates that 75 percent of the software in use in

South Korea in 1990 was pirated. Individual companies’ estimates of the extent of piracy in South Korea

are higher: Lotus estimates that 90 percent of the

Lotus 1-2-3 software used in South Korea is pirated;

Ashton-Tate estimates that 85 percent of its database

software in use in South Korea is pirated; and

Microsoft estimates that about 65 percent of its

MS/DOS software in use in South Korea is pirated.72

In countries encompassing the former Soviet

Union, unauthorized copying of software has been

rampant. The market research firm IDC estimated

that by 1990, U.S. software producers had lost

revenues on the order of $1 billion due to illegal

copying. 73 In June 1990, the United States and the

then Soviet Union signed an agreement74 that

included reaffirmation of both nations’ commitments to adhere to the Berne Convention, to provide

copyright protection for software, and to provide

15? “BSA Software piracy Fact Sheet: European Countries, 1989, ” and Robert Holleyman and bri Forte, BSA, personal commtimtio~ JulY 12,

1991. BSA estimated losses in 12 European countries in excess of $5 billion using the “ratio” method.

~ ‘‘SofWWe Firms Pursue Piracy, “ New Technology Week, Jan. 2, 1991, p. 7; and Holleyman and Forte, op. cit., footnote 67. By the close of 1991,

the Marconi Instruments case had settled. (Lori Forte, BSA, personal communieatiorL Feb. 14, 1992.)

@ Wiuia M. Bulkeley, “Software Makers Are Pursuing ‘Pirates’ Around the Globe With Fleets of Lawyers, ” The Wall Srreet .rourna/, Dec. 13,

1990, pp. B 1, B6.

mIbld., p B6, By tie ~lo~e of 1991, tie Mont~ison c~e ~d &en settled. ~fi Fofle, BSA, persoti comunicatio~ Feb. 14, 1992.)

71 ~ iw ~epofi ~*BSA sof~we Pirac:t Fact Sheet: Asian Countries, 19W ‘‘ BSA estimates that onty 3 pereent of the software in Thailand is legitimate.

By contrast, BSA’S method produces a “ 135 percent” legitimacy figure for Singapore, so the method is somewhat inexact.

72 Damon Darlin, “U.S. Group Targets South Korea Firms for Unauthorized Copying of Software,” The Wall Street Journal, May 23, 1991, p. B5.

73 “soviet softw~e Pirates Are Plaguing MimOSOft, ” Business Week, Mar. 5, 1990, p. 84A. According to press accounts, the most widely used

program in the Soviet Government was Alpha-DOS, a copy of Microsoft’s MS-DOS; the MS-DOS code was copied even down to Microsoft’s copyright

notice.

74 me awement ~so ~cluded Provlslons for o~er copyrighted works and for patents. (Discussed h Jack E. BmWIL abstract Of presentation for

intellectual property panel of The Moscow Conference on Law and Bilateral Economic Relation, Sept. 19, 1990, published in Computer Industry

Litigation Reporter, Oct. 22, 1990, pp. 12,074-12,083.)
Chapter 3-The International Arena ● 103

comprehensive protection for trade secrets. A new

law was in process, with a set of principles for

software copyrights, but many considered them

deficient in that authors were not given enforceable 75 Copyright enforcement protections against piracy.

is still problematic in this area of the world-even

before the breakup of the Soviet Union the more

traditional types of works were widely copied, often

for commercial use. For example, unauthorized

copying of motion pictures on videocassettes—

often, to be shown to paying audiences—has been so

widespread that in June 1991, the major U.S. film

studios decided as a matter of principle to stop

licensing films for showings in what was then the

Soviet Union.76

Piracy and Trade Issues

On February 15, 1991, the International Intellectual Property Alliance submitted a response to the

United States Trade Representative’s (USTR) January 11, 1991 Federal Register notice requesting

comments under the Special 301 provisions of the

1988 Trade Act. (For a discussion of “Special 301,”

see box 3-B.) The IIPA supplemented its filing on

April 18, 1991. In its filing, the IIPA requested that

22 countries (the People’s Republic of China, India,

Thailand, Indonesia, Mexico, Brazil, Greece, Philippines, Poland, Turkey, United Arab Emirates, Cyprus, Egypt, El Salvador, Germany, Italy, South

Korea, Pakistan, Saudi Arabia, Taiwan, the then

U. S. S. R., and Yugoslavia) be identified for their

failure to protect U.S. intellectual property or for

denying market access. The IIPA estimated that

1990 trade losses to the software industry due to

software piracy in these countries exceeded $2.7

billion.77

In April 1991, the U.S. Economic Policy CounciI

recommended to President George Bush that the

United States formally cite the People’s Republic of

China (PRC), India, and Thailand under the Special

301 measure for tolerating violations of U.S. copyrights and patents in a number of industries, including pharmaceuticals, agricultural chemicals, sound

recordings, motion pictures, book publishing, and

software. The PRC was singled out for softwarecopyright violations. In its 1991 annual review of

foreign trade barriers, the USTR found that PRC

lacked a copyright law and that its proposed new law

did not meet international standards.78 The new

regulations for software copyright, made public by

the PRC’S Ministry of Machine Building and

Electronics on June 13, 1991, took effect on October

1, 1991. However, according to the Office of the

USTR, the new regulations have too many loopholes

to be adequate from the perspective of foreign

software developers. In particular, according to the

Office of the USTR, the new regulations appear not

to provide copyright protection for software developed prior to October 1, 1991.79

In late 1990, the United States opened a formal

investigation of Thailand’s enforcement of the Thai

copyright law. The Special 301 investigation was

prompted by a petition from the IIPA, Recording

Industry Association of America, and Motion Picture Association of America, alleging massive

piracy. The groups estimated that losses to U.S.

industry from piracy of U.S. videos, audio cassettes,

books, and computer software in Thailand was

between $70 and $100 million in 1990.80 The BSA

has charged that 97 percent of the software in use in

Thailand is pirated.81

~s Afiicle 4 of tie All Union Fun&mentals of Civil Legislation deals with software copyright; the Fundamentals provide the fmmework for all

commercial law in the U.S.S.R. (“Soviets Recognize Copyrights,” Computerworid (News Shorts), July 1, 1991, p. 80.)

Reviewer comments indicated that these provisions are considered inadequate and are being protested by the U.S. copyright industries and the USTR

(Oliver Smoot, CBEMA, personal communicatio~ June 28, 1991; Ronald Palenski, ADAPSO, personal communication July 10, 1991; Robert W.

Holleyman and Lori Forte, BSA, personal communicatio~ July 12, 1991).

76 Keith Bradsher, ‘ ‘Hollywood Bars Films To Protest Soviet Pisacy, ” The New York Times, June 12, 1991, pp. C13, C16.

m tiforrnation on IIPA filing and esti~te of piracy provided by Robert W. Holleyman and Lmn Forte, BSA, personal Commticalion, JUIY 12, 1991.

78 Keith Bradsher, ‘‘Panel Asks Bush To Cite 3 Nations,’ The New York Times, Apr. 26, 1991, pp. Dl, D6.

79 James McGregor, ‘ ‘China’s New Software Protection Rules Are Called Inadequate by U.S. official, ’ The Wall Street Journal, June 17, 1991, p.

A7 (quoting Joseph Massey, assistant U.S. trade representative for China).

~

 ( ‘us. bunches Investigation of Thailand’s We& Enfomement of Copyright Lcgislatio%’ BNA [nternarionul Trade Reporrer ~CWS HigMights),

vol. 8, Jan. 2, 1991, p. 4.

‘1 Andrew Jcrdcs, ‘‘As Software Piracy Spirals, Industry Cops Get Tougher, ’ Washing~on Technology, June 13, 1991, p. 16; and BSA, ‘‘BSA Software

Piracy Fact Sheet: Software Piracy in Selected Asian Countries in 1990, ”
104 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 3-B—The Omnibus Trade Act and ‘'Special” 301

Under section 301 of the Trade Act of 1974, the United States Trade Representative (USTR) is authorized to

identify, investigate, and retaliate against foreign countries engaged in unfair trade practices.l The USTR may

initiate a section 301 investigation if a foreign country’s act, policy, or practice is unreasonable or discriminatory

and burdens or restricts U.S. commerce.2 The statute enumerates trade practices that are unreasonable, citing as an

example those which deny ‘fair and equitable provision of adequate and effective protection of intellectual property

rights. ‘‘3 Any interested party may file a petition with the USTR requesting that action be taken under Section 301.

Subject to the direction of the President, the USTR is authorized to take action after the investigation. The

USTR may: 1) suspend, withdraw, or prevent the application of, or refrain from proclaiming benefits of, trade

agreement concessions; 2) impose duties or other import restrictions on the products of the foreign country under

investigation; and/or 3) restrict, in the manner and to the extent appropriate, access to U.S. markets for services by

denying or limiting licenses or other authority to provide services. The USTR must publish in the Federal Register

its decision whether to investigate under section 301 and any contemplated action at the conclusion of an

investigation. The USTR must hold public hearings on issues raised by petitions resulting in investigations and must

consult with appropriate congressional committees on the decision to investigate or sanction a foreign country under

section 301.

The Omnibus Trade and Competitiveness Act of 1988 (Public law 100-418) treats a wide range of subjects

including granting negotiating authority to the President for the current world trade talks, giving a legal mandate

for coordinating economic policies and exchange-rate strategies. It also grants the USTR increased surveillance of

intellectual property protection in foreign countries. This measure, commonly referred to as ‘‘Special 301, directs

the USTR to identify:

1) those countries that deny adequate and effective protection of intellectual property rights4 or deny fair and

equitable market access to United States persons that rely upon intellectual property protection,5 and

2) those foreign countries identified under paragraph 1 that are determined by the Trade Representative to be

priority foreign countries.6

119 USC. 2411.24190

2

19 U.S.C. 241 l(b).

319 U.S.C. 2411 (d)(3) (B) fi)(TI).

419 U.S.C. 2241 (a)(l).

519 U.S.C. 2241(a)(l).

619 U.S.C. 2242(a)(2) through (b)(l).

The Berne Convention The Convention attempts to achieve this objective

through the principal of national treatment, which

The Berne Convention for the Protection of underlies the workings of the Convention.82 Under

Literary and Artistic Works is a multilateral, interna- the principle of national treatment, each member

tional copyright treaty. The purpose of the Berne nation must give the same treatment to the nationals

Convention is to bring nations together in an effort: of the other member nations as it gives to its own

nationals. 83

. . . to protect, in as effective and uniform manner as

possible, the rights of authors in their literary and Several secondary exceptions play a role in the

artistic works. Berne system.84 These exceptions include recip8Z paul Goldstei~ Steua W. and Im S. Lillick Professor of Law, Stanford Law School, personal COIIMIunlCatiOL Sept. 20, 1991.

83 MWk L. Darnschroder, “Intellectual Property Rights and the GAIT: United States Goals in the Uruguay Round, ” Mnderbil[ Journal of

Trarrsnational Law, vol. 21, No. 2, 1988, p. 379.

84 paul Goldstein, Stclla W. ‘Md fial S. Lillick Professor of Law, Stanford l.-aw School, persomd communication, Sept. 20, 1991.
Chapter 3--The International Arena ● 105

A priority country is defined in the amendments as one maintaining a large number and wide pervasiveness

of practices which constitute significant barriers to U.S. exports and to foreign investment by U.S. persons.

The provisions of Special 301 requires the USTR to identify only those foreign countries with the most

egregious practices of denying adequate and effective intellectual property rights or fair market access to U.S.

persons relying upon intellectual property protection. The USTR must identify those foreign countries not entering

into good faith negotiations or not progressing in ongoing negotiations whose practices have the greatest impact

on relevant U.S. products. If the USTR determines that the investigation would harm U.S. economic interests, no

investigation is required. The USTR must take into account information submitted by interested parties, so that a

U.S. patentee may bring a complaint against a foreign country before the USTR and possibly involve the U.S.

Government into negotiations for better protection.

The USTR must enter into consultations with the foreign country to negotiate a resolution to the trade dispute

once an investigation under either section 301 or Special 301 is initiated. If the investigation involves a trade

agreement, the USTR, under certain circumstances, must request formal dispute resolution under the agreement.

On the basis of these activities, the USTR must decide whether a U.S. right under any trade agreement is being

denied or any act, policy or practice comes under section 301. If such an action is appropriate, the USTR must

determine what action it should take. This determination must be made within 12 months after the date on which

the investigation is initiated, within 18 months if the investigation involves a trade agreement’s dispute resolution

process. USTR has 30 days to implement its chosen course of action. The actions must be monitored and may be

modified. USTR may terminate actions after 4 years if members of industry do not ask that they be continued. If

such continuation is requested, USTR must study its potential effect.

A section 301 investigation into Korea’s laws protecting intellectual property was instituted in 1985. Korea’s

law did not provide copyright protection for the works of U.S. authors and provided only limited patent protection

for U.S. inventions. After discussions with the USTR, the Korean Government agreed to submit legislation to its

National Assembly providing for comprehensive copyright protection for written works, sound recordings, and

computer software. The Korean Government agreed to seek stronger patent laws and to join the Universal Copyright

Convention. 7 India, the People’s Republic of China, and Thailand were name “priority foreign countries” by the

USTR in May 1991. An investigation was not conducted into the intellectual property laws and practices of

Thailand, as that country was already the subject of two separate investigations based on complaints filed by the

International Intellectual Property Alliance and the Pharmaceutical Manufacturer’s Association.8

7 A]bcfl C. Smith and John Sullivan, ‘ ‘The Impact of U.S. Patents and Customs on Importation.., ’ The computer hw}’e~, vol. ~, No.

10, October 1991.

~ Ibid.

SOURCE: OTA 1992, and cited footnotes.

rocity, establishment of minimum rights in the

substantive clauses of the Convention, the principle

of automatic protection, and the provision for

making reservations.

Reciprocity alters the working of national treatment somewhat. The principle of reciprocity provides that a nation may limit the protection granted

to a foreign national to that level bestowed upon its

own citizens in the foreign nation of the person

seeking its domestic protection. Thus, a member

nation may treat foreigners as the foreigners’ own

governments would have treated them under similar

circumstances. Reciprocity often results from political pressure from domestic interest groups who are

receiving substandard protection in the foreign nation.85

The establishment of minimum rights in the

substantive clauses of the Berne Convention and the

principle of automatic protection work in tandem,

giving authors and artists substantive protections

I

~~ DCams~}lr~dcr, op. cit., foomotc ~3.
106 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

without a requirement of compliance with formalities.86

The provision for the making of reservations in

article 27 of the Berne Convention allows member

nations to make reservations to the introduction of

new rights where such reservations are required by

the domestic laws. The reservations may later be

withdrawn when domestic law is brought into line

with Berne.87

Article 2 of the Berne Convention defines what is

included within the subject matter of protection

under the Convention. Certain categories of works,

among them books, pamphlets, addresses, choreographic works and sculpture: are explicitly included

subject matter. Berne specifies that the scope of

protection of other works should be defined by

domestic law of each individual member country of

the Berne Union. The Berne Convention does not

address computer programs and databases, largely

because the Convention was most recently revised in

1971, when computer technology was not so prevalent. It has been suggested that because computers

are not mentioned, much confusion exists as to the

interpretation of the current text with respect to these

works of new technology. However, under Berne,

there appears to be no written obligation to protect

computer programs.88

The United States acceded to the Convention on

March 1, 1989. At that time, the United States was

already a member of the Universal Copyright

Convention (UCC). Both groups are administered

by United Nations agencies: Berne by the World

Intellectual Property Organization (WIPO), and the

UCC by the United Nations Educational, Scientific

and Cultural organization (UNESCO) (to which it

had already been a party for many years). To

implement its accession, it was necessary for the

United States to pass domestic legislation that

created the most significant changes to the U.S.

copyright law since 1976.89 The Berne Convention

was originally adopted to apply to works traditionally subject to copyright. Since then, new advances

in technology required that copyright protect works

in addition to art and literature. New technologies

such as software and databases, international in

nature because of the ease with which they can be

copied and disseminated across national boundaries,

have made international copyright protection and

the changes rendered by U.S. adherence in Berne at

least as important as domestic copyright protection. 90

As required by article 36 of Berne, the United

States made changes in its copyright law to make its

law compatible with the treaty by passing the Berne

Convention Implementation Act of 1988. Some of

these changes bear on Congress’ options to treat

software differently from other kinds of copyrighted

works. Among these changes are the following:

1. Abolition of mandatory notice of copyright—

Notice of copyright, traditionally indicated in

the United States by the symbol ©, the year of

publication, and the author’s name, is n o

longer required for works first published on or

after March 1, 1989. Failure to place a notice

of copyright on copies or phonorecords of such

works can no longer result in loss of copyright.

This abolition of the notice requirement is not

retroactive, and voluntary use of the notice is

still encouraged. If notice does appear, it limits

a defense of innocent infringement.91

86 Ibid. Some concern ~been expressed tit adoption by the United States of the Beme Conventio% which bs eliminated the need even to place

copyright notices on published material, has raised the issue of whether and to what extent a public disclosure system should be required for software

copyright protection. Some assert that under existing copyright law and practice it is impossible for a legitimate software developer to conduct a due

diligence process, as the scope of existing protection is not available in any public form since a copyright claiman t can delay filing any public record

until after an alleged infringement has occurred. This contrasts with current patent law and practice, whereby an applicant for a patent is required to

spectilcally claim the elements to be protected. Those claims, if allowed, become of public record. Subsequent inventors can use those records as part

of their due diligence to determine whether a proposed development will infringe existing rights. These obsemers raise the question whether, and to

what exten~ a similar practice should be required of software copyright claimants. Thomas E. Kirkland, Vice President and General Counsel,

Microelectronics and Computer ‘lMmology Corporation, personal communicatio~ Sept. 24, 1991.

87 Ibid.

88 Carol A. Motkya, “Lrnpact of U.S. Adherence to the Beme Convention, ’ Rutgers Computer & Technology Luw Journul, vol. 16, 1990, pp. 195,

213-215.

89 me Beme Implemen~tion ~t ex11res51y states tit he Berne Convention is not self-executing in the United ,Stales and tht it is not ~ independent

source of right in the United States, though it is in other countries, Thus, copyrighted works receive protection under domestic U.S. copyright law as

amended by the Beme Act, rather than by direct enforcement of the provisions of the Beme Convention itself,

X Moty~, Op. cit., footnote 88 at p. 195.

91 us, cop~l~t office, The Unireti State$ ~o~n.t fhe Berne Union, clrcul~ 93a (Washingto~ DC: U.S. Govemmcnt Printing office, 1989), p.4.
Chapter 3-- The International Arena . 107

2.

3.

4.

54

Mandatory deposit-Copyright owners must

deposit in the Copyright Office two complete

copies or phonorecords of the work subject to

copyright that are publicly distributed in the

United States, whether or not the work exhibits

a notice.92

Registration-Berne brought about a two-tier

registration system that differentiates between

works of U.S. origin and works of foreign

origin with regard to registration.93 Under 17

U.S.C. 41 l(a), authors or works whose origin

is not the United States are exempt from the

requirement to register in order to bring an

infringement action. However, works of U.S.

origin must be submitted to the Copyright

Office for registration before suit can be

brought. This domestic requirement for registration can be problematic for databases,

which are copyrightable under limited circumstances. Registration requirements for active

databases are complex because such databases

are being revised continually.

Compulsory licenses—Article 1l(l)(i-ii) of

Berne grants authors of literary works the

exclusive right of authorizing public recitation

of their works and communication to the

public of the recitation of their works. This

provision had an immediate effect upon U.S.

law in 17 U.S.C. 116, wherein the right to

publicly perform music by means of a jukebox

was the subject of a compulsory license. The

Berne Implementation Act amended the law to

provide for negotiated licenses between jukebox operators and copyright owners, so that

such negotiated licenses take precedence over

compulsory licenses.

94 From a broader perspective, this provision precludes the use of

compulsory license for any literary works.

Thus, compulsory licenses cannot be applied

to computer programs, as these are considered

under U.S. law to be literary works.

Duration of protection-The Berne Convention establishes the minimum terms of protection that must be provided by member countries. The general term of protection is life of

the author plus 50 years following the author’s

death. 95 Special minimum terms are indicated

for certain categories of works. As a result, a

term of protection for computer software less

than the life of the author plus 50 years is

precluded by U.S. adherence to Berne.

The General Agreement on

Tariffs and Trade

The General Agreement on Tariffs and Trade

(GATT) is a multilateral trade agreement, entered

into force in 1948, intended to promote freer trade

among member countries. The GAIT is the main

instrument regulating trade among market economy

nations of the world. The obligations contained in

the the original text of the GATT’ have been

augmented and changed periodically at the prompting of its signatories, most recently during the Tokyo

Round of negotiations from 1973 to 1979. Procedures under the GATT “provide for extensive

exchanges of information, regular review of key

subject areas and ad hoc consultations on particular

concerns. ” The GATT’s dispute settlement procedure is the last resort for governments involved in a

trade dispute. This procedure is termed the “panel

procedure, ’ and consists of third-party adjudication

of claims .96

A new round of negotiations under the GATT was

begun in 1986, and was originally scheduled to end

in December of 1990 (see box 3-C). Because the

agenda for the talks was set at Punta del Este,

Uruguay, this round of negotiations is referred to as

the Uruguay Round. During the round, negotiators

undertook to improve and strengthen the existing

GATT structure and to extend the rules of the GATT

to aspects of international trade that remain largely

outside the discipline of the GATT The United

States was successful in making intellectual property rights, as well as other matters, a part of the

negotiations. 97 Currently the GATT contains no

specific express provisions for protection of intellectual property rights. While an important U.S. goal

92 Ibid.

5’3 Ibid,

* The United Stales Joins the Berne Union, op. cit., fOO~Otc 9, pp. 4-5.

95 ~c Bcmc Convcntlon for we ~otwtion of Liter~ ~d Aflistic Works, p~s Act of July 24, 1971 as amended on oct, 2, 1979, article 7( 1 ), World

Intellectual Property Organization (Geneva 1987).

w D~sckoder (1988), op. cit., p. 384.

97 Ibid., p. 372.
108 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 3-C—History of the Uruguay Round

The Uruguay Round of’ the General Agreement on Tariffs and Trade (GATT) negotiations is the eighth round

of multilateral trade negotiations and may be the most comprehensive and significant in the GATT’s history.l In

addition to improvement of existing GATT articles and inclusion of trade-related aspects of intellectual property

rights, the United States succeeded in including the following subjects in the Uruguay Round negotiations: 1)

greater liberalization of the agriculture policies of member nations; 2) trade-related investment measures; 3) trade

in services; and 4) modification and strengthening of the GATT’s dispute settlement mechanisms.2

In December 1988, a mid-term review began in Montreal to assess progress made during the first half of the

Uruguay Round and to arrive at framework agreements on work over the remaining 2 years. Disagreement on

agriculture delayed the conclusion of the mid-term review until April 1989, when negotiators met in Geneva to

approve the set of mid-term agreements.3

Negotiators set July 1990 as the deadline for final draft framework agreements. These agreements were

expected to show the broad shape of the final package. Instead, in July negotiators remained far apart on most major

issues. The absence of consensus correctly indicated that the final months of negotiations would be intense and

difficult. 4 Since the breakdown of the talks in early December 1990, the European Community put forward

proposals for reforming the common agricultural policy. As discussed previously, talks held in Geneva January 31

through February 2, 1991 were aimed at producing a platform for restarting the round, according to GATT Director

General Arthur Dunkel.5

The Congress oversees the negotiations and the Bush administration is required to consult with Congress

during negotiations and prior to entering into an agreement. The President will submit the eventual agreement

package and implementing legislation to the Congress when it is ‘agreed upon by negotiators. Under the fast-track

approval procedure, Congress must take an up-or-down vote on the legislation within 60 days after the President

submits the legislation (90 days in the case of an implementing revenue bill).6

1 wk L. D~sc~oder, “Intellect Property rights and the GATT’: United States Goals in the Uruguay Round,” Vanderbih JournaZ

of Translational L.uw, vol. 21, No. 2, 1988, p. 390.

2 ‘ ‘me Gener~ Agreement cm Tariffs and Trade,” memorandum of Ernst& Young, Washington, DC Offke, July 1990.

~ ~nore Sek Trade Negotia,fions: The Uruguay Round, Congressional Research Service, Issue Brief No. B86147, P. 3.

4 Ibid., at p. 4.

5 “Free Trade ~~pe~c~ by Fight on Farm Subsidies,” The New Yo~k Times, NOV. 13, 1990.

6 Ilona B. Nickels, Trade Agreement Legislation On a “Fast Track” CRS Review, May-June, 1990, pp. 11-12; see also SeL op. cit.,

footnote 251 at p. 11.

SOURCE: OTA, 1992.

during the Uruguay Round is to develop better property provisions in the GATT will depend in

international standards for protection of intellectual

property rights and to establish dispute settlement

and enforcement procedures in the GATT, there is a

significant portion of the membership of the GATT’,

particularly the Third World, that opposes the

inclusion of intellectual property rights into the

instrument. Certain developing countries, led by

India and Brazil, question whether the GATT is an

appropriate forum and prefers that such discussion

take place in the World Intellectual Property Organization, a treaty administered by the United Nations

that lacks any dispute settlement provision. Some

believe that the effectiveness of the intellectual

large part upon the enforcement provisions of the

GATT treaty .98

The talks collapsed on December 7, 1990, when

the United States, along with most of the other

participating countries, and the European Community failed to agree at a ministerial meeting in

Brussels on ways to revamp agricultural trade. After

the breakdown in negotiations, the Uruguay Round

was originally extended into the first few months of

1991. GAIT Director General Arthur Dunkel met

separately with representatives of the EC, the United

States, Japan, and the Cairns Group of agricultural

98 D~sc~oder, op. cit., footnote 83, at 390.
Chapter 3--The International Arena ● 109

producing countries January 31 through February 1,

1991 in an effort to find some common ground for

resuming the formal Uruguay Round in February.

In light of the lack of results of these consultations, most delegates expected that the Uruguay

Round would continue through the summer, if the

U.S. administration could obtain from Congress an

extension of its “fast-track” negotiating authority

(see box 3-D). Indeed, the Bureau of National

Affairs reported that Dunkel obtained the agreement

of most major players in the Uruguay Round of trade

negotiations to have the talks extended at least

through the end of 1991. U.S. Trade Representative

Carla Hills had stated that she was hopeful that

Congess would approve an extension of the administration’s fast-track authority beyond June 1, while

some lawmakers, including Senator Max Baucus,

chairman of the Senate Finance Subcommittee on

International Trade, indicated that the subcommittee

would oppose extending the authority for the Uruguay Round without some evidence of significant

progress toward successful completion of the round.

President Bush formally requested an extension of

the fast-track implementation legislation on March

1, 1991. Following the lead of the House of

Representatives, the Senate voted to extend the

fast-track negotiating authority for 2 years.99

The U.S. Trade Representative

The Office of the U.S. Trade Representative, an

agency of the Executive Office of the President, is

the body involved in the GATT negotiations on

behalf of the United States. The process by which the

USTR arrives at treaty proposals such as those for

the GATT is not a highly visible one. l00T h e

statutory basis for the process is set out in 19 U.S.C.

2155, which provides that the president must seek

information and advice from representative elements of the private sector and the nonfederal

government with respect to negotiating objectives

and bargaining positions before entering into a trade

agreement. To effect such communication between

the executive branch and the private sector, the

statute provides for the establishment of an Advisory

Committee for Trade Policy and Negotiations to

provide overall policy advice on these matters. This

broadly based committee is made up of representatives of nonfederal governments, labor, industry,

agriculture, small business, service industries, retailers, and consumer groups. The committee is to be

representative of the key sectors and groups of the

economy, especially those affected by trade. Members are recommended by the USTR and appointed

by the President.

The statute also provides for the establishment of

individual general policy advisory committees for

these same interest groups to provide general policy

advice. These committees are organized by the

USTR and the Secretaries of various executive

departments, and are to meet at the request of the

USTR and the Secretaries of the executive departments to provide policy advice, technical advice,

and information.

Negotiators at USTR meet with parties concerned

with the negotiations, including the White House

and pertinent government agencies (in this case the

Copyright Office, the Department of Commerce, the

Department of State, or the Patent and Trademark

Office, inter alia), as well as with industry representatives, on both a formal and informal basis.l0l In

some cases a specific call is made for public

comment, in other instances the USTR seeks out key

players it believes to have a stake in the negotiations. 102 Congress’ role, as discussed above, is to

monitor USTR’S activities, to act as a source of

advice and consultation, and to hold public hearings

on issues critical to the negotiations. ]03 Some

sources assert that the treaty implementing legislation is essentially written by the Congress and the

~ ‘ ‘Brussels Meeting TO Conclude Uruguay Round in Jeopardy, Director Gcnctal Dunkcl w~,’ International Trade Reporter, vol. 8, No, 22, May

29, 1991, p. 802.

1(xI persoml ~o~~u~C~[lo~. ~1~ offlcl~~ of the office of the us Trade Representative, thc Department of commerce, and the U.S. bternational

Trade Commission %ptcmber 1990 to Novcmber 1990.

Iol Ell~a patter50n, Deputy Director, External Affairs, International Trade Commission, personal Communication, Aug. 13, 1990.

]oz Emcw Simon, Office of U,S Trade Representative, personal communication, swlernber 1990

lo~ Patterson, op. cit., footnote 101.
110 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 3-D—Role of the Congress in Trade Negotiations and the Fast-Track Implementation Procedure

The Administration and Congress have interactive roles in the negotiation of trade agreements. Under his

constitutional powers to negotiate international agreements and to conduct international relations, the President has

certain power to negotiate on trade matters. Congress has constitutional authority to regulate foreign commerce. The

President may negotiate trade agreements, but if those agreements require a change in the law, the Congress must

approve the statutory changes.

Congress has traditionally delegated some of its authority to the President for past rounds of multilateral trade

negotiations. The Trade Act of 1974 (Public Law 93-618) authorized the President to agree to certain matters during

the Tokyo Round. The U.S. Government implemented the Tokyo Round agreements by enacting the Trade

Agreements Act of 1979 (Public Law 96-39).

The President began negotiations in the Uruguay Round without congressionally delegated authority. At the

time, however, the Congress was considering legislation to extend negotiating authority to the President and

subsequently approved authority under Public Law 100-418, the Omnibus Trade and Competitiveness Act of 1988

(1988 Trade Act).

The 1988 Trade Act designated negotiating objectives, which gave congressional direction to the U.S.

negotiator. It listed specific objectives on 16 subjects, including intellectual property. The 1988 Trade Act also

extended the President’s authority to enter and proclaim certain tariff and nontariff agreements, imposed limits on

tariff reductions, and provided for fast-track approval procedures for certain agreements, as well as congressional

withdrawal of fast-track consideration (“reverse fast-track”).

The fast-track approval procedure ensures that as long as the Administration has consulted adequately with

Congress prior to and during negotiations and has negotiated an agreement consistent with congressional directives,

then Congress quickly and without amendment will consider and vote on the agreement and implementing

legislation as submitted by the Administration. This fast-track procedure is an exercise of the constitutional

rulemaking power of the House and the Senate. Either House of the Congress may change these procedures in the

same way that it may change any of its rules. The 1988 Trade Act provides that Congress may also terminate the

fast-track procedure. Such a change or termination of the fast-track procedure would signal a lack of congressional

support for the agreement.

executive branch, including the USTR, together.l04 Rights. Part Two of the U.S. Trade Representative’s

The perception exists, however, that the USTR has

not involved the Congress as fully as would be

considered appropriate.

105 Indeed, the fast-track

procedure for passage of implementing legislation

relies upon congressional awareness and participation throughout the negotiation and drafting process.

l06

Trade-Related Aspects of Intellectual Property

Rights and the U.S. Proposal to the GATT

That portion of the GATT negotiations concerned

with intellectual property is referred to as TRIPs,

Trade Related Aspects of Intellectual Property

Draft Agreement on TRIPs, entitled “Standards in

the Field of Intellectual Property,’ provides specifically for protection of computer software as a

literary work under its copyright provisions. The

Berne Convention forms the basis for protection set

forth in the GATT proposal.107 Article 1 of these

standards establishes that the Berne Convention

provides the minimum economic rights to be granted

to authors by contracting parties to the GATT’.

Articles 2 through 7 set forth the additional protections provided specifically for computer software

and databases in the TRIPs. The more controversial

aspects of the U.S. draft agreement are discussed

below.

104 G@er ~w, Ernst & Yomg, was~go~ DC, perso~ commmication, Aug. 9, 1990.

105 Tes~ony of the us. Tmde ~~bassador Carla H~s before the U.S. House of Represen~tives subcommittee on Intellectual property and Judicial

Adrninistratio% hearing on Intellectual Proprety and International Issues, May 15-16, 1991.

106 Pattersom op. cit., footnote 1101.

107 ~wls ~aCkS, PO1lCY plm~lg Advisor to he Register of copyrigh~, personal cornmunicatio~ Aug. 7, 1990,
Chapter 3—The International Arena ● Ill

.

As part of the required consultation with Congress, the President must meet and consult with the appropriate

committees during negotiations and prior to entering into an agreement. At least 90 days before entering into an

agreement, the President must notify the House and the Senate of the intention to enter into the agreement and must

publish notice of such intention in the Federal Register.

After entering into an agreement, the President must submit a document to the House and the Senate containing

a copy of the final legal text of the agreement. The document also must contain: 1) a draft of the implementing bill,

2) a statement of any administrative action proposed to implement the agreement, and 3) supporting information

as described by law.

Under the fast-track approval procedure, Congress must take an up-or-down vote on the implementing

legislation within 60 days of session after the President submits the legislation (within 90 days in the case of an

implementing revenue bill):

● The implementing bill submitted by the President must be introduced in each House of the Congress on the

same day that a trade agreement is submitted to the House and the Senate. The bill is referred jointly to the

appropriate committees.

. The committees have 45 days to report the implementing bill. At the end of the 45 days, if the committees

have not reported the bill, they are discharged from further consideration. The bill is placed on the

appropriate calendar.

. Within 15 days of session after the committees report the bill or are discharged from further consideration

of the bill, a floor vote must be taken in each House of Congress. No amendments may be made and debate

is limited.

. If it is an implementing revenue bill, the bill must originate in the House of Representatives. After the bill

is received in the Senate from the House, it is referred to the appropriate Senate committees. The Senate

committees have 15 days in which to report the bill, otherwise the committees are discharged from further

consideration. A vote in the Senate shall be taken within 15 days after the committees report the bill or after

the committees are discharged from further consideration of the bill.

SOURCE: Lenore Sek, Trade Negotiations: The Uruguay Round, Congressional Research Service, Issue Brief No. IB86147, p. 3.

Ilona B. Nickels, Trade Agreement Legislation on a “Fast Track” CRSReview, May-June, 1990, pp. 11-12.

Article 2 (l)(a). This provision essentially incorporates the

Article 2 attempts to define the scope of protection for computer-related works. Section (l)(a)

provides for protection of computer programs,

which, under the provisions, include “application

programs and operating systems. ” Section (l)(a)

further provides that computer programs may be

expressed in any language, including source and

object code, and that these are to be protected as

literary works. Section (l)(a) also provides for

protection of works created by or with the use of

computers.

Protection of computer programs in source

and object code are the subject of article 2, section

provision of section 101 of the U.S. Copyright Act,

Title 17, U.S.C. 101 regarding the treatment of

computer programs and databases as literary works 108

and codifies the outcome of litigation in the American courts dealing with these issues. 109 It provides

that both the source and object code of computer

programs, as well as operating and application

systems, are the subject of protection.

It has also been suggested that the language of

article 2, section (l)(a) that states that ‘‘all types of

computer programs. . . expressed in any language. . .“

should be noted as being potentially construable to

include algorithms and source code languages. This

108 Tiflc 17, sec. 101 provides in pertinent part that “literary wOrkS’ m:

. . .works, other than audiovisual works, expressed in words, numbers, or other verbal or numerical symbols or indicia, regardless

of the nature of material objects, such as tapes, disks, or cards, in which they are embodied.

Melville Nimmer states that this statutory definition is broad enough to include computer databases and programs. This issue is further discussed

in the analysis of the Apple decision, ch. 2.

109 For fufier discussion of U.S. case law pe~ent to tie protection of computer pro-s, see tie discussion of App/e v. Franklin, as WeU ~ other

relevant cases, ch. 2.
112 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

is especially pertinent in light of the recently adopted

European Community software directive,110 which

may not specifically preclude protection of algorithms and computer languages.

111 Works created by

or with the use of computers are granted protection

under article 2, section (l)(a) of the U.S. TRIPs

proposal. 112

The compendium of the U.S. Copyright Office

explains that the term ‘‘authorship’ in the copyright

law:

implies that, for a work to be copyrighted, it must

own its origin to a human being.

To determine whether works created by computers

are works of authorship within the meaning of the

1976 Copyright Act, a distinction must be made

between computer-aided works and computergenerated works. Computer-aided works, works

generated with the aid of a computer, are entitled to

the same copyright treatment as other works created

with the more traditional implements of human

authorship. However, if and when artificial intelligence makes it possible for new works to be

generated by a computer alone and not merely with

its assistance, new questions will be presented. To

date, there are no cases on computer-aided or

computer-generated works. When the National Commission on New Uses of Technological Works

(CONTU)ll3 considered the question, it believed

that there was “no reasonable basis for considering

that a computer in any way contributes authorship to

a work produced through its use. ’ CONTU concluded that:

. . . no special problem exists with respect to the

‘‘creation of new works by the application or

intervention of such automatic systems or machine

reproduction’; that existing statute and case law

adequately cover any questions involved; and that no

action by Congress is necessary at this time.l 14

This finding by CONTU effectively deferred

consideration of the problem of computer-generated

works, and focused exclusively on the question of

computer-aided works. CONTU examined a number

of issues with respect to the issue of computer-aided

works. 115

First, it asked whether a computer-aided work is

an ‘‘original work of authorship’ within the meaning of the Constitution and the current statute.

CONTU expressed the view that the intervention of

a computer should not affect the copyrightability of

any work, noting that the quantum of originality

needed to support a claim of authorship in a work is

small. ’ Although computers may be used to:

. . . produce writings that lack the degree of originality held necessary to copyright, [still] the criteria that

determine if a work is sufficiently original to qualify

for copyright are already well established, and the

intervention of the computer should not affect them,

CONTU compared a computer to a camera in its

ability to extend human power rather than substitute

for it, A computer-aided work is no less a work of

human authorship than a work created by the aid of

a camera, a typewriter, or any other ‘ ‘inert instru110 me EWopm &onomic con~~ty Treaty ~d the EuopcaD commu~ty Comcil dirmtive on tie legal protection of COInpUter programs are

discussed later in this chapter.

11 I Jerome Reichmann, Wnderbilt University, personal communication, Aug. 9, 1990. The Council Directive on the legal protection of computer

programs (91.250 .EEC) provides in article 1, section 2:

Protection in accordance with this Directive shall apply to the expression in any form of a computer program. Ideas and principles

which underlie tiny aspect of a program inc[~ing ;ts inte$aces, shall not beprotectedby copy~”ght under the Directi\’e. @mphasis

added.)

This section differs tiom a prior iteratiou which provided:

protection in accordance with this Directive shall apply to the expression in any form of a computer program but shall not extend

to the ideas, principles, logic, algorithms or programming languages, underlying the program. Where the specification of interfaces

constitutes ideas and principles which underlie the program, those ideas and principles are not copyrightable subject matter.

Other commentators are uneasy with such a conclusion that the EC directive does not, as a result of this language, include an express exclusion of

“algoritium” from copyright. It should be noted in light of the language of the directive that Japw as well as several other countries, have adopted

express exclusions for algorithms from copyright protection, Raymond Nimmer, Professor of Law, University of Houston Law Center, pexsoml

communication, Sept. 23, 1991.

112 For f~er discussion of ~eab~ent of work ~eated by or with fhe use of computers, sce Pame]a sarnuelso~ ‘ ‘Allocating Ownership Rights In

Computer-Generated Works, ” University of Pittsburgh Law Review, vol. 47, p. 1185.

1 IJ For f~cr discussion of CONTU ad its activities, see ch. 2.

114 Final Rcp<lrtclf (he Na~ona/ C<lmission On New Techno[(]gica[ Uses ofcopyrighted work, July 1978 (Washington, DC: The Library of Congress,

1979), p. 46.

115 Ibid.
Chapter 3—The International Arena ● 113

ment’ which is ‘‘capable of functioning only when

activated either directly or indirectly by a human. 116

Second, CONTU addressed the question of who is

the author of a computer-aided work. CONTU

determined that “the obvious answer is that the

author is one who employs the computer. ’ Where a

number of people have been involved in using the

computer to prepare a complex program or database

the author may be a common employer of the

programmer under the work-made-for-hire doctrine.

On the other hand, a team of independent programmers might be joint authors, and they can define their

relative rights by agreement. 1

17

Some commentators believe that this provision

reflects the status of the law in the United States, and

that foreign jurisdictions generally agree that such

protection is appropriate. Others believe that the area

has not yet been examined by the courts, and is

therefore not yet ripe for negotiation in the GATT.l18

Databases are protected under section (1)(b) of

article 2:

. . . if they constitute intellectual creation by reason

of the selection, coordination, or arrangement of

their contents.

While this issue has also been addressed in the U.S.

courts, little consensus on the issue had been reached

until a recent decision by the U.S. Supreme Court.l19

Section 2 (a) of’ article 2 of the TRIPs proposal

delineates economic rights provided to contracting

parties that are over and above those minimum rights

provided for in Berne. The rights provided in this

section closely mirror those rights set forth in section

337 of the Trade Act of 1974 and section 602 of the

Copyright Act. These include the right to import into

the territory of the contracting party lawfully made

copies of the copyrighted work, and the right to

prevent the importation of unauthorized copies,

Article 2, section 2(b) of TRIPs deals with the

issue of rental rights in computer programs, an

—

116 Ibid.

117 Ibid.

issue recently considered by the U.S. Congress,

which passed legislation in November 1990 (Public

Law 101-650, section 801-805). Section 2(b) states

that the first sale of the original or a copy of a

computer program shall not exhaust the rental or

importation right in the computer program. The

provision defines “rental right’ as the right to

authorize or prohibit the disposal of the possession

of the original or copies for commercial advantage.

This provision reflects the substance of legislation

recently passed.120

This TRIPS provision, like the U.S. legislation,

limits the f~st sale doctrine, embodied in 17 U.S.C.

109. The first sale doctrine permits the owner of a

lawfully made copy of a copyrighted work to sell or

otherwise dispose of the possession of that copy

without the permission of the copyright owner. The

provision and the legislation are a response to the

computer software industry’s concern about the

rental of its works and the ease with which they can

be copied.

Among the justifications for this limitation of the

first sale doctrine is the argument that computer

programs, unlike movie videos, cannot realistically

be rented for an evening’s entertainment and then

returned. It is argued that the various commands and

features require study and understanding of users

manuals, and many programs have no real value

until the user enters their own database. 121 The

industry asserts that unchecked rental of software

and its unauthorized copying feeds on itself, since

copying drives the price of software up and makes

the incentive to pirate greater, It has been asserted,

however, that rental restrictions could interfere with

the practice of ‘‘trial rentals,” which would limit

consumer information and potentially reduce sales. 122

The issue of software rental has garnered significant attention internationally. The directive of the

Council of the European Economic Community on

the legal protection of computer programs includes

118 Jer~mc H. Rcichm~, Professor of Law, %derbilt University, personal communication, Aug. 9, 1990.

11~ FOr fuficr discussion of protection of databases under U.S. law, see Ch. 2.

120 For a~dltion~ discussion of thc issue of rental rights and the cmcted legislation, see ch. 2.

12 I Te~tlmony of R~ph ~mm Regis(er of Copfights Hearing of the House Subcommittee On COWIS, IntelleCtUill ~oPcrtY, and ‘hc ‘mlnistratlOn

-,

of Justice, July 30, 1990.

]~~ Ibid
114 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

a provision to allow authors to retain rental rights in

their software after its first sale.123

Draft Final Act Embodying the

Results of the Uruguay Round and

Trade-Related Intellectual Property

On December 20, 1991, GATT Director General

Arthur Dunkel tabled the “Draft Final Act Embodying the Results of the Uruguay Round of Multilateral

Trade Negotiations. ’ This draft was issued with the

understanding that it offered a concrete and comprehensive representation of the final global package of

the results of the Uruguay Round, that no single

element of the draft could be considered as agreed

upon until the total package is agreed, and that final

agreement on the draft act would depend upon

achievement of meaningful results for all parties in

ongoing negotiations pertaining to access to markets

and in liberalization commitments in the area of

services. The draft discussed copyright and related

rights, including provisions for computer programs

and compilation of data.

According to article 9 of the draft, parties to the

agreement are required to comply with articles 1 to

21 and the Appendix of the Berne Convention, with

the exception of article 6bis of the Convention which

deals with moral rights of authors. Further, the draft

states that copyright protection shall extend to

expression and not to ideas, procedures, methods of

operation or mathematical concepts.

Article 10 provides that computer programs,

whether in source or object code, shall be protected

as literary works under the Berne Convention.

Compilations of data or other material, whether in

machine readable or other form, which are intellectual creations because of the selection or arrangement of their contents are entitled to protection,

without prejudice to any copyright subsisting in the

data or material itself.

Article 11 provides that with respect to computer

programs, authors shall be provided the right to

authorize or prohibit the commercial rental to the

public of originals or copies of their copyrighted

works. This obligation does not apply to rentals

where the program itself is not the primary purpose

of the rental.

Article 12 provides for a term of protection for

computer programs of 50 years from the end of the

calendar year of authorized publication, or absent

such authorized publication within fifty years from

the making of the work, fifty years from the end of

the calendar year of the making.

Article 13 of the draft agreement provides that

parties to the agreement ‘‘shall confine limitations

or exceptions to exclusive rights to certain special

cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice

the legitimate interest of the right holder.”

Earlier in the text, the Draft also sets forth

“Measures in Favor of Least-Developed Countries,’ which would affect the application of the

computer software provisions to least-developed

countries that are signatories to the GATT. Under

these provisions, parties to the agreement recognize

the plight of the least developed countries and their

special needs with respect to effective participation

in the world trading system, especially in the area of

market access. It states that least-developed countries, recognized as such by the United Nations, will

be required to apply the terms of the agreement only

to the extent consistent with their individual development and capabilities.

This portion of the draft also states that parties to

the agreement agree that expeditious implementation of measures taken in favor of least-developed

countries shall be ensured through regular reviews,

and that least-developed countries are to be accorded

increased technical assistance in the development,

strengthening and diversification of their production

and export bases to enable them to maximize the

benefits from liberalized access to markets. They

further agree to keep the problems of these countries

under review and adopt positive measures which

facilitate the expansion of trading opportunities in

favor of these countries.

Participation by the United States in

Other International Treaties

In addition to its participation in such multilateral

treaties as the Berne Convention, and the General

Agreement on Tariffs and Trade,124 the United

States is a party as well to many bilateral treaties

123 Comcfl Dir~tiv~ of May 14, 1991 on tie ]egal protection of computer pmgr~s (91/’250/EC), ~. 4(C).

124 me GA~and U,S. proposals fc,r @ade.related intellectual propefiy rights are discussed earlier in this chapter.
———

Chapter 3—The International Arena ● 115

with individual nations in which provisions for

intellectual property protection for computer software are specifically laid out. In large part, the bases

for these bilateral treaties are the provisions of the

Berne Convention. Most recently, the United States

has established such bilateral treaties with the then

Soviet Union, Romania, Czechoslovakia and other

emerging Eastern European countries.125

Also, as discussed above, the United States is a

party to the Universal Copyright Convention (UCC),

which was created in 1952 by UNESCO to provide

an alternative multilateral agreement to Berne which

would not require the United States and other

Western countries to forfeit copyright notice requirements. While the UCC prohibits member states

from requiring formalities as a prerequisite for

copyright protection, the UCC differs from Berne by

dispensing with those formalities only upon use of

a prescribed copyright notice. The UCC grants

priority to the Berne Convention, making it the

premier multilateral copyright treaty with the highest standards of protection, followed by the UCC.126

The European Economic

Community’s Directive on Legal

Protection for Computer Software

The Council Directive

On May 14, 1991, following its 1988 Green Paper

(see box 3-E), the European Community adopted its

extensively debated Council Directive on the legal

protection of computer programs.127

Preamble

The preamble of the Council Directive asserts the

varying nature and scope of protection afforded to

computer software among member states and the

negative consequences of these differences on the

functioning of the European Common Market.128

This section emphasizes the investment of human,

technical and financial resources in development of

computer programs, the increasingly important role

played by computer programs in a broad range of

industries and the resulting fundamental importance

of computer software to the European Community’s

industrial development.129 It also asserts that differences in protection which have negative effects on

the operation of the Common Market must be

eliminated, and sets forth copyright law as the

European Community’s legal framework for the

protection of computer programs. 130 The European

Community’s commitment to the promotion of

international standardization is emphasized.131 The

prologue initially makes reference to the issues of

idea/expression dichotomy, reverse engineering,

limited rights of the owner of software to copy, and

the copyrightability of logic, algorithms and programming languages (see discussion above). *32 The

prologue establishes the term of protection for

computer programs as the life of the author and 50

years from the authors’ death.133

Article l—Object of Protection

Under article 1, computer programs are protected

as literary works within the meaning of the Berne

Convention for the Protection of Literary and

Artistic Works.134 Protection applies to the expression of a computer program. Underlying ideas and

principles, including those that underlie its interfaces, are not protected by copyright under the

directive. 135 According to the directive, a computer

program is eligible for protection if it is original in

the sense that it is the author’s own intellectual

creation. No other criteria are to be applied. 136

125 Efic Schw-., Policy Planning Advisor to the Register of Copyrights, personal communication Apr. 30, 1991.

126 Melville B. Nimmer, Nimmer on Copyright (New York NY: Matthew Bender, 1988), sec. 17.01 [B].

127 For fufihcr discussion of tie E~ope~ fionomic Community Treaty and the procdure by which tie EC wives at legislation such as ‘e ‘irwtive

discussed in this chapter, see app. A.

128 Council Dir~tive of May 14, 1991 on ~~ legal protection of computer programs (91/250/EC).

129 Ibid,

ls~ Ibid.

13] Ibid,

!~z Jbld

1~~ Ibid.

134 Ibid., art, 1, ScC. 1.

’35 Ibid,, sec. 2.

136 Ibid,, sW. 3,
116 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 3-E—The Green Paper on Copyright and the Challenge of Technology:

Copyright Issues Requiring Immediate Action

On June 7, 1988, the Commission of the European Communities issued a “Green Paper on Copyright and the

Challenge of Technology--copyright Issues Requiring Immediate Action. ”l This paper analyzes various issues

concerning the copyright law, suggests legislative and technical solutions, and invites comments on the subjects

discussed. Chapter 1 of the Green Paper considers the emergence of important copyright issues at the European

Community level, the Community’s general concerns about the state of copyright protection, and the Community’s

powers under the European Economic Community Treaty in relation to copyright goods and services.2

The Green Paper then addresses six focus areas:

1. piracy,

2. audio-visual home copying,

3. distribution and rental rights,

4. the legal protection of computer programs,

5. the legal problems and protection of databases and their operation, and

6. the role of the European Community in multilateral and bilateral external relations.3

This box highlights those sections relevant to the computer software industry.

Chapter 1: Copyright and the European Community

Chapter 1 considers the emergence of important copyright issues at the Community level. The Commission

expresses its concern that intellectual property has so far been dealt with by national law and has been neglected

at the EEC level.4 in the opinion of the Commission, the Community must provide for proper functioning of the

Common Market to provide creators and suppliers of copyrighted goods and services with a single internal market.5

The paper highlights the need to reconcile protection of the economic interests of the author and other creators, the

promotion of ready access to information, and the pursuit of cultural goals.6 Copyright law and policy are believed

by the Commission to be means to pursue and accomplish these goals.7 The Green Paper also outlines the growing

importance of copyright to industry and commerce, as well as the importance of the market for goods and sew ices

protected by copyright to the health of the European Community economy.8

The paper focuses on four fundamental concerns regarding copyright protection. First, the Commission states

that it is important that the Community ensure the proper functioning of the Common Market, so that creators and

providers of copyright goods and services are able to treat the Community as a single internal market. This would

require elimination of obstacles and legal differences that disrupt the functioning of the market by obstructing trade

and distorting competition. Second, the Community should, according to the Commission, develop policies to

improve the competitiveness of its economy in relation to its trading partners. In addition to product-oriented

measures, the paper suggests that the Community take legislative measures regarding intellectual property to ensure

that European creators and firms can rely on legal protection for their products that is at least as favorable to their

development as that granted by their principal competitors in their home markets. Third, steps must be taken to

ensure that intellectual property resulting from creative effort and substantial investment with the Community is

not misappropriated by non-EEC countries. The Commission believes that action should be taken by the

Community to ensure a fair return from the exploitation of intellectual property by nonmember states. Finally, the

interests of third parties and the public must be considered.9

1 Commission of the European Commtities, ‘‘Green Paper on Copyright and the Challenge of ‘Ikchnology-Copyright Issues Requiring

Immediate Actiom” Communication from the Commission Brussels, 7 June 1988, COM (88) 172 final.

2 Ibid., pp. 1018.

3 Ibid., ~hs. 2.70

4 Ibid., p. 10

5 Ibid., p. 12.

6 Ibid., p. 10.

7 Ibid.

8 Ibid., pp. 11-12.

9 Ibid., pp. 12-14.
Chapter 3—The International Arena ● 117

Chapter 5: Computer Programs

In Chapter 5 the Commission outlines the importance of the computer software industry to the Community’s

economy and industrial and technological future, and examines the present status of the computer industry in the

Community. 10 Chapter 5 also addresses many problems encountered under the existing law applied to computer

programs and urges that action be taken to provide for more consistent and effective protection.ll In its conclusion,

the Commission states its intention to submit a proposal and directive addressing the following issues:

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

whether copyright protection should apply to computer programs fixed in any form;

whether programs should be protected where they are original in the sense that they are the result of their

creator’s own intellectual efforts and are not commonplace in the software industry;

whether access protocols, interfaces, and methods essential for their development should be excluded from

protection;

how broadly the use right should be formulated;

whether the adaptation of a program by a legitimate user exclusively for the users own purposes and within

the basic scope of a license should be permitted;

whether reproduction, without authorization, of programs should be permitted for private purposes;

what the term of protection should be;

how authorship should be defined, including authorship of computer-generated programs;

whether protection should be available for creators who are nationals of States adhering to the Berne

Convention or the Universal Copyright Convention or enterprises of such countries, or whether protection

should be extended to all persons regardless of origin or domicile; and

upon which party the burden of proof should lie in infringement cases.12

Chapter 6: Databases

The Green Paper defines databases as ‘‘collections of information stored and accessed by electronic means. 13

The paper points out that under certain conditions, ‘compilations’ are, at least in part, protected under the copyright

laws, but electronic databases raise a number of technical and legal problems.14

The paper discusses two alternative solutions. First, it suggests legal action to protect the compilation of works

within a database where those works are themselves the object of copyright protection.15 The second alternative

would be protection of databases composed of material which is not itself protected by copyright. The Commission

suggests that the second option would only be exercised if it were felt that the considerable investment which a

compilation of a database presents could best be served by copyright protection rather than by other means.l6

Thus, the Commission considered the following issues:

1. whether the mode of compilation within a database of work should be protected by copyright; and

2. whether the right to protect the mode of compilation, in addition to possible contractual arrangements to

that effect, should be extended to databases containing material not itself protected by copyright and

whether this protection should be copyright or a right in general.17

Chapter 7: External Relations

One goal of the Commission is to improve the existing protection of intellectual property rights recognized

by existing national legislation through the application of some of the general principles of the GATT (General

Agreement on Tariffs and Trade) .18

10 Ibid., pp. 171-175.

11 Ibid., pp. 175-180.

12 Ibid., pp. 200-201

13 Ibid., p. 205.

14 Ibid,, pp. 207-211.

15 Ibid., p. 211.

16 Ibid., p. 211.

17 Ibid,, p. 216.

18 Ibid., p. 218.

Continued on nexl page
118 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 3-E—The Green Paper on Copyright and the Challenge of Technology:

Copyright Issues Requiring Immediate Action-Continued

The Commission suggests that all GATT member countries adhere to international conventions on intellectual

property, e.g., the Paris Convention for the Protection of Industrial Property and the Berne Convention for the

Protection of Literary and Artistic Works.l9 Further, the Commission has proposed, inter alia, that computer

programmers should have exclusive rights to the use of their programs.20 It has also proposed that semiconductor

manufacturers should be given exclusive rights to the topography of the semiconductor.

The Commission also states that the application of “national treatment” and “most favoured nations

treatment” would ensure that discrimination between national and foreign right holders and among foreign right

holders themselves is avoided, both with regard to the substantive standards applied and the enforcement procedures

and remedies.21

The Commission invited comments on:

1. the priorities to be given to the different aspects of reinforcement of intellectual property protection in the

international context;

2. the development by (MIT of new disciplines as regards the effective enforcement of intellectual property

laws, in particular, copyright and/or adoption of improved substantive standards; and

3. the more systematic use of bilateral relations, to ensure better protection in nonmember states of the

intellectual and industrial property of Community right holders, particularly in the copyright field.22

19 ~id., pp. 221-224.

m Ibid., p. 223

21 Ibid.

= Ibid., p. 236.

SOURCE: OTA, 1992.

Article 2—Authorship of Programs Article 4-Restricted Acts

Article 2 establishes the criteria for authorship

under the Directive.137 This article specifies the

criteria to determine authorship in works created by

individuals or groups and in collective works.138

With respect to works-made-for-hire, the directive

states that where a computer program is created in

the course of employment, the employer is entitled

to exercise all economic rights in the program,

unless otherwise provided by contract.139

Article 3—Beneficiaries of Protection

Article 3 provides protection to all natural or legal

persons eligible under national copyright legislation

as applied to literary works.l40

Subject to the provisions of article 5 and 6, the

author has the exclusive right to do or to authorize

the permanent or temporary reproduction of a

computer program by any means, in any form, in part

or whole.141 Insofar as loading, displaying, running,

transmission or storage of the computer program

requires a permanent or temporary reproduction of

the program, such activities are subject to authorization by the right holder.142 The author also has

exclusive rights to translation, adaptation, arrangement, and any other alteration of a computer

program and the reproduction of the results of these

without prejudice to the rights of the person who

alters the program.

143 The distribution of a computer

137 Ibid., W. 2. However, ticle2 docs not impose criteria with respect to authorship of works cr=ted by legal persons or as collective works. TheSe

questions remain regulated by the member states.

138 ~id., ~. 2, SW. 1. However, fic]e 2 does not impose criteria with respect to authorship of works Creattd by legal persons Or as collective worh.

These questions remain regulated by the member states.

’39 Ibid., sec. 3.

]40 Ibid., ~. 3.

141 Ibid,, ~. 4.

142 Ibid.

143 Ibid.
Chapter 3—The International Arena ● 119

program to the public, whether a copy or the original,

is to be subject to right holder authorization.l44 This

distribution right is exhausted, under the provisions

of article 4, following the first sale of the program in

the EC by the right holder or with his or her consent,

with the exception of the subsequent rental of the

software. 145

Article 5—Exceptions to the Restricted Acts

Article 5 provides that, in the absence of specific

contractual provisions, the restricted acts of article 4

(a) and (b) will not require the authorization by the

right holder where they are necessary for the use of

the program by the person who lawfully acquired it

in accordance with its intended purpose, including

correction of errors.

146 Article 5 also provides that

the right to make a backup copy by a person having

a right to use a program cannot be contracted

away.

147 Further, the person having a right to use a

copy of a program shall be entitled, without authorization of the right holder, to observe, study, or test

the functioning of the program in order to determine

the ideas and principles which underlie the program,

even if this is accomplished while loading, displaying, running, transmitting, or storing the program as

provided for in article 5148 or by the terms of his

license. Read in conduction with the preamble,

article 5 provides that if there is no license agreement, or if the license agreement is silent on the

point, error correction is permitted. The license may

also deal with error correction to regulate it, i.e.,

make an offer to provide correction service but not

prohibit it entirely.

Article 6--Decompilation

Article 6 deals with the issue of recompilation.149

Article 6 allows for reproduction of the code and

translation of its form without the authorization of

the owner (notwithstanding contractual provision to

the contrary) when these activities are indispensable

to achieve the interoperability of an independently

created computer program, provided that certain

conditions are met.150 These conditions are that: 1)

these acts are performed by the licensee or by

another person who has the right to use a copy of a

program, or on their behalf by a person authorized to

decompile the program; 2) the information necessary to achieve interoperability has not been made

readily available to these persons; 151 and 3) these

activities are confined to the parts of the original

IM Ibid.

145 ~ld.

146 Ibid,, SW. 1, sOme ~Omenta[OrS ~lieve tit ~15 provi510n refl~ts tit EurOpe~ law may be more co~urner-orknted h character than U. S. law,

which might require an option of either provision of error-correction or an implied license to modify the copyrighted code. They state that in the United

States there is a court-created doctrine of ‘implied license “ in patent law not necessarily wholly displaced by ‘‘fair use’ in copyright law. Domestic

courts tend to decide controversies over mass-distributed software resident on floppy disks under the Uniform Commercial Code (UCC) article 2, which

have some lesser consumer protection provisions. Efforts arc now underway under the direction of the National Conference of Commissioners on

Uniform State Laws to consider a uniform software licensing act and in committees within the Massachusetts Bar Association and the Licensing

Executives Society to develop aUCC article 2B addressed to licensing of intellectual propefiy rights generally. These are not expected to add significantly

to consumer protection. Stephen Y. Chow, Cesari and McKeu personaI cornmunicatiom Sept. 27, 1991.

’47 Ibid., sec. 2.

148 Ibid., see. 3.

149 Ibid,, art. 6. The term ‘‘dccompilation ‘‘ is a matter of some debate within the EC. Some observers view deeompilation as one aspect of the larger

process of reverse engineering, and assert that the directive broadly allows ‘recompilation. ’ Representatives of Bull S. A., and the European Committee

for Interoperable Systems, personal communication+ June-July 1991.

Others believe that the word ‘recompilation ‘‘ is inappropriately used, that since the term ‘recompilation ‘‘ is not defined in the Directive no mcaning

can be attributed to it other than that it covers only those acts covered spectilcally in article 6 of the directive, irrespective of whether the word is used

with other broader meaning in other contexts. These observers argue that the term ‘‘recompilation’ might well be eliminated, as member states am

required only to transpose the substance of the directive to create the same legal effect in national legislation as that intended in the directive in order

to fulfiil the implementation requirement. Indeed, member nations are not required to adopt any particular terminology and, in particular, not obliged

to take any particular topic heading. Representatives of IBM Europe, personal communication, June-July 1991. For further discussion of the question

of dccompilation, see ch. 4.

150 Ibid., sec. 1.

151 ~c lan~ge ‘made rcadilyavailable’ is interpreted differently by different stakeholders. Some parties would assert that the lmguage w~ fiti~y

included to preclude publication of the code in an obscure language and location and to then maintain that the code was therefore ‘‘available’ or

“public,” However, debate continues whether code that is made available for a negotiated price is considered “readily available. ” Further, observers

question whether code is ‘ ‘readily available’ when parties wishing to decompile must fiist consult with software developers to obtain code, disclosing

the purpose and nature of their request. Still others assert that it was made clear by the Commission to the Council in December 1990 that the right holder

and the would-be decompiler could enter in to a dialog on the possible supply of information with or without payment. Representatives of IBM Europe,

Bull S. A., the European Committee for Interoperable Systems, personal communications, June-July 1991.
120 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

program which are necessary to achieve interoperability. 152

Information gained through reproduction of the

code under article 6 may not be used for goals other

than to achieve interoperability of the independently

created program.

153 It may not be given to others,

except when necessary for interoperability of the

independently created program.

154 It may not be

used for the creation or marketing of a program

which infringes the copyright of the original prograrm.

l55

Article 6 also recognizes that the article, in

accordance with the provisions of the Berne Convention, may not be interpreted so as to allow its

application to be used in a manner which unreasonably prejudices the right holder’s legitimate interests

and conflicts with a normal exploitation of the

computer program. 156

Article 7--Special Measures of Protection

Under article 7, member states are required to

provide, without prejudice to articles 4, 5, and 6,

appropriate remedies against persons committing

any of the following acts:

1. placing in circulation a copy of a computer

program, knowing, or having reason to believe, that it is an infringing copy;

2.

3.

possessing a copy of a computer program for

commercial purposes, knowing, or having

reason to believe, that it is an infringing copy;

putting into circulation or possessing for

commercial purposes any means, the sole

intended purpose of which is to facilitate the

unauthorized removal or circumvention of any

technical device which may have been applied

to protect a computer program.157

An infringing copy of a computer program is

liable to be seized pursuant to the individual member

state’s legislation. 158 Member states may provide for

seizure of any means described above, 159

Article &Term of Protection

Article 8 establishes the term of protection as the

life of the author plus 50 years after the author’s

death. Where the computer is an anonymous or

pseudonymous work, the term of protection shall be

50 years from the time that the computer program is

first lawfully made available to the public. The term

of protection is deemed to begin on the first of

January of the year following these events.160

Member states, which presently have a term of

protection longer than this may maintain that term

152 Ibid s=. 1, subsec. (a).(c). ‘rhis provision of the directive was the focus of particular controversy. The previous draft to the directive, ‘‘Amended .,

proposal for a Council directive on the legal protection of computer programs” COM(90) 509 fmal-SYN 183; (90/C 320/1 1), (art. S(a), sec. 2), read:

ITlhese acts are confined to the parts of the original program which are necessary to achieve interoperability with it. (Emphasis

added.)

Thus, the final version of the Council Directive deletes the final two words of lhe provision ‘‘with it. ”

The Commission further commented on this aspect of the directive in the Commissioner’s Communication to the European Parliament, 2,1, Sec.

4.g,2). In that document, the Commission stated:

A particularly important question was to determine the extent to which the decompiling of a program without the copyright holder’s

authorization would be possiblle. The solution adopted in the common position was that decompiling was permitted in so far as it

proved necessary for the intemperability of a computer program created independently. Decompiliation is permitted to the extent

necessary to ensure the interoperability of an independently created computer program. Such a program may comect to the program

subject to recompilation. Alternatively it may compete with the decompiled program and in such cases will not normally connect to

it. Article 6 does not however permit interoperability of the independently created program. It cannot therefore be used to create a

program reproducing parts of a decompiled program having no relevance to the interoperability of the independently crcatcd

program.

While there is some agreement that a programmer can isolate the critical sections of code needed to accomplish interoperability by viewing externals,

running the program on a display screen and looking at the code, the amount of program necessary is subject to debate. Courts will likely be required

to judge the appropriateness of the use of sections and amounts of the code.

153 Ibid., subsec. (a).

’54 Ibid., subsec. (b).

155 Ibid., subsec. (c).

’56 Ibid., sec. 3.

157 hid., art. 7, sec. 1 (a)-(c).

’58 Ibid., sec. 2.

159 Ibid., WC. 3.

IW Ibid.. art. 7.
...————.

Chapter 3—The International Arena . 121

until the term of protection for copyrighted works

generally is harmonized by EC law.l61

Article 9—Continued Application of Other

Legal Provisions

Article 9 ensures that the provisions of the

software directive do not prejudice any other legal

provisions, 162 and provides that the provisions of the

directive are applicable to programs created prior to

January 1, 1993 without prejudice to any acts

concluded and rights acquired before that date.163

Contractual provisions contrary to article 6 or to the

exceptions provided for in article 5(2) and (3) are

nullified by this provision. 164

Article 10—Final Provisions

Under article 10, member states are required to

bring into force the laws, regulations, or administrative provisions needed to transpose the directive by

January 1, 1993.165 Member states are to inform the

Commission of the provision of national law which

they adopt pursuant to the directive. 166

Article 11

Article 11 addresses the directive to the member

states. 167

lf 1 Ibj(i., ml. 8, SCC. 2.

1~~ Ibl(j., Ch. II, art. 8, SCC. 1.

163 Ibid., sec. 2.

164 Ibid,, sm. 1, For discus sio[l of U,S law deallng with use of contractual agreemcn[s to protect intellectual plOperly, SCC C}l, 2,

1~~ Ibid., art. 9, sec. 1.

1~~ Ibid., art. 9, SCC. 2.

167 Ibid,. art. lo.
Chapter 4

Software Technology

and the Law
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Program Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

External Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

User Interface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Program Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Software and the Application of Intellectual Property Laws . . . . . . . . . . . . . . . . . . . . . . . . .

Program Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

External Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

User Interface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Program Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recompilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recompilation and Disassembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Uses of Recompilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Methods of Reverse Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Arguments for Policy Positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Copyright Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Software Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .

125

125

125

126

126

127

130

130

132

138

142

144

146

146

147

148

150

150

150

151

153

Boxes

Box Page

4-A. Authorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131

4-B. Cryptography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

4-C. Neural Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

4-D. Software Reuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 154

4-E. Special Concerns of the Federal Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

4-F. The Discipline of Computer Science . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

Figures

Figure Page

4-1. Comparison of ’’Substituting” and ’’Attaching’’ Programs . . . . . . . . . . . . . . . . . . . . . 127

4-2. High-Level Language, Machine Language, and Disassembled Versions of a

Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*........*.......*..Q... 149
—

Chapter 4

Software Technology and the Law

Introduction

There are intellectual property issues associated

with four elements of a program: the program

function, the external design, the user interface

design, and the program code. The first section of

this chapter describes the technology behind each of

these elements. The second section outlines the

application of existing intellectual property laws to

each element, and discusses the policy issues

associated with the current level of protection. There

have been various policy positions advanced for

maintaining or changing the scope of protection, and

most of these policy positions have been supported

by legal arguments; the final section of the chapter

briefly summarizes these legal arguments.

Technology

Introduction

One way to think about computers and programsl

is to look at the hardware. The core parts of the

computer are the processor and memory. Both the

processor and memory usually consist of one or

more integrated circuits, which are semiconductor

chips that manipulate digital electronic information.

The processor and memory work together to perform

logical and arithmetic operations on data; the

program is stored in memory and specifies the order

in which the operations are to be performed.

A program consists of a list of instructions. Each

type of processor has an instruction set—a set of

operations that it is capable of performing. Most of

these operations are simple; for example, a typical

instruction set would include an instruction for

operations such as moving data from memory to the

processor, logical operations such as checking if two

pieces of data have the same value, and arithmetic

operations such as adding two numbers. A program

is executed when the instructions are transferred to

the processor and the processor performs the specified operations.

Inside the computer, ‘‘instructions’ and ‘‘data’

arc both patterns of electronic signals. These signals

can take one of two values; to make it easier to

comprehend what is happening inside the computer,

programmers represent one of the values with the

symbol” 1,’ and the other with the symbol ‘‘ O.” For

example, the addition instruction for the processor

that is used in most microcomputers may be

represented as “00000100.” In the same way, in

most computers the letter “A’ is represented by the

pattern of signals corresponding to “01000001. ”

The complex functions that programmed computers

perform for users often seem far removed from the

patterns of electronic signals and very simple

operations that characterize the computer at the

hardware level. Computers perform complex tasks

by performing a large number of simple operations

in sequence—typically millions of operations per

second.

The processor and memory are usually part of a

larger system. Data to be used in a computation may

be read from a disk or tape drive. Data can also be

exchanged or shared with other computers using a

network. The data is exchanged using communications protocols, which specify the format and

sequence in which data is sent. It is also possible for

part of a computation to be carried out on a distant

computer. Sometimes specialized computers are

used for different parts of a task; for example, a

supercomputer may carry out the computationally

intensive portions of a task, while a workstation is

used for displaying the results of the computation.

There are also a variety of input and output

devices for communicating with the user. The

display is the output device most commonly used for

providing users with information about the results of

a computation. More advanced displays, faster

processors, and cheaper memory enable program

developers to go beyond the simple display of text

to include graphics. Color monitors are also increasingly common. In some applications, small displays

inside helmets or goggles are used to give users the
126 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

illusion of a three-dimensional image.2 Sound,

which can include warning tones, music, and synthesized speech, may also be used to provide information to users.

Input devices include the keyboard, for entering

text, and the mouse, a pointer used for drawing

figures or selecting commands on a screen. The use

of a special pen can also allow the entry of written

information and commands.3 Research is under way

on speech recognition technologies that allow commands to be spoken instead of typed or selected

using a mouse. Other experimental input devices

detect eye movements4

or gestures made with a

special glove.

Sometimes the memory and the processor are not

part of a conventional computer, but are embedded

in industrial machinery and other devices. The

processor receives information from a variety of

sources, processes the data, and uses the results of

the computation to direct the operation of a machine.

Examples of embedded systems are the microprocessor-based controllers used in appliances, automobiles, and industrial processes.

Program Function

Progr ammed computers perform a series of calculations to transform input values to output values. A

well-defined computational procedure for taking an

input and producing an output is called an algorithm. 5 Algorithms are tools for solving computational problems. The statement of a problem specifies in general terms the desired relationship

between the input and the output, while the algorithm describes a specific computational procedure

for achieving the input/output relationship.6

The transformation of input data to output data

can also be performed in hardware. Integrated

circuits can perform the same simple logical and

arithmetic operations that programmed computers

perform. Connecting together these electronic circuits has the same effect as programmingg a computer. Just as the calculation that the computer will

perform can be understood by looking at the

program, the calculation that a circuit will perform

can be understood by looking at the circuit diagram.

The choice of whether to perform the calculation

by programming a computer or building a circuit is

an engineering decision. Often, a calculation can be

performed more quickly by hardware, which maybe

an important consideration in some applications

such as signal processing. On the other hand,

programming a computer is potentially less costly

and more flexible. The function of a programmed

computer can be changed by writing a new program;

with hardware, however, a new circuit must be built.

Often many different problems can be modeled in

a similar way, and solved using the same class of

algorithms. For example, many applications that

operate on speech signals and video images use

similar signal processing algorithms. Searching and

sorting algorithms are also among the basic tools

that are commonly used in software development.

Problems such as finding the fastest route between

two cities or determiningg when to perform tasks in

a manufacturing process may be modeled in a way

that makes them solvable by using graph algorithms.

External Design

Programs have an external design or interface—

the conventions for communication between the

program and the user or other programs. The

external design is conceptually separate from the

program code that implements the interface (the

internal design). It specifies the interactions between

the program and the user or other programs, but not

how the program does the required computations.

There are typically many different ways of writing

a program to implement the same interface.

2 Scott S. Fisher, “Virtual Interface Environments, ” in Brenda Laurel (cd.), The Art of Human-Compufer Interface Design (Reading, MA:

Addison-Wesley, 1990), p. 423.

s Ro~I-I M. cm, ‘‘lhe point of the Pe~” Byte Magazine, vol. 16, No. 2, February 1991, p. 211.

‘1 Robert J.K. Jacob, “What You Look Is What You Ge4’ Proceedings of CHI (Conference on Human Factors in Computing System.r), 1990 (New

York, NY: Association for Computing Machinery, 1990), pp. 11-18.

s The definition given here reflects the use of the term ‘algorithm’ in computer science. In applying patent law to inventions involving programmed

computers, the courts are required to determine whether the claimed invention is a‘ ‘mathematical algorithm. ’ The term “mathematical algorithm’ was

used by the Court of Customs and Patent Appeals to characterize a method of converting binary coded decimal to binary numbers that the U.S. Supreme

Court held to be nonstatutory in its 19’72 decision Gorrschulk v. Benson (409 U.S. 64). The meaning of “mathematical algorithm, ” and the relationship

between ‘algorithm’ as the term is used in computer science, and ‘‘mathematical algori~’ as the term is used in the case law, has been the subject

of considerable discussion (see pp. 133-134).

b Thomas H. Cormen, Charles E. Leiserson, and Romld L. Rivest, Introducn”un w Algorithms (Cambridge, MA: MIT Press, 1990).
Chapter 4--Software Technology and the Law . 127

The external design will sometimes reflect constraints such as the speed of the processor, the

amount of memory available, and the time needed to

complete the product. In addition, the process of

developing software is iterative—the external design is refined as testing reveals more about user

needs or constraints on the implementation.7

One example of an external design is the user

interface, the conventions for communication between the user and the program. There are also

interfaces between programs, such as the ‘‘operating

system calls’ applications programs use to access

functions provided by the systems software of a

computer. Communications protocols and the specifications of procedures are other examples of interfaces.

The discussion of appropriate intellectual property protection for interfaces often involves the use

of terms such as ‘‘open systems, ’ ‘‘interoperability, ’ or ‘ ‘compatibility. These terms sometimes

have ambiguous meanings. 8 They may be used to

describe a situation in which a program from one

vendor is able to exchange information with a

program from a different vendor. However, these

terms are also sometimes used to describe a situation

in which multiple vendors offer a product with the

same external design. Each of these meanings of

‘ ‘compatibility’ implies a different economic effect. For this reason, participants in the software

debate sometimes distinguish between ‘ ‘attaching”

programs, which are able to exchange information

with a program written by a different vendor, and

‘‘substituting programs, which have the same

external design (see figure 4-1). ‘ ‘Substituting’

programs are sometimes referred to as “workalike”

programs or ‘ ‘clones.

User Interface

The user interface specifies the interactions

between the program and the user. There are a

number of different kinds of user interfaces. A

progr amming language is in a sense a user interface—

Figure 4-l—Comparison of “Substituting” and

“Attaching” Programs

I 1

7.-T ‘(.--r Original Program “Substituting” or

“Clone” Program

‘a

Original Program “Attaching” Program

SOURCE: OTA.

programming using conventional programming g languages is one way to direct a computer to perform a

task. For most people this style of interaction is too

difficult and inconvenient. By using new technologies, however, different ways of using computers

have been developed, Sophisticated, but easy-touse, user interfaces have created new markets where

there are end users who are not programmers.9

Command languages, menu-based dialogs, graphical user interfaces, and newer interaction techniques

have expanded the design choices available to user

interface designers.

One interaction style10 is the command language

dialog, in which the user issues instructions to a

computer through a typed command.l 1 The Unix and

DOS operating systems usually have this type of

user interface. For example, the command for

7 Daniel S. Bncklm, Prcs]dcnt, Software Garden, Inc., testimony at hearings before the House Subcommittee on Courts, Intellectual Property, and

the Administration of Jusucc, Nov. 8, 1989, Serial No. 119, p. 221,

~ b ‘What Does ‘open sys[crns’ Really MeEUI? Computcrntorld, vol. 25, No. 19, May 13, 1991, p. 21.

9 Jonathan Grudin, ‘ ‘The Computer Reaches Out, ’ Proceedings of CHI (Conference on Human Factors in Computing Sys(cms), 1990 (New York

NY: Association for Computing Machinery, 1990), pp. 261-267,

10 For ~ discussion of different ~n[eractlon s~.]es, see R~na]d M Baeckcr ~d w]]]i~ As, Buxton, Reud/~g~ In HuvuJn-COTTlpUf~~ ]n/era~flOn (SMI

Matco, CA: Morgan Kaufmann, 1987), p. 427,

11 Ibid., p, 428,
128 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Photo credit: Library of Congress

An early user interface. Dr. J. Presper Eckert, Jr. examines

the control panel of the ENIAC computer at the

University of Pennsylvania in 1946.

deleting a file when a computer is using the Unix

operating system is ‘‘rm. ’ The difficulty with this

type of interface is that it is hard to learn. It may be

difficult to remember the available commands, their

exact syntax, and how they can be strung together to

perform more complex tasks.12

A second type of interdiction style uses a menu.

Instead of having to remember the commands, the

user can select choices from a list of alternatives

displayed on a screen.

13 The selection can be made

by pressing a key that corresponds to a menu option,

or by moving the cursor on the screen until the

option is highlighted. Menu-based interfaces were

made possible by the development of hardware

technology that allowed large amounts of information to be quickly displayed on a screen.14

Newer interfaces are graphical, using images, in

addition to text, to display information to users.

Icons represent operations (much as menu options

do) or data. Commands can be issued by direct

manipulation 15: instead of using a command language to describe operations on objects, the user

‘‘manipulates’ objects visible on the display.l6 The

effect of the action is immediately apparent to the

user. For example, a user could point to an icon

representing a file with the mouse and then ask the

system to delete the file; the icon could then

disappear from the screen to show the user that the

file has been deleted. Graphical user interfaces often

allow users to view several activities simultaneously

on the screen, through the use of windows that

subdivide the screen area.

The Design Process

The user interface designer makes many design

decisions.17 Technological change is adding to the

range of available choices-color, graphics, sound,

video, and animation are only beginning to be

explored or widely applied.l8 However, the user

interface designer must also work within a set of

constraints. Some of these constraints are imposed

12 Bill Curtis, “Engineering Computer ‘bok and Feel’: User Interface Technology and Human Factors Engineering, ” Jurimem”cs, vol. 30, No. 1,

fall 1989, p. 59.

13 Dodd A+ Nomu * ‘Design Mciples for Human-Computer Intetiaces, ’ Proceedings of CHI (Conference on Human Factors in Computing

Systems), 1983 (New York, NY: Association for Computing Machinery, 1983), p. 9.

14 Jo~W~er, ‘mough the Lo&ingGlass, ‘‘ in Brenda Laurel (cd.), The Art ofHuman-Computer Interface Design (Reading, MA: Addison Wesley,

1990).

IS Ben s~eide~~ ‘ ‘Direct Manipulation: A Step Beyond PrOW amrning Languages, ” IEEE Computer, vol. 16, No. 8, August 1983, pp. 57-69.

lb Robert J.K. Jacob, ‘ ‘Direct hfa.nipulatlou “ in Proceedings of the IEEE International Conference on Systems, Man, and Cybernetics (New York

NY: Institute of Electrical and Electronics Engineers, 1986), pp. 384-388.

17 * ~U~e~sone clones ~ exl~t~gproduct, desigfig even one aspect of ~ ktefiace--menunavigatio~ wbdow operations, CO remand names, function

key assignments, mouse button syntax, icon design, etc.—gives rise to a potentially endless series of decisions. ” Jonathan Grudin, op. cit., footnote 9,

p. 261.

18 Ibid.
.—

Chapter 4--Software Technology and the Law ● 129

by the needs of the user, and some are imposed by

hardware or software capabilities.19

In developing a program, a developer decides

which functions the program is to perform for the

user. The user interface design reflects the designer’s

efforts to communicate this functionality to the user.

Designing user interfaces is a “communications

task like writing or filmmaking.”20 The user interface helps the user develop a ‘ ‘mental model” of

how the program works. This mental model does not

necessarily reflect the internal ‘engineering model’

of the program. 21 For example, when a user Points

with the mouse to an icon representing a file and asks

the computer to delete the file, the user does not have

to know where the file is stored or how the hardware

and software perform the operation.

One component of the user interface design

process is the choice of the interaction style. This

choice is influenced by hardware and software

constraints, the nature of the application, and the

characteristics of the end user. For example, a

command language interface may not be appropriate

for users who use a program infrequently; a menu

interaction style would be easier to use because it

would provide the users with reminders of the

available commands.

Another component of the design process requires

that the functionality of the application be represented within the interaction style. This stage of

design would include, for example, the choice of

commands and their representation by icons or

appropriate mnemonics. This stage of the design

reflects the designer’s judgment of how the user

would want to accomplish certain tasks. 22 For

example, the assignment of commands to various

menus could reflect a judgment of the relative

importance of each command.

Constraints

There are a number of constraints that the user

interface designer must take into account. Hardware

or software constraints may limit solutions that

require too much processing power or are too

time-cons uming to program. The capabilities of

users present other constraints. Research in the field

of human-computer interaction (HCI) tries to find a

scientific base for understanding what makes a user

interface design successful.23 HCI research also

focuses on methodologies for developing better

interfaces.

One of the most important user interface design

principles is that ‘ ‘consistency’ is important.24 One

type of consistency is internal consistency .25 Internal consistency means, for example, that operations

common to several objects in a program have the

same results on all of the objects. For example, there

might be a single ‘‘delete’ command that deletes the

selected object, whether it is a text string, a curve, or

a file.26

From the perspective of intellectual property law,

the most significant type of consistency is external

consistency with the features of other interfaces, i.e.,

similarity of a given interface to those of other

applications and systems. A system is said to be

‘‘backwards compatible ‘‘ if it is compatible with an

older version of the system, allowing users to benefit

‘9‘‘ [Solutions are shaped by a multitude of problems that arc invisible to those outside of the design process. A wonderfully intuitive solution doesn’t

rrmtter if the system architecture doesn’t support it, or if the resulting code takes up too much memory or runs too slowly. Other problems stem from

the basic capabilities of humans, and tic requirements of tasks users wish to do. It doesn’t matter if the interface responds instantly, if the user can’t usc

it. Solutions to an interface problcm involve compromise. But how do dcsi.gners determine what an acceptable compromise is? How do designers figure

out acceptable lradcoffs bctwccn speed and intuitiveness and other seemingly contradictory vahJcs and requircmcnts? Thomas D. Erickson, ‘‘Creativity

and Design, ’ m Brenda Lwrcl (cd.), The Ar( of Hlinta/1-Co/?l/jliter Interf~ce Dc~i,gn (Reading, MA: Addison-Wesley, 1990), p. 3.

‘) Paul Hcckcl, The E/emerrts {$ Friend/) Software De.~i<qn (A1.amcda, CA: .sybcx, 199 1), p, xix. The Epilogue describes the author’s experiences in

applying for and enforcing a ‘ ‘software palcnt.

‘1 Donald R, Gentncr and Jonathan Grudin, ‘‘ Why Good Engineers (Sometimes) Crcalc Bad Intcrfaccs, ’ Proceedings of CH.. (Conference on Human

Fur~ors in Computmg Sjslems), 1990 (New York, NY: Association for Computing Machinery, 1990), p. 277.

Jl ‘ .

. . dcslgncrs who have only a sketchy or partial understanding of users’ tasks will tind it difficult to appreciate the dominant role tasks should

pktjr in lntcrfticc (lcw.gn. in the abscncc of task analysis, the designer him little to go on and it bccomcs convenient to focus on properties of the

intcrfacc. .“ Jonathan Grudin, ‘ ‘The Case Against User Intcrftice Consistency’, “ Com/)z~(nic’u[iotl.r ofthc ACM, vol. 32, No IO, October 1989, p. 1165.

23 s~u:ut K. Card and Thomas P. Moran, ‘ ‘User Technology: From Pointing {o Pondering, ’ in Adele M. Goldberg (cd.), A History of Persorul

W’ork.rttltions (New York, NY: ACM Press. 1988), p. 493.

~ Bcn Shncldcrman, Desi,qnln,q the User Irr/erf,Jce (Rca(iing, MA: Addison-Wesley, 19S7 ).

2s Grudin, op. cit., footnote 22, p. 1165.

‘b Bullcr W. Lampson, ‘‘Personal Distrlbutm! Computmg, ‘‘ in Adele M. Goldberg (cd.), A Historj’ of Personal W’orksfations (New York, NY: ACM

Press, 1 988), p 321
130 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

from new features or better performance without

having to learn a completely new system. Interoperability and backwards compatibility requirements

reflect aspects of the users’ experience and environment that should be reflected in an interface design.

They are increasingly important as computers are

used by more people and in different application

areas .27

Program Code

The program code is the implementation of the

fiction and external design (including the user

interface) of the program. Much effort has been

devoted to developing new tools and methods for

coping with the complexity of developing new

software systems. In general terms, ‘‘software engineering’ is concerned with the practical aspects of

developing software. It overlaps all of the various

specialities of software research, including programming languages, operating systems, algorithms, data

structures, databases, and file systems.28

The use of high-level programming languages,

such as FORTRAN, C, and Pascal, is an important

element in the development of complex programs.

High-level languages are more powerful than machine languages-each statement in a high-level

language usually does the same job as several

machine language instructions. In addition, programmers need not be as concerned with the details

of the computer’s operation, and can write the

program in a more natural way. For example, the

Pascal-language statement “quantity := total - 5“

does the same job as a series of machine language

statements; the names of the variables, such as

“total,’ may also suggest something about why the

operation is being done. Finally, the programmer

does not need to know where the data is stored in

memory or how it is represented by patterns of

electronic signals.

Programs written in a high-level language must be

translated into machine language for execution. This

process is called “compilation.” The high-level

language version of a program is often referred to as

‘‘source code, ’ while the machine language version

is referred to as “object code. ” In the software

debate, the relationship between source code and

object code has been the subject of considerable

discussion (see box 4-A and the “Recompilation”

section later in this chapter).

High-level languages also encourage the construction of procedures, data abstractions, or objects, which allow the decomposition of large and

complex programs into smaller pieces that can be

attacked independently. Much of the internal structure of a program is due to decisions made by the

progr ammer about how best to decompose the larger

problem into smaller pieces. Breaking a larger

problem into smaller, more manageable pieces is not

unique to software:

Well-designed computational systems, like welldesigned automobiles or nuclear reactors, are designed in a modular manner, so that the parts can be

constructed, replaced, and debugged separately.29

An example of a procedure might be a sequence

of instructions for sorting numbers. This sequence of

instructions could be a procedure called “Sort.’

“Sort” in effect becomes a new instruction that the

programmer can use as if it were an ordinary

instruction. At every point in the program where it

is necessary to sort some numbers, the programmer

simply uses the new instruction, without worrying

about the details of its implementation. The programmer only needs to know about the interface that

specifies the name of the procedure, its function, and

the format in which it exchanges information with

other parts of a program.30

Software and the Application of

Intellectual Property Laws

This section discusses the policy issues associated

with the four elements of software outlined in the

previous section—program function, external design, the user interface, and the program code. For

each of these elements, the section outlines the

courts’ current approach to its protection, and then

discusses arguments for maintaining or modifying

the level of protection. To the extent possible, this

27 Grudin, op. cit., footnote 22, p. 1171.

2S computer Science ad Tec~olo},V Bored, Nation~ Rese~ch co~cil, Scu/jng Up: A Reseurch Agen~ajor Sojhvare Engineering (Washington,

DC: National Academy Press, 1989), p. 18.

29 Hmold A&.lson ~d Gcr~d Sussmm, Structure and ]nterpre[ati~n @C~mputer program (Cambridge, MA: MIT Press, 1985), p. 2.

30 * *G~~d engineers dlstinWish beh~een whaf a ~omponen{ does (the abs~~ction seen by tie user) ~d how it does it (the implementation inside the

black box). ” Jon Bentley, Programming Pear/s (Reading, MA: Addison Wesley, 1986), p. 134.
Box 4-A—Authorship

The copyright clause of the U.S. Constitution permits Congress to grant ‘‘authors’ exclusive rights to their

‘‘writings.’ Before the current Copyright Act and 1980 software amendments became law, there was considerable

disagreement as to whether programs were copyrightable “writings.” Even after the 1980 amendments were

enacted some believed that only high-level language (or ‘‘source code”) programs were copyrightable subject

matter, while machine language (or ‘object code’ programs were not protected by copyright law. Some arguments

centered on whether code in lower-level languages was human-readable; according to one view, only higher-level

languages expressed writings (for human readers) eligible for copyright protection.l

A corollary debate concerns requirements for ‘‘authorship’ of programs. There were two issues: 1) whether

“original works of authorship’ required a human author, or whether machine-generated works could also be

eligible for copyright—the Copyright Office has maintained that the term ‘‘authorship’ in the Copyright Act

implies a human originator; and 2) dete rmining authorship and copyright ownership for machine-generated or

machine-assisted works.

Questions of machine authorship have arisen with respect to compilers.

3 When a program is compiled, some

information is removed (e.g., comments), some information is added, and the code may then be rearranged to

optimize execution speed. From a technological perspective, the end result of the compilation process could

therefore be regarded as a ‘‘derivative work’ based on the source code program. However, the Copyright Office

does not view the object code version as containing sufficient “originality’ to be a derivative work, For this reason,

the Copyright Office takes the position that the source-code and object code versions of a computer program are

copies of the same work.4

The final report of the National Commission on New Technological Uses of Copyrighted Works (CONTU)

addressed the question of computer-generated works and concluded that ‘‘no special problem exists. The issue

continues to be addressed, most recently at a symposium sponsored by the World Intellectual Property Organization

(WJPO) on the intellectual property aspects of artificial intelligence. One conferee expressed the view that the real

issue was not whether there is a human author, but rather who that author is. While CONTU had concluded that the

computer was just a tool to assist a human being in creating a work, the conferee suggested that advances in artificial

intelligence meant that the tools were becoming increasingly sophisticated, perhaps indicating a need to apportion

authorship among the user and the author of a program used in creating a work.6 A second participant expressed

similar views when discussing the authorship of programs generated by a sophisticated “code generator” from

functional specifications.7

1 The ~le tit a work must ~ readable by a humm audience had its origins in White-Smith Music Publishing CO. V. Apo[10 Music CO.,

209 U.S. 1 (1908), which ruled that player-piano rolls could not be copyrighted. For a discussion of the readability requirement, see “Copyright

Protection of Computer Program Object Code,” Harvard Law Review, vol. 96, May 1983, pp. 1723-1744; Christopher M. MMow, “Computer

Microcode: Testing the Limits of Software Copyrightability,’ Boston University Law Review, vol. 65, July 1985, pp. 733-805; and the dissent

of Commissioner John Hersey in National Commission on New Technological Uses of Copyrighted Works (CONTU), Final Report

(Washington, DC: Library of Congress, July 31, 1978).

2 Cq H. she~~, H@5h R, s~diso~ md IWWC D. @ren, Computer Software Protection Law ~ashingtou DC: The B~eau of

National Affairs, 1989, 1990), 204.3(d).

s Ibid., 208.2(b)(5), and discussion at OTA workshop on “Patent, Copyright and Trade Secret Protection for Software,” June 20, 1991.

4 *L~e Cop@ght Office Comiders Sowce code ad object code as two mpresen~tiom of tie s-e computer program. For re@S~atlOn

purposes, the claim is in the compurer program rather than in any particular representation of the program. ” Computer Program Practices,

Compendium II, Copyright Oj?ce Practices, Section 321.03.

5 co~, op, cit., fOOtnOte 1$ P. a.

6 -uR ~]er, ~$computers ~d AU~O~hip: me COpY@@fi~ of COrnpUter-&mrated Works, ‘‘ in WZPO Worldwide Symposium

on the Intellectual Property Aspects ofArtifi”cia/ Intelligence, WIPO Publication No. 698 (E) (Geneva, Switzerland: World Intellectual prope~

Organization 1991) , p. 241.

7 Ro~fi Barr, “Computer-Produced Creations, ” in WIPO Worldwide Symposium on the Inteliectua! Property Aspects of Artificial

Intelligence, WIPG Publication No. 698 (E), p. 225.

SOURCE: OTA and cited sources.
132 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

section separates the question of the appropriate

level of protection from the question of how existing

patent, copyright, and trade secret laws should be

interpreted. In the software debate, policy arguments

for a certain level of protection are often characterized as consistent with a ‘‘proper’ interpretation of

existing law. Legal arguments made in support of

policy positions are outlined in the last section of the

chapter.

Program Function

Intellectual Property Protection of’

Program Function

Existing intellectual property laws are applied to

program function in several ways. First, it can be

argued that the program function is protected against

copying because the implementation is protected by

copyright law. Copyright law prevents others from

acquiring the functionality of the programmed

computer if it is obtained by copying the “expression’ in the program code. However, copyright law

does not prevent the independent development of a

program that performs the same function,

Some aspects of the function of a programmed

computer may be protected by maintaining them as

trade secrets. For example, a program may be

distributed with contractual restrictions on the extent

to which it may be studied. Trade secret protection

may also be maintained (in part) by distribution of

the program in machine language, which is difficult

for competitors to understand. This may be a

valuable form of intellectual property protection; the

scope of protection is the subject of the ‘ ‘decompilation” debate discussed later in this chapter.

Finally, parts of the function of a program may be

protected by patent law. The same program may

embody many patentable inventions, or none at all,

depending on how many parts of the program

function are novel, nonobvious, and statutory subject matter. The inventions are claimed either as a

series of functional steps carried out by the computer

or as a system capable of performing certain

functions. The U.S. Patent and Trademark Office

(PTO) emphasizes that patents are granted for the

functional steps or the system, not the program

code .31

When the invention is being claimed as a series of

functional steps, or process, the applicant does not

specify each machine language operation carried out

by the computer.

32 Instead, the claim usually describes the steps at a higher level of abstraction,

independent of a specific implementation. For example, one patent recites the steps of:

Identifying a plurality of overlapping working areas

on said screen, associating each said working area

with an independent computer program, selectively

communicating data to each said program. . ,33

If, on the other hand, the invention is being

claimed as a system or apparatus, the applicant

describes the ‘means’ for performing the functions.

For example, the apparatus claim corresponding to

the process claim described above specifies:

A computer terminal display system comprising a

display surface, means for simultaneously displaying a plurality of overlapping rectangular graphic

layers, . . . means for associating each of said graphic

layers with an independent computer program. . .

The basis for claiming a software-related invention as an apparatus is that the progr ammed computer becomes anew machine, or at least a‘ ‘new and

useful improvement’ of the unprogrammed machine.34 In an early case that addressed the question

of the patentability of software-related inventions,

the Court of Customs and Patent Appeals (C. C.P.A.)

wrote:

If a machine is programmed in a certain new and

unobvious way, it is physically different from the

machine without that program; its memory elements

are differently arranged. The fact that these physical

SI * ‘R~cntly some comen~tors have stated that the office is issuing patents on computer programs or ‘Software. ’ This is not tie case. A ‘comPuter

program’ is a set of statements or instructions to be used directly or indirectly in a computer to bring about a certain result. A computer program is different

from a ‘computer process’ which is dej”ined as a series of process steps performed by a computer. This distinction may become blurred because some

refer to both the series of process steps performed by the computer and the set of statements or instructions as computer pro~ams. Jeffrey M. Samuels,

Acting Commissioner of Patents and Trademarks, testimony at hearings before the House Subcommittee on Courts, Intellectual Property, and the

Administration of Justice, Mar, 7, 1990, Serial No. 119, p. 334.

‘z John P. Sumner, “The CopyrighLPatent Interface: Patent Protection for the Structure of Program Code, ” Jurirnefrics, vol. 30, No. 1, fall 1989, p.

118.

33 us, patent No, 4,555,775. In Ordt>r t. satisfy the ‘ ‘~nablement’ r~uirement of section 112 of tie Patent Act, the specification would show in rnOP.3

detail how the process steps recited in the claim would be performed.

-MIn re Bernhurt, 417 F.2d 1400 (C’. C.P.A. 1969).
-———— -.—

changes are invisible to the eye should not tempt

us to conclude that the machine has not been

changed. 35

Statutory or Nonstatutory--Novel and nonobvious program function, whether claimed as an apparatus or process, is not necessarily ‘ ‘statutory subject

matte r for which patents may be granted. In

determining whether a claimed computer-related

invention is statutory, patent examiners apply the

Freeman-Walter-Abele test, outlined in PTO guidelines issued in 1989.36 This test is named after the

appeals court decisions that contributed to developing and refining the test. The purpose of the

Freeman-Walter-Abele test is to determine whether

a claimed invention is a nonstatutory ‘‘mathematical

algorithm’ or mere calculation. 37

The Freeman-Walter-Abele test applies, in the

context of computer-related inventions, the patent

law doctrines that regard scientific principles, abstract ideas, and mathematics as nonstatutory. In the

1972 case, Gottschalk v. Benson,

38 the U.S, Supreme

Court held that a method of converting binary coded

decimal (BCD) numbers to binary numbers was not

statutory. In C. C.P.A. decisions that followed Benson this method was characterized as a ‘ ‘mathematical algorithm. ’ The Supreme Court objected to the

fact that the claimed process just converted numbers

from one representation to another without applying

the result of the calculation to any other task. Just as

a law of nature by itself was not statutory subject

matter, the mathematical algorithm was not statutory

unless it was applied in some fashion .39

The Freeman-Walter-Abele test has two parts.

The first part of the test asks examiners and the

courts to determine whether a claim includes a

mathematical algorithm. If there is no mathematical

algorithm, the claim is for statutory subject matter:

‘‘nonmathematical’ algorithms are statutory.40 If,

on the other hand, a mathematical algorithm is part

of the claim, then the examiner must apply the

second part of the test and determine whether the

algorithm is sufficiently ‘ ‘applied. ’ An invention

that includes a mathematical algorithm is statutory

only if the mathematical algorithm is ‘ ‘applied in

any manner to physical elements or process steps

or if the invention is ‘‘otherwise statutory’ without

the algorithm.41

Mathematical Algorithms-The line between

“mathematical algorithms’ and other types of

program function is difficult to draw. PTO guidelines state that claims that include mathematical

formulae or calculations expressed in mathematical

symbols indicate that the program function is a

mathematical algorithm. Terms in a claim such as

‘ ‘computing’ or ‘ ‘counting’ may also indicate the

presence of a mathematical algorithm.42 On the other

hand, the claim does not recite a mathematical

algorithm if the invention can be stated in terms of

its operations on things in ‘‘the real world’ that are

not conventionally considered ‘ ‘mathematical. For

example, claims for inventions that would process

architectural symbols43 or translate languages

were found to be ‘ ‘non-mathematical.

The distinction in patent law between mathematical algorithms and other software-related inventions

was discussed by the C. C.P.A. in Bradley:

35 In ~e fjernhart 417 F,2~ I w(c,c,p,A. 1969). < ‘In onc sense, a general-purpose digital COMpU[er maybe regarded as but a slorcroom of Parts cmd/or

electrical components. But once a program has been introduced, the general-purpose digital computer becomes a special-purpose digital computer (i. e.,

a specific electrical circuit with or without clcctro-mcchamcal components) which, along with the process by which it operates, may be patented subject,

of course, to the requirements of no~clty, utility, and non-obwousness. ’ In re Pruter, 415 F.2d 1393, 1403.

1~ ‘‘ M~thcma[ical .4]gorithn.s and Computer prOfJHiMS, ’ Off/ciul Ga:cffe of fhe F’ufenf Ofice, vol. 1106, No. 5, Sept. 5, 1989, pp. 5-12.

‘7 ‘ ‘The focus of the inquiry should bc whether the claim, us u whole, is dlrectcd essentially to a method of calculation or mathematical formula. ’

1n TC Diehr, 602 F.2d 987,

‘8 409 L~. S. 64.

39 ~ +It is ~uS clew tha( [he ‘nutshell’ lmwge of Ben$()/l expressed tic ancient m]e [hat practi~~ application remains key, BCCaUSC it did not consider

the performance of an algorithm by a computer as constituting a practical apphca[loi) o! that algorithm under the rule, the Court mus~ have viewed

Benson’s clalms as effectively clalming the ‘effect, ’ principle, or law or force of na[urc (the algorithm) itself. ” in rc de Casfelc(, 562 F.2d 1243 (C. C.P.A.

1977).

‘) ‘ ‘The CCPA [hm] . . . held that a computer algorithm, as opposed to a mathematical algori[hm, is patentable subject matter. ’ Paine, W’ebber,

Jackson & Curtis v. Merrill Lynch, Pierce, Fenner & Smith, 564 F. Supp. 1358, 1367.

41 ‘‘Ma[hcmatical .Mgorithrn.s and Computer Programs, ’ op. cit , fOOtnOtc 36, p. g.

‘z Ibid.

~~ [n rc phi///ps, 6(’)8 F.2d 879 (C. C.P.A. 1979)

~Itl r-c TOVM, S7 S F,2d 872 (CC p A. 197~).
134 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

[The data being manipulated] may represent the

solution of the Pythagorean theorem, or a complex

vector equation describing the behavior of a rocket

in flight, in which case the computer is performing

a mathematical algorithm and solving an equation.

This is what was involved in Benson and Flook. On

the other hand, it may be that the data and the

manipulations performed thereon by the computer,

when viewed on the human level, represent the

contents of a page of the Milwaukee telephone

directory, or the text of a court opinion retrieved by

a computerized law service. Such information is

utterly devoid of mathematical significance.45

At one point during the period in which it was

uncertain how Benson was to be interpreted, PTO

viewed all claims that involved the use of a computer

as ‘‘mathematical’ in the Benson sense,

% because

computers perform logical and arithmetic operations. The C. C.P.A. responded to this by writing:

The board’s analysis confuses what the computer

does with how it is done. It is of course true that a

modem digital computer manipulates data, usually

in binary form, by performing mathematical operations. . . But this is only how the computer does what

it does. Of importance is the significance of the data

and their manipulation in the real world, i.e. what the

computer is doing.47

When Is an Invention That Uses a “Mathematical Algorithm ” Statutory?—-The second part of the

Freeman-Walter-Abele test determines if a mathematical algorithm is ‘‘applied’ ‘—in which case the

invention is statutory--or if the applicant is attempting to claim the nonstatutory mathematical algorithm. A software-related invention that includes a

mathematical algorithm has been found to be

applied and statutory if the computer is being used

as part of an apparatus or process for transforming

physical substances into a different physical state.

For example, the invention that the Supreme Court

held to be statutory in Diamond v. Diehr used the

result of a calculation to control a process for curing

rubber.

However, a distinction is made between transformations of physical substances and the mere manipulation of ‘‘data. ’48 If the claim is for a series of

calculations whose only result is a ‘ ‘pure number,”49 then the claimed invention is not statutory.

For example, the purpose of a process found

nonstatutory in Parker v. Flook50 was to calculate an

“alarm limit. ” Because the alarm limit was just a

‘‘number” and not clearly applied in a physical

sense the Supreme Court ruled that the claimed

process was not statutory.

At one time it was believed that a mathematical

algorithm could become statutory subject matter if

the claim were in apparatus form. The apparatus

claim was thought to make the invention sufficiently

‘‘applied’ or ‘‘non-abstract. ’ ’51 However, PTO will

no longer approve these applications, viewing them

as attempts to circumvent the nonstatutory subjectmatter rejection .52

Software Patents—The term “software patent”

is frequently used in the policy debate to describe a

class of inventions that some believe should not be

statutory subject matter or should not be infringing.

The policy debate is complicated by the fact that the

term software patent’ does not correspond directly

to a PTO technology class or subclass. The term

‘‘software patent, ’ as used in the policy debate,

appears to refer to those inventions that would

usually be implemented using a program executing

on a general-purpose computer.

One difficulty with the use of the term “software

patent’ is that terminology used by PTO, such as

‘‘computer-related invention’ or “computer process’ does not refer only to inventions implemented

in software. These terms are also used to refer to

45 In ~e &a&y, 600 F.2d 812 (C.C.P.A. 1979).

ti see, ~g., ~n re Br~/ey, 600 F.2d 807 (C. C.P.A. 1979).

47 Ibid., p. 811.

a “Mathematical Algorithms and Computer Programs, ” op. cit., footnote 36, p. 9.

w In re Waiter, 618 F.2d 767.

m 437 U.S. 584,

51 * ~~c in~tmt ~l~m, however, MC ~kawn t. physic~ s~c~e ad not to ~ abs~act ‘law of nature, a ma~ernatlc~ formlda or ~algOri~. ’ There

is nothing abstract about the claimed invention. It comprises physical structure, including storage devices and electrical components uniquely configured

to perform specified functions through the physical properties of electrical circuits to achieve controlled results. Appellant’s programmed machine is

structurally different from a machine without that program. ’ In re No/l, 545 F.2d 148 (C. C.P.A. 1976).

52 1‘Ma~cmatica] Algori~s and Computer programs, op. cit., footnote M, p. g.
—

Chapter 4-Software Technology and the Law . 135

inventions that could be implemented in hardware .53

Under current law, the form of implementation does

not determine whether a computer-related invention

is statutory-it is significant that the Freeman- WalterAbele test for statutory subject matter only checks

for the use of mathematical algorithms, not the use

of software. OTA uses the term ‘‘software-related

invention’ to refer to inventions implemented in

software.

Another difficulty with defining the term “software patent‘‘ is that software is used in a variety of

inventions. Not all software-related inventions are

products of the ‘‘software industry. ’ Many traditional industrial processes are now controlled by

computers or use embedded processors. For example, the invention found statutory by the Supreme

Court in Diamond v. Diehr used a computer to

control a process for curing rubber.

‘‘Software patent-type’ inventions may be distinguished from other ‘‘computer-related inventions’

because they are not as well represented in the PTO’S

database of prior art. This database consists mainly

of issued patents. Many significant advances in

software are not represented in the database because

few ‘‘software patents’ were issued before the

mid-1980s. While in theory these inventions could

have been implemented in hardware, in practice they

were not. As it was widely assumed that implementation in software precluded the issuance of a patent,

few developers applied for patents on these inventions. The gaps in the PTO database of prior art make

it more difficult for examiners to determine whether

an invention is novel and nonobvious.

When Is a Patent for a Software-Related Invention Infringed?-- There is uncertainty about the

scope of protection available from a patent on a

software-related invention. The breadth of protection is determined during infringement litigation, of

which there has been little to date. One important

issue will be the interpretation of claims. Before

determining if a device is infringing, courts interpret

a claim by looking at the specification and the

prosecution history. For exampIe, “means-plusfunction’ claims do not cover all of the “means”

for performing a function, only the “structure,

material or acts described in the specification and

equivalents thereof. ’ ’54 One question might be

whether the claims cover both hardware and software implementations of an invention.

“Literal infringement’ occurs when an accused

device or process incorporates each and every

element of a claim. Even if there is no literal

infringement, a device can still be found to be

infringing-this is known as the “doctrine of

equivalents, ’55 The doctrine of equivalents is applied when an accused device does not incorporate

every element of the claim but is still ‘‘close

enough.’ 56 Infringement occurs if the accused

device or process accomplishes “substantially the

same thing, in substantially the same way to achieve

substantially the same result. ’ ’57 Generally, ‘ ‘pioneer’ inventions that represent a substantial advance over the prior art are granted a broader range

of equivalents by the courts. Observers have argued

that some software-based patents, though claimed

and allowed broadly due to a lack of knowledge of

constraining prior art, may not be true pioneers in

their fields .58

Protection of Program Function—

“Software Patent” Policy Issues

There has been considerable debate about the

granting of patents for software-related inventions.

Some believe that no inventions that use software

should be patentable or that only software-related

inventions that are traditional industrial processes

should be statutory subject matter.59 Others believe

that inventions that use software should not be

53 whether Or no( a softwwe implementation infringes a “hardware” patent depends on the interpretation of “equivalent” in the [35 U. S. C.] section

112(6) sense and the “doctrine of equivalents. ” See Romld S. Laurie and Jorge Contrems, ‘*Application of the Doctrine of Equivalents to

Software-Based Patents, ‘‘ in Michael S. Keplingcr and Ronatd S. Laurie (cds ,), Patent Profectionfor Cornpu[er Software (Englcwood Cliffs, NJ: Prentice

Hall Law and Business, 1989), p. 161.

~ 35 U.s.c, 1 12(6),

55 The “doctrmc of equivalents’ should not be confused with the meaning of ‘‘equivalent as used in interpreting means-p lus-funchon clalms. Scc

Donald S. Chisum, Patents (New York, NY: Matthew Bender, 1991), vol. 4, pp. 18-6(>1 8-63.

s~ ~uric and Contrcras, Op, cit., fOOtIIOtC 53, p. 1~~.

57 Chisum, op, cit., footnote 55.

5R ~~uric and Contrcras, Op. cit., footnote 53, p. 169.

5Y Scc pamc la Samuclson, L “Benson Revisited, ” Emor) IMw lo~(rn(ll, vol. 39, No. 4, falI 1990, pp. 1133-1142.
136 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

treated differently from other types of inventions.60

In fact, some who believe that software-related

inventions should be patentable have argued that

many of what are now deemed nonstatutory mathematical algorithms should be statutory subject matter. 61

Some of the concerns about the patenting of

inventions that use software are similar to those

expressed about the patent system in general62 

or

about the patent system’s ability to accommodate

any new technology. In some cases these questions

have been brought into sharper focus in the context

of software. For example, the appropriate length of

the patent term has been a subject of discussion for

many years (see chapter 6); many believe that 17

years is especially inappropriate for a fast-moving

technology such as software.63 The fact that patent

applications are kept secret until the patent issues

makes it impossible to be certain that a product

under development will not ‘be accused of infringing

a patent; this ‘‘kmdmine’ problem may be exacerbated by the longer pendency for computer-related

inventions. However, two areas of concern are more

directly related to the question of software patentability: the effect of patents on industry structure and

innovation, and the quality of the patents that have

been granted.

First, it is argued that the widespread use of

patents could change the structure of the software

industry in a way that would actually reduce the rate

of innovation. According to those who hold this

view, patenting favors larger companies, not the

small companies that have historically been the

source of much innovation. The software industry

has had a disproportionate number of smaller

companies; in part, this industry structure was due to

the fact that the limited use of patents and licenses

kept barriers to entry modest. There is a concern that

the widespread use of patents could reduce smallcompany-based innovation by raising barriers to

entry, either as a result of the need to pay royalties

or the added costs of searching and filing for

patents,

64 In addition, large companies could engage

in portfolio trading while small companies without

extensive patent portfolios would have their freedom to develop products restricted.65

The alternative view is that the economics of the

software industry is not that different from the

economics of other industries, and that patents are

therefore equally appropriate for encouraging software development. Some argue that software development is becoming increasingly expensive, and

patents may provide the incentive needed to invest

or attract venture capital funding.66 In addition, it

may be that patents in fact benefit small companies,

by providing a means to protect their development

effort against appropriation by a larger company.67

A second set of concerns focuses on the quality of

patents that have issued. Some consider that many

patents have issued that do not in fact represent

significant advances. 68 From the developer’s perspective, this increases the probability that a program could be accused of infringing patents. The

developer would then have to decide whether to

engage in costly litigation in an attempt to invalidate

the patent. The perceived problems with examination quality have primarily been the result of the long

period of time during which it was uncertain whether

software-related inventions were statutory subject

matter. Few patents issued for software-related

inventions, leading to gaps in PTO’S database of

prior art. Some believe that the the problems with the

database of prior art can be resolved given enough

time.

69 However, the burdens on the PTO of

increasingly backlogged applications and external

criticism may be exacerbated over the next several

a Do~ld S, ChiSum, “The Patentability of Algorithms, ’ University of Pittsburgh L.uw Review, vol. 47, No. 4, summer 1986, pp. 1009-1019.

61 Romld S, ~~ie, “’rhe Patentability of Artflcial Intelligence Under US hw, ‘‘ in Morgan Chu and Ronald S. Laurie (eds.), Pa~ent Protecn”onfor

Compufer Software (Englewood Cliffs, NJ: Prentice Hall Law and Business, 1991), pp. 288-290.

62 For ~ Ovemlew of Cument concerns about the patent system, see ‘ ‘The Patent G~e: R~sing ‘e ‘rite* “ Science, vol. 253, July 5, 1991, pp. 20-24.

63 Mitchell D. Kapor,Cwm~d chef Ex~utive Officer, ON Technology, ~c., testimony at hctigs before the House SllbCommltt& On COUrtS,

Intellectual Property, and the Administration of Justice, Nov. 8, 1989, Serial No. 119, p. 244.

64 Brim K~n, ‘ ‘The sof~~ Patent Crisis, ’ Technology Review, vol. 93, No. 3, April 1990, p. 53.

65 Ibid.

66 Chisum ~Wes that softw~e should not be a ‘‘disfavored technology. ” Donald S. ChisunL op. cit., footnote 60,

67 Elon GMper, Ed Hfi5, Paul Heckel, WllllmHulbig, @Ligh~~, ~d we o’M~ley, letter, New York Times, June 8, 1989, editorid page.

6S Km op. cit., footnote ‘.

@ David Bender, letter, New York 7’imes, June 8, 1989, editorial page.
Chapter 4--Software Technology and the Law . 237

Box 4-B--Cryptography

The recorded history of cryptography as a means for securing and keeping private the content of

communications is more that 4,000 years old. Manual encryption methods using code books, letter/number

substitutions and transpositions, etc. have been used for hundreds of years-the Library of Congress has letters from

Thomas Jefferson to James Madison containing encrypted passages. Modem (computer-based) cryptographic

technologies began to develop in the World War II era, with the German Enigma cipher machine and the successful

efforts to break the cipher computationally; cryptographic research and development in the United States has often

proceeded under the aegis (or watchful eye) of the National Security Agency and, to some extent, the National

Institute of Standards and Technology (NIST).

Encryption techniques can be used to maintain the secrecy/privacy of messages; they can also be used to

authenticate the content and origin of messages. The latter function is of widespread commercial interest as a means

of electronically authenticating and ‘ ‘signing” commercial transactions like purchase orders and funds transfers,

and ensuring that transmission errors or unauthorized modifications are detected. Encryption is a mathematical

process and the descriptions of different techniques (e.g., the Federal Data Encryption Standard (DES), the

Rivest-Shamir-Adelman (RSA) public-key cipher, the “Trapdoor Knapsack” cipher, etc.) are usually referred to

as ‘‘algorithms. ’ Nevertheless, cryptographic systems have been successfully patented (usually as “means plus

function” claims); the RSA system was patented by the Massachusetts Institute of Technology and licensed in 1982

to the inventors, who formed a private company to market the system. Results from other university research in

cryptography have also been patented and licensed—for example, U.S. Patent No. 4,218,582 for a “Public Key

Cryptographic Apparatus and Method” invented by Martin Hellman and Ralph Merkle of Stanford was granted in

1980----as have commercially developed systems.

Patents may be complicating development of a new Federal standard for a public-key cipher. In 1991, NIST

proposed a digital signature standard (DSS) for unclassified use in digitally authenticating the integrity of data and

the identity of the sender of the data. The proposed standard is intended to be suitable for use by corporations, as

well as civilian agencies of the government. NIST has filed for a U.S. patent on the selected technique and plans

to seek foreign patents. NIST has also announced its intention to make the DSS technique available worldwide on

a royalty-free basis. According to press accounts, NIST has chosen the DSS algorithm as a standard to avoid

royalties. Some critics of this choice (including the company marketing the RSA system) have asserted that the RSA

algorithm is technologically superior and that NIST deliberately chose a weaker cipher. In late 1991, NIST’S

Computer Security and Privacy Advisory Board went on record as opposing adoption of the proposed DSS.

SOURCES: U.S. Congress, Office of Technology Assessment, Defending Secrets, Sharing Data: New Locks and Keys for Electronic

Information, OTA-CIT-31O (Washington, DC: U.S. Government printing Office, October 1987); Michael Alexander, “Data

Security Plan Bashed,’ Computerworld, vol. 25, No. 26, July 1, 1991, pp. 1, 80; Richard A. Danca “NIST Crypto Change Takes

Fed Vendors by Surprise,” Federal Computer Week, July 8, 1991, pp. 1,37; Federal Register, vol. 56, No. 169, Aug. 30, 1991, pp.

4298042982; Richard A. Danca “NIST Signature Standard Whips Up Storm of Controversy From Industry,” Federal Computer

Week, Sept. 2, 1991, p. 2; Darryl K. Taft “Board Finds NIST’S DSS Unacceptable, ” Government Computer News, vol. 10, No.

26, Dec. 23, 1991, pp. 1,56.

years. Computer implemented processes will be- as faster processors have become available. Second,

come more “commonplace and important in a wide

variety of industries and applications (see box 4-B),

ranging from home entertainment to scientific research to financial services.

There may be practical limitations on attempts to

exclude ‘‘software inventions from the patent

system. First, many claims in computer-related

invention patents issuing today cover both hardware

and software implementations; if the software implementation were not an infringement, the value of

a “hardware” invention could be appropriated.

Some inventions that were initially “hardware”

inventions are now being implemented in software,

there are-many inventions that use software but are

not the type of invention that has been the subject of

concern in the policy debate. There does not appear

to be much concern about the patenting of traditional

industrial processes that happen to use software as

part of the apparatus or to perform a step in the

process.

The Freeman-Walter-Abele Test—Another issue

is whether the Freeman-Walter-Abele test draws the

line between statutory and nonstatutory subject

matter in the right place. Some observers believe that

some of what PTO and the Court of Appeals for the

Federal Circuit regard as nonstatutory mathematical
138 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

algorithms should be statutory subject matter.70 A

variant of this opinion is that “field of use”

limitations should be sufficient to demonstrate that

a mathematical algorithm is ‘‘applied’ and the

claimed invention statutory. In Parker v. Flook71 the

Supreme Court held that language in the claim that

limited the field of use of a mathematical algorithm

to processes comprising the catalytic conversion of

hydrocarbons was not sufficient to make the invention statutory.

Supporters of an expansion in the scope of

statutory subject matter argue that some mathematical algorithms fall within the ‘‘useful arts’ and that

their invention should be encouraged by the patent

system. Under the Benson analysis, more efficient

methods of solving general ‘ ‘mathematical’ problems on a computer are not statutory subject matter.

In its decision finding Benson’s application to be

statutory (later reversed by the Supreme Court), the

C. C.P.A. listed a number of advances embodied by

the invention:

,.. reducing the number of steps required to be

taken, dispensing with the repetitive storing and

retrieval of partially converted information, eliminating the need for interchanging signals among

various equipment components, and the need for

auxiliary equipment, and decreasing the chance of

error.

72

The Freeman-Walter-Abele test may also be

difficult to apply consistently .73 The distinction

between “mathematical” and “nonmathematical”

algorithms has been criticized by computer scientists as a creation of the case law that lacks a

foundation in computer science.74 It may be that:

. . . any attempt to find a helpful or cutting distinction between mathematics and nonmathematics, as

between numerical or nonnumerical, is doomed.75

Some commentators have suggested that patents

have issued for inventions that do not appear to

satisfy the conditions of the test, or at least indicate

that the test is difficult to understand.76 There is also

a sense among some patent attorneys that PTO has

recently changed its application of the Freeman-WalterAbele test, resulting in an increase in the number of

rejections for nonstatutory subject matter.77

The difficulty in distinguishing between mathematical and other algorithms has been used to

support calls for both an expansion and a reduction

in the scope of statutory subject matter. Those who

would reduce the scope of statutory subject matter

argue that, since the distinction cannot be easily

made, all algorithms should be nonstatutory .78

Those who would expand the scope argue the

opposite—if some algorithms are statutory and no

distinction can be made, then statutory subject

matter should include many of what are now called

mathematical algorithms.79

External Design

When Is the External Design of a

Program Protected?

The external design of a program includes its user

interface and the conventions for communication

with other programs. The design of a user interface

can include the appearance of images on a screen,

the choice of commands for a command language, or

the design of a programming language. The external

design may also include file formats and communi704$ [p]olicy co~iderations indicate that patent pro[wtion is as appropriate for mathematical algorithms that are USefUl in Computer prOgrdng M

for other technological innovations. ’ Chisum, op cit., footnote 60, p. 1020.

7198 S, C[. 2522 (1978).

7Z In re Benson, 441 F.2d 682,683 (C. C.P.A. 1971).

73 “Maintenance of such an arbitrary and unclear line between mathematical and nonmathematical algorithms is necessary only because of the

assumption of the continued vitality of Benson. Benson held that ‘something’ is per se unpatentable but fmled to provide reasoning that could bc apphcd

to determine the scope of the per se rule. ’ Chisurn, op. cit., footnote 60, p. 1007.

74 Allen Newell, ‘ ‘The Models Are Broken, The Models Are Broken, ’ Uni\erslty of Pittsburgh Law Re\lieun, vol. 47, No, 4, summer 1986, pp.

1023-1035,

75 Ibid., p. 1024.

76 one issued patent often cited in~,olves the ‘‘Karrnakar algorithm. ’ Sce Pamela Samuelson, ‘‘Benson Revisited, ‘‘ Emory La~8 Journal, vol. 39, No.

4, fall 1990, pp. 1099-1102.

77 Robert Greene Steme and Edwiud J. Kessler, ‘‘Worldwldc Patent Protection in the 1990’s for Compulcr-Related Technology, ’ in Morgan Chu

and Ronald S. Laurie (cds.), Parcnr Prorecrion for Compu(er Sofiu’are (Englcwood Cliffs, NJ: Prentice Hall Law and Business, 1991), p. 445.

T~ See, C,g,, S:nuelsom op. cit., footnote 76, pp. 1139-1 la.

79 see, e.g., Chisum, op. cit., footllotc 60, p. 959.
cations protocols. Modules of a program, such as a

procedure, also have an interface.

Patent, copyright, and trade secret law have all

been used to protect elements of external designs.

Some external designs, such as communications

protocols, may be patentable.80 Patents can also be

used to protect elements of user interfaces, if novel

and nonobvious, and design patents may be available for some of the ‘‘ornamental’ aspects of user

interfaces. 81 Trade secret law may provide some

degree of protection, if a program is distributed in

machine language form. To specify all of the

externally observable behavior of an interface, one

must generally know all permitted sequences of

interface actions. Determining all of the possible

sequences of interface actions may be difficult if it

is not possible to study the assembly language or

high-level language versions of the program code.

Copyright protection may be available for aspects

of external designs, especially those that use screen

displays. The screen displays of a video game are

often protected through an ‘ ‘audiovisual’ copyright. Other user interfaces have also been found to

be protected by copyright law, There are two

different approaches to protecting user interfaces

using copyright law. One approach is to protect the

user interface through the copyright in the underlying program. 82 The other approach is to regard tie

screen display as a separate work from the program

code, and protect it as an audiovisual work or as a

compilation of literary terms (for interfaces that use

text). The scope of copyright protection for user

interfaces that do not use a screen display, such as

command languages or programming languages, has

not been at issue in a decided case. However, there

Chapter 4--Software Technology and the Law . 139

are some who feel that the legal reasoning used in the

cases where the user interface used screen displays

would protect these types of external design as

well. 83

Interfaces other than user interfaces have also

been the subject of copyright litigation. The format

for entering statistical data into a structural-analysis

program has been found to be not protected.84 There

has been an effort to assert copyright protection for

what the court described as ‘‘minor content variations’ in the bit pattern of a communications

protocol, 85 but the court did not find in the variations

‘‘choice and selection’ beyond the content of an

earlier protocol to evidence sufficient originality.

Dictum in a 1985 case, E.F. Johnson v. Uniden,86

indicates that the court viewed the development of

a communications product (a radio) ‘‘compatible’

with an existing product as permissible behavior.

The court emphasized, however, that permissible

development of a compatible product requires that

the implementation be done independently87—

achieving compatibility in the external design is not

an excuse for copying the program code.88 No cases

have addressed such issues as the interfaces in class

libraries for object-oriented languages.

Perceptions of the scope of copyright protection

for interfaces have changed over the past decade. In

the early 1980s some had assumed that the external

design was unprotected89 and that the only issue was

whether the implementation had been done independently—there are usually different ways of

writing a program with the same interface. The view

that copyright protection for interfaces was limited

was reflected in the use of ‘clean rooms, ’ in which

a specification of the program is given to program-

~o Stcmc and Kessler, op. cit., footnOtc 77, p. ~~.

81 Danicl J. Kluth and Steven M. Lundberg, ‘‘Dcslgn Patents: A Ncw Form of Intellectual Property Protection for Computer Software, ’ JPTOS,

December 1988, p. 847.

8Z Te/cm@e~l,lq “ ,yj,nla,lfcc., 12 U, S,p,Q,2d 1991 (N.D. Cal. 1989); Lotus V. papa-back, 740 FSUPP. 37 (D. ‘ass” 1990)”

.

s~ Ronald l,. Johnston and Allen R. Grogan, ‘ ‘Copyright Protection for Command Driven Interfaces, ’ The Computer L.uwyer, vol. 8, No. 6, June 1991,

p. 1.

w Ell~lneerlng DYllanllC,~ v. 5’rructuru/ SofiW1are, No. CV 89-1655, U.S. District Court, E.D. Lmisiana, Aug. 29, 1991; SYnercom Techflology v.

L/ni\ers~ty Computi~g, 462 F. SUpp. 1003 (N.D. TCX. 1978).

85 sec.~dre ,~en,irc~ Tech~o[ogv v, Tlmc ad SpaC-e processr~<y, 722 F. SUpp. 1354, 1362 (E.D. ~ci. 1989). t.

86623 F.,SUpp. 1485 (D. Minn. 1985).

R7 Ibid,, p. 1501, footnote 17.

M Scc also Apple v. Franklin, 714 F,2d 1240, 1253 (3d Cir. 1983).

89 In ~1 1986 ~~lclc Duncan Davidson ~ote: ‘ ‘It is striking fllat despltc all fic concerns raised over software copyrights, a pa(en[-like mOnOpO]y does

not exist m any area of softwmc, Application environments like Lotus 123 have been both cloned and emulated by other spreadsheets. ” Duncan M.

Davidson, ‘‘Common Law, Uncommon Software, Uni~’ersiq of Pittsburgh Lan’ l?e~’ieu, vol. 47, No. 4, summer 1986, p. 1077. (In the 1990 case Lutus

v, P~perback (740 F. Supp. 37) such a clone was found to be a copyright mfringemcnt.)

‘j2(J -,/2(, [) - 9? - 1[1
140 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

mers who have not seen the original program (the

aim of the procedure being to make available

‘‘clean’ uncopyrighted ideas without the ‘‘taint’ of

the program’s copyrighted expression). The theory

was that since the clean-room programmers had not

seen the original program there could be no infringement. The most commonly cited example of a

clean-room developed product is an operating system program used in a type of microcomputer.90 The

legal status of clean-room practices is still uncertain;

however, in the 1991 case Computer Associates v.

Altai, a program implemented using a clean-roomtype process was found to be noninfringing.

Policy Issues-External Design

The economic effects of protecting interfaces are

difficult to evaluate, requiring a determination of the

appropriate level of incentives and the role of

standards and network externalities. An evaluation

of the economic effects of intellectual property

protection may also be complicated by the fact that

there are different types of interfaces. The value of

a standard, and the balance between the cost of

designing the interface and cost of its implementation, may both depend on the type of interface.

lncentives-One policy position is that intellectual property protection is required in order to

provide the proper incentives for the development of

software. It is argued that protection of the program

code alone is not sufficient to provide this incentive.

Because there are different ways of writing a

program with the same interface, it may be possible

to reimplement the same interface without a finding

of infringement, If the cost of reimplementation

were small when compared to the orginal developer’s investment in designing the interface, it

would be relatively easy to appropriate this investment. Without more direct intellectual property

protection for the external design, it is argued, there

would be less incentive to develop new interfaces.

An important factor in evaluating whether external designs should be protected is therefore the

relative cost of design and implementation. Supporters of intellectual property protection for external

designs argue that the cost of implementation is

becoming less significant. In Lotus the court said:

I credit the testimony of expert witnesses that the

bulk of the creative work is in the conceptualization

of a computer program and its user interface, rather

than in its encoding.91

Similar considerations are said to apply to other

types of interfaces: during an intellectual property

panel at the 1990 Personal Computing Forum, one

participant said ‘ ‘the hard work in doing objectoriented technology is in the interface design, The

implementation of an object is trite. ’ ‘92 The relative

cost of design and implementation is also an

important factor in the recompilation debate discussed later in this chapter—it has been argued that

recompilation can make it significantly less expensive for a competitor to reimplement an existing

program.

The alternative view is that there is sufficient

incentive to engage in the design of interfaces, even

without intellectual property protection. Those who

argue for this position claim that reimplementation

may be time consuming and expensive, providing

the original developer with significant lead time.93

Other factors may also provide a significant advantage to the original designer of the interface.94

Long-range planning of enhancements may favor

the interface originator, for example.95

w Ibid.

~1 ~tus v. paperback, 74.0 F. Supp. 37,56 (D. Mass. 1990). Others also hold the view that the effort involved in dcsigrnng a user Intcrfacc dcscmcs

protection. See, e.g., Ben Shneiderman, “Protecting Rights in User Interface Designs, ’ SIGCHI Bulletin, October 1990, vol. 22, No. 2, p.18.

92 AdelC Gold~rg Pacp]ace syslems, at Pcrsonal Computing Forum 1990, mtiPtin Release ~u~ ’01 90$ P 107”

‘J3 ~ ~SoftwCwe is s. ~omplex and idlospcratic tit, u~css tie person is dcli~r~tely copy~g tic intem~s of tie code, a reproduction of a soptusticated

application so flawless that it has equivalent quality and utility to the original is usually significantly difficult and expensive to produce that any firm

with the economic and intellectual resources to do a good job at this prefers to crcatc original products which represent a greater opportunity. ’ Mitchell

D. Kapor, Clmirman and Chief Executive Officer, On Technology, Inc., testimony at hearings before the House Subcommittee on Courts, Intellectual

Property and the Administration of Justice, Nov. 8, 1989, Serial No. 119, p. 243.

‘x ‘ ‘And I must tell you that the de velopment of the softwwc program, maintaining it, keeping it documented, porting it to other computers, evolving

it, enhancing it, supporting it, answering service calls, and so on and so forth, this is the bigger picture, and it is really simplistic (o say that if one can

actually jusl lake the looks of a program, they will be able to run with it and in fact surpass whoever originiitcd the first program. ” Richard Bezji~

President, Mosaic Software, at panel c~n ‘ ‘Intellectual Property in Computing: (How) Should Software Be Protected” (Cambridge MA: Transcript, Oct.

30, 1990), p. 24.

95 Brett L. Rceci, ‘‘Obscrvatioms on the Economics of Copyright ami User Interfaces, “ International Conlpl/ter LuwAd}iser, vol. 5, No. 10, July 1991,

p. 4.
Chapter G-So@’ are Technology and the Law . 141

Network Externalities-There is a question as to

whether the effect of intellectual property laws on

standardization should affect an evaluation of the

appropriate level of protection for interfaces,96

Standards benefit users in a number of ways. For

example, a greater variety of application programs

will be developed if there is a standard operating

system-developers will be able to sell to a larger

market and more easily recover their development

costs. Another example of an advantage of standards

is that consistency among user interfaces makes it

easier for users to learn to use a new program. The

benefits to users that result from the wider use of an

interface are known as ‘ ‘network externalities’ (see

also ch. 6). Moreover, users may benefit from

competition among suppliers of standard product.

For example, suppliers of compilers for standard

languages compete on the basis of the cost of the

compiler and the efficiency of the machine language

code generated.

De facto standards evolve through the actions of

the market. If there is a dominant firm, the interface

that it has developed is more likely to become the

standard. Alternatively, a de facto standard can

develop because of a ‘ ‘bandwagon’ effect. If

consumers are faced with a choice between different

interfaces, network externalities make the more

widely used product more attractive. Consumers

value the network externalities, not just the intrinsic

value of the interface.

Standards may also be negotiated using standards

committees. Firms engage in voluntary standardssetting when they determine that they are better off

with a part of a larger market than if they were to

continue trying to establish their interface as a de

facto standard. Consumers may be less willing to

buy a proprietary product. For example, it is not clear

whether a computer language available from a single

vendor would be widely used97—a developer might

be unwilling to rely on a single supplier.

One view is that intellectual property protection

may harm users by affecting standardization processes. It is argued that firms may not have the correct

incentives to engage in voluntary standards setting

because intellectual property protection can increase

a fro’s vested interest in seeing the interface it has

developed chosen as a standard, slowing the standardization process.98 This could harm users, until a

standard is negotiated or one interface prevails in the

marketplace, Users could also be harmed if new

programs are not “backwards compatible” and

require users to learn a new interface to take

advantage of new features or better performance, In

addition, it has been argued that network externality

effects can complicate the balancing of incentives

for software development, by resulting in “extra”

revenues for firms that succeed in establishing their

products as a de facto standard and making it more

difficult for other firms to enter the market.99

The other view is that the question of standards

should be kept separate from the basic issue of the

proper incentives for software development. Furthermore, it is argued that voluntary standards

efforts are sufficient,lOO and that there is a trend in

the computer industry toward using more formal

standardization and licensing processes. Consortia

have formed in a number of areas, such as user

interface design and operating systems. There are a

variety of voluntary standards committees that are

developing standards for data communications protocols,lO1 operating system interfaces,lO2 and principles for user interface design.103

‘~ For discussions of standardization considerations, see Peter S. Mencll, ‘‘An Analysis of the Scope of Copyright protection for Application

Programs, ’ S’/anfordLu~r Re\ie~, vol. 41, No. 5, May 1989, pp. 1100-1 101; Richard H. Stem, ‘‘Legal protection of Screen Display s,’ Columbia -1’LA

Journal of kin & the Arts, vol. 14, pp. 291-292; Anthony L. Clapcs, Sofrutare, Copjright, & Competition (Westport, CT: QUOIUIII BOOkS, 1989),

p. 206.

97 Alfred Z. Spec[or, “Software, Intcrfxc, and Impkmentation, “ Jurime/rics, vol. 30, No. 1, fall 1989, p. 89.

‘)8 Joseph Farrell, “Standardization and Intellectual Property, ” Jurimetrics, vol. 30, No. 1, fall 1989, p. 44.

~ ~c ~ou~ ,n ~jfl,$ dld not Vlcw ~ls ~ ~fcc[ing tic dc[emina[ion of whc~er [he copyright had been infringed,

100, ‘The ~xcluslom, IOf ,nte-faces ~uld llmlta~ions of ‘dccompllatlon’ from copylght law] me unnecessq, to permit development of ‘intcropemblc’

programs: thousands of such programs have been cr~ltcd under the existing copyright rules, thanks to the work of international standards organization

,and the voluntary sharing of necessary information. ” Wdliam T. Lake, John H, Harwood, and Thomas P. Olson, “Tampering With Fundamentals: A

Crltiquc of Propowd Changes in EC Software Protection, ’ The Computer f.a~yer, vol. 6, No. 12, December 1989, p. 3.

101 Steven Turner, “The Network Manager’s Compendium of Standards, ” Net~ork Wbrld, vol. 8, No. 15, Apr. 15, 1991, p. 1.

’02 D. Richad Kuhn, ‘ ‘IEEE’s Posix: Making Progress, ’ IEEE Specfrurn, vol. 28, No, 12, December 1991, pp. 36-39.

1~~ sect e.g., Pat BillingsIcy, ‘ ‘The Standards Factor: Standards on the Horizon, ” SIGCHI Bulletin, vol. 22, No. 2, p. 10.
142 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

User Interface

Which Elements of a User Interface Design

Have Been Protected?

The type of interface that has received the most

attention in the software intellectual property debate

is the user interface. Two factors have been taken

into account by the courts when determining the

scope of protection for user interfaces. First, standard ‘‘building blocks’ of user interface design such

as the idea of using a menu have not been protected.

Second, the courts have recognized constraints on

the design; for example, commands that are necessary to the overall purpose of a program have not

been protected. Hardware and software constraints

on the way information is presented on the screen

have also been recognized,

Having determined which elements of an interface are either standard building blocks or imposed

by technical constraints, the courts look for design

choices. When there are design choices remaining

after the constraints have been taken into account,

the courts generally protect the elaboration of these

design choices into a user interface. The choice and

organization of commands in a menu hierarchy, and

the arrangement of command terms on a screen, for

example, have been found to be protected.

Unprotected Elements–-In general, common interaction techniques have not been protected. The

idea of using a menu has not been protected.

Particular menu styles have also not been protected

by copyright, on the grounds that they were common

in the industry. The use of a pull-down menu was not

protected expression in Telemarketing. 104 The use of

a two-line moving cursor menu was described as

“functional and obvious” (and not protected) in

Lotus.105 Also found unprotected have been standard

ways of entering commands,lO6 selecting menu

entries,107 and navigating on the screen.108

Commands and menu options required for the

overall purpose of the program would probably not

be protected. For example, in Telemarketing menu

options that allowed the user to access existing files,

edit work, and print the work were not protected.l09

Also not protected were functions that were likely to

be found in any outlining program, or costestimation program.

110 The rimes chosen for individual menu entries have, in general, not been

protected. For example, the use of “print” as the

command name for printing would probably not be

protected.111

The courts have also addressed the issue of the

organization of information on the screen, and have

generally recognized constraints. Centering the headings on a screen, locating program commands at the

bottom of the screen, and the use of a columnar

format have all been found to be either unprotected

‘‘conventions’ chosen from a narrow range of

choices or not original.112

Protected Elements-What has generally been

protected is the overall set of command terms and

their organization into menus. The designer’s judgment of the way in which users would want to use a

spreadsheet, as reflected in the ‘ ‘menu structure, ”

including the overall structure, the order of commands in each menu line, and the choice of letters,

words, or ‘‘symbolic tokens’ to represent each

IW $ ‘Pl~ntlffs may not cIairn copyright protection of an idea and expression that is, if not standard, then commonplace in the computer softw=e

industry. ” Telemarketing v. Symantec, 12 U. S. P.Q.2d 1991, 1995 (N.D. Cal. 1989).

10574.0 F. SUpp. 37, 65 (D. h’laSS. 1990).

106 ~ + . . .the typing of two symbols to activate a specific command is an ‘idea. ’ “ Digital v. Softklone, 659 F. Supp. 449,459 (N.D. Ga. 1987).

107 &fTI V. cA~,$, 706 F. Supp. 934, 9950. co~. 1989).

1Os ‘‘ ~]he idea at issue, the process or manner of navigadng internally on any specific screen displays likewise is limited in the number of ways it may

be simply achieved to facilitate user comfort. To give the plaintiff copyright protection for this aspect of its screen displays, would come dangerously

close to allowing It to monopolize as ignificant portion of the easy-to-use internal navigation conventions for computers. MT] v. CAMS, 706 F. Supp.

984, 995 (D. corm. 1989).

10912 U. S, P.Q,2d 1991, 1995 (N.D. CaI. 1989).

110 L $Nor 15 he fi5ting of item for w~ch &U is Supplled subject to copyright, because, in tie language of tie machining indush-y, sp~ds ~d feeds,

machining times and costs, and data specific to the size, depth, and diameter of the hole is atl closely related to and hence incidcn( to the idea of displaying

this data. . .“ MTI V. CAMS, 706 F. Supp. 984, 998 (D. Corm 1989).

111 ‘ ‘Obvious’ command terms which merge with the idea of the command term were discussed by the court in L.urus. Lutus v. Paperback, 740 F. Supp.

37,67 (D. ~SS. 1990).

1 IZ ~1 v, CAMS, 7@5 F. SUpp. 984, 994-5 and 998 @. COIUI. 1989).
Chapter 4--Software Technology and the Law . 143

command was found to be protected in Lotus v.

Paperback. 113 In MTI v. CAMS, the designer’s view

of how a user would go through the process of

cost-estimating, as reflected in the sequence of menu

screens, was found to be protected.l 14 The existence

of design choices has frequently been shown by the

existence of a third program that uses a different

menu structure and has different commands.115 This

has been

chanical

signer.

In one

protected,

interpreted to show the absence of ‘ ‘meor utilitarian constraints’ 116 on the decase, the commands themselves were not

but the arrangement of the command

terms on the screen was protected expression.117 As

a result, the defendant was forced to redesign the

product to present the command options to the user

in a different way. Instead of presenting the command options on a single screen, they were distributed over a sequence of screens.

Standards—Industry conventions such as the use

of certain menu styles, or the use of the ‘return’ key

to select a highlighted menu element have not been

protected by copyright law. On the other hand, the

choices made by the designer of a successful product

in developing the menu structure have not been

recognized as a constraint on later developers. In

Lotus the defendants sought to show that while there

may have once been a number of design choices, the

success of the plaintiff’s spreadsheet product in the

market sharply limited the choices of later developers, due to network externality effects. This argument was not accepted; the court wrote:

By arguing that 1-2-3 was so innovative that it

occupied the field and set a de facto industr y

standard, and that, therefore, defendants were free to

copy plaintiff’s expression, defendants have flipped

copyright on its head. 118

User Interface—Issues

At one level the software intellectual property

debate has been concerned with the question of

whether user interfaces should be protected at all.

The secondary issues have focused on the question

of which elements should be protected. Intellectual

property law establishes rules for competition in

user interface design by drawing lines between

protected and unprotected elements. The debate

about ‘‘look and feel’ ’119 reflects a concern that a

particular style of interface would be protected by

copyright law. There is a concern that the protection

of an interaction style would leave too little room for

innovation by others within the general style, or for

its use in a different program.

However, in cases decided so far, the courts have

held the mere use of a menu-based interaction style

to be unprotected. The use of the “spreadsheet

metaphor’ has also been held to be unprotected. In

effect, the courts have viewed the use of these

common types of interaction in the same way that

they view the use of words and stock characters

alone in the application of copyright law to literature: as building blocks that should not be protected.

To give one creator a monopoly over these basic

elements would effectively stunt the efforts of other

creators to elaborate on these elements in the

production of their own works.120

One difficulty is that technological change is

continually adding new building blocks. The cases

that have been decided all involved simple textbased menus that do not represent the state of the art

in user interface design. Some of the cases now in the

courts involve graphical user interfaces, and it is less

clear what constitutes an unprotected ‘‘building

block” of graphical user interface design, and what

constitutes an elaboration of building blocks into a

113740 F. Supp. 37,67 (D. Mass, 1990). ne court said that ‘‘ [a]n example of distinctive details of expression is the preCISe ‘structure, SXluence, and

orgamzation’. .of the menu command system. ’

1 IJ 706 F. .SUpp. 984, 994 (D, Corm. 1989).

115 “In the present case, the Court has already noted that the existence of ‘Stickybear Printer’ [a third program] disproves defendant’s argument that

there are a very limited number of ways to express the idea underlying ‘Print Shop. ’ Thus, there is no danger in the present case that affording copyright

protection to the ‘instructions’ of ‘Print Shop’ will amount 10 awarding plaintiff a monopoly over the idea of a menu-driven program that pMts greeting

cards, banners, signs and posters. ” Broderburd Software v, Unison I+br/d, 648 F. Supp. 1127, 1134 (N.D. Cd. 1986).

llGBro~erbun~ ~o~rware v. Unison Wor/d, 648 F. SUpp. 1127, 1133 @.D. M. 1986).

117Di,gltU/ cornrnunirafio~s ~SsOCiateS v. SoftHone Distributing, 659 F. SUpp. 449 (N.D. Ga. 1987).

118740 F. Sllpp. 37, 79 (D. ~ss. 1990).

f ‘g Despite its ‘widespread use in public discourse, a court has said that the “ ‘look and feel’ concept, standing alone [was not] significantly helpful”

in distinguishing between uncopyrightable and copyrightable elcmcnts of a computer program. Lutus v. Paperback, 740 F, Supp. 37,62 (D. Mass. 1990).

Izo For a discussion of ‘‘idcast ‘‘ see Paul Goldstein, Copjright Principles, Luw and Practice (Boston, MA: Little, Brown+ 1989), vol. I, pp. 76-79.
144 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

protected design. There is a concern that a‘ ‘building

block” could be appropriated through copyright by

the developer of the first program to use it.

One question is related to the role of user interface

design principles in determining the scope of design

choices. One of these principles is that interface

designers should be aware of the benefits of ‘external consistency. 121 External consistency allows the

‘‘transfer of learning’ from one program to another

and from one generation of a program to the next. Is

it necessary for two spreadsheet programs to be

identical in virtually every respect, or can there be

significant transfer of learning if two spreadsheet

programs share only some core similarity? Would

this core similarity be viewed as an unprotected

‘‘idea’ in the context of copyright law? At the same

time, there is a concern that intellectual property law

will force “gratuitous” differences between interfaces. 122

Program Code

How Is the Program Code Protected?

The copying of a computer program can be

prevented in several ways. If a computer program is

the implementation of a patented process, then

copying the program and practicing the invention

would infringe the patent. Copying could also be

limited by a licensing agreement between the

developer of the software and a licensee. However,

the main vehicle for preventing the copying of the

program has been copyright law. Computer programs have been copyrightable subject matter since

1978, when the Copyright Act of 1976 became fully

effective. 123

The Copyright Act states that copyright protection does not extend to the “procedure’ or “system’ or ‘‘method of operation’ described by a

copyrighted work. This is to prevent copyright from

being used to protect ‘‘utilitarian’ or ‘‘fictional’

articles. For example, an electronic circuit is not

copyrightable subject matter, but the circuit diagram

that describes the circuit is a copyrightable “pictorial’ work. The copyright only prevents someone

from copying the pictorial work, not from building

the circuit. In the case of computer programs, it is

especially difficult to separate the description of the

function from the function itself.

“Idea” is a metaphor used in copyright law for

the elements of a work that copyright law does not

protect. Procedures, systems and methods of operation are ideas. ‘‘Expression ‘‘ is a metaphor for the

protected elements of a work. Infringement occurs

under copyright law when a work is copied and,

taken together, the elements copied amount to an

improper appropriation of expression. Copying can

be shown by direct evidence or by inference, if the

defendant had access to the plaintiff’s work and the

works have substantial similarity as to the protected

expression. Improper appropriation is shown by the

taking of a substantial amount of protected ‘ ‘expression .

Literal Code—The literal code of a program has

consistently been shown to be protected expression,

and verbatim copying a copyright infringement. As

a result, copying a program from one disk to another

clearly infringes the copyright in the program,

except to the extent permitted by the Copyright Act

(e.g., section 117). This is true regardless of the

language used to write the program: the argument

that a program in executable (machine language)

form was not copyrightable subject matter because

it could be considered a ‘ ‘machine part’ has been

rejected by the courts.

“Nonliteral” Copying—In a series of cases,

courts have held that the internal design of a program

at a level of abstraction above that of the program

code could not be copied, In one case a judge wrote:

It would probably be a violation to take a detailed

description of a particular problem solution, such as

a flowchart or step-by-step set of prose instructions,

written in human language, and program such a

description in computer language.l24

In other words, a finding of infringement could not

be avoided by making small changes to a program or

121 See pp. 129-130.

122 pmlclpat ~ discussion at tie Massachusetts IU.Stitute of TdUIOIOgY on “Intellectual Property in Computing: (How) Should Software Be

Protected” (Cambridge, MA: Transcript, Oct. 30, 1990), p. 21.

123 House Repofl g~ 1476 says ‘‘liteW wor~’ prot~t~ ~der s~tion l~(a)(l) of tie Copfight At include computer programs. The protection

of computer programs under the Copyright Act was confh-med by the Software Amendments of 1980.

124 Synercom v, UCC, 462 F. Supp. 1003, 1013 n.5 (N.D, Wx. 1978).
——

Chapter 4--Software Technology and the Law ● 145

by translating the program from one language to

another language.125

The higher levels of abstraction of the program

code are often described as the ‘‘structure, sequence,

and organization’ 126 (SS0) of the program, although this terminology has been criticized, 127

Protection of the structure, sequence, and organization has been described as consistent with the

application of copyright to more traditional types of

‘ ‘literary’ works such as novels.128 The main reason

to limit copying at this higher level of abstraction is

that it would otherwise be possible to avoid copyright infringement by making a few trivial changes

to the program text. The courts have determined that

this would allow the appropriation of a significant

part of the value of a program.l29

There were two seminal cases in the area of

protection for the structure, sequence, and organization of computer programs: Whelan v. Jaslow and

SAS v. S&H. In these cases the particular organization of the program into subroutines or modules was

found to be protected expression. In SAS v. S&H the

court stated that copying the organizational scheme

of a program would be a taking of expression, even

if the program code for the ‘‘lowest level tasks’

were written independently, 130 In Whelan v. Jaslow

the two programs were found to be substantially

similar because of similarities in the detailed structure of the five subroutines that the court found to be

qualitatively important to the program and ‘ ‘virtually identical file structures. 171

Constraints on Program Structure-The courts

have applied the “merger” doctrine of copyright

law by looking for evidence that the structure of the

program was dictated by engineering constraints. In

cases such as Q-Co. v. Hoffman and NEC v. Intel the

courts have found that the similarities between

programs were due to constraints imposed by the

overall purpose of the program or by the hardware.

If there were different ways of writing the program

to perform a particular function, however, the courts

have found protected expression. In SAS v. S&H, for

example, the court wrote that:

[The defendants] presented no evidence that the

functional abilities, ideas, methods, and processes

of SAS could be expressed in only very limited

ways. *32

The number of different ways of writing a program

to perform a particular function was discussed at

hearings conducted by the National Commission on

New Technological Uses of Copyrighted Works

(CONTU). 133

Copies—Because computer programs are protected by copyright, the making of any copy is an

infringement. Even the transfer of a program from

disk to memory is thought to be the creation of a

copy that would be infringing but for the special

exemption contained in section 117 of the Copyright

Act, which allows a computer program to be copied

‘‘as an essential step in the utilization of the

computer program in conjunction with a machine.

The exclusive rights granted to the copyright

holder are also thought by some to limit disassembly

or recompilation of programs-these procedures

involve the making of reproductions or ‘‘derivative

works’ of the machine language program. Limitations on disassembly and recompilation provide

trade secret protection for aspects of a program

125 seC \$rhe/dtl “, JdS/Ow 79? F,zd 1222 (Sd Cir. 1986) and SAS V. .$&H, 605 F. SUPP. 816 (M.D. ‘enn 1985)

1~~ ~rhc~all V. JUSbMI, 797 F.2d 1222, 1224 (3d Cir. 1986).

1~7 COmpU(Cr Associates v, Akl, No. CV 89-0811, U.S. District Court, E.D. New York Aug. 9, 1991.

‘~$ < ‘As I have indicated, CONTU had no views, and made no recommendations which would negate the availability of copyright protection for the

detiillcd dcslgn, structure, and flow of a program under the copyright principles that make copyright protection available, in appropriate circumstances,

for the structure and flow of a novel, a play or a motion picture. ’ Declaration of Melville B, Nirnmer (Vice Chairman of CONTU), appendix to Anthony

L. C1apm, Patrick Lynch, and Mark R. Steinberg, ‘‘Silicon Epics and Buuuy Bards: Determining the Proper Scope of Copyright Protection for Computer

programs,” UCLA LuIt Re\leu, vol. 34, June-August 1987, p. 1493.

I ~g , ,

., .arnong the more significant costs in computer programming arc those attributable to developing the structure and logic of the program. The

rule proposed here, which allows copyright protection beyond the literal code, would provide the proper incentive for pro gmmrners by protecting their

most Viiluablc efforts, while not giving them a stranglehold over the dcvclopmcnt of new computer devices that accomplish the s,ame end. Whelan v.

Jusl,}w, 797 F.2d 1222, 1237 (3d Cir. 1986).

l~o 605 F. SUpp 816, 826 (M.D. Tcnn. 1985).

131 ~’he/un V, JU/OW, 797 F.2d 1222, 1228 (3d Cir. 1986).

132605 F, Supp 816, 825 (M.D. Tcm. 1985).

133 sce ~mscfipt of cow Meeting No, 10, Pp, 44-45, quoted in d~lmation of Melville B, Nimmer, appendix to Clapes et. d,, op. cit., footnote 128,

p. 1588,
146 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

because the machine language version of programs

is difficult to understand, The recompilation issue is

discussed in more detail in a later section of this

chapter.

Policy Issues-Protection of Literal and

Nonliteral Elements of Program Code

Literal Copying—The justification for restrictions on the copying of computer programs is

economic: some form of legal protection is necessary to provide program developers with the incentives to develop software. Computer programs are

easy to copy—they have the same intangible character as traditionally copyrightable works. The CONTU

Final Report states:

The Commission is, therefore, satisfied that some

form of protection is necessary to encourage the

creation and broad distribution of computer programs in a competitive market,134

The Commission viewed computer program copyrightability as consistent with the expansion of

copyright to new technologies over the previous two

centuries, l35

Protected and Unprotected Elements of Program Code—One of the reasons for protecting

nonliteral elements of a program is to prevent later

developers from avoiding a finding of infringement

by making small changes. The main issue is the

degree of similarity two programs may have and the

degree of independent development that a later

developer will be forced to do. In other words, to

what extent can the intellectual work in one program

be used in a second program? In the two important

structure, sequence, and organization cases, Whelan

v. Jaslow and SAS v. S&H, the infringing program’s

code was similar at a low level of detail. The line

drawn between protected and unprotected elements

reflects a determination of the level of competition

desirable. l36rticulating this line has proven to be

difficult.

In practice, there will rarely be access to the

high-level language version of a competitor’s program. The only access that one would normally have

to a competitor’s program would be to its machine

language form. Disassembly would be possible, but

there would still be considerable work involved in

understanding the program and reimplementing it. It

is not surprising that in the structure, sequence, and

organization cases there has either been access to the

source code or the programs were short enough to be

disassembled and studied relatively easily.137 The

legal status of attempts to disassemble a program is

a major issue associated with the protection of

computer programs using copyright law, and is the

subject of the next section.

Recompilation

‘‘Recompilation’ is a procedure for translating a

machine language program into a more understandable form. It is thought by some to be a copyright

infringement, and by others to be a necessary tool for

software engineering. The recompilation issue intersects many of the policy issues outlined earlier in

this chapter. For example, recompilation may be

used in the development of functionally compatible

products; whether or not the development of such

products should be permitted is itself a policy issue

(see ‘‘External Design—Policy Issues” in this

chapter).

Introduction

To understand a program, there are three things

you can do: read about it (e.g., documentation), read

it (e. g., source code), or run it (e.g., watch execution,

get trace data, ex amine dynamic storage, etc.).138

Understanding a program is made easier when the

high-level language or assembly language representations are available. In most cases, however, only

the machine language version is distributed. Decompilation is a procedure by which a high-level

language representation of a program is derived

from a machine language program, and ‘ ‘disassembly” is a procedure for translating the machine

language program into an assembly language program.

134 NatiO~ cO~SSiOn on New ‘rw~O]OgiC~ u5eS of Copyrigb(ed work (cow, Finu/ Repo~ (Washington DC: Library of Congress, Jtdy 31,

1978), p. 11.

135 Ibid.

136 * CLaST Frontier Conference FUport on Copyright Protection of computer Software, “ Jurimetrics, vol. 30, No. 1, fall 1989, p. 20.

1sTE~, JohnSon v. (Jnlden, 623 F. Supp, 1485 (D.b, 1985) (a radio commuications product), NEC V. Intel 10 U. S. P.Q.2d 1177 (N.D. Cal. 1989)

(microcode).

136 R1c~d B. Buder ~d ~omas A Corbi, “Program Understanding: Challenge for the 1990’ s,” Scaling Up: A Research Agenda for Sofrware

Engineering (Washington, DC: National Academy Press, 1989), p. 41.
Chapter 4--Software Technology and the Law ● 147

The legal status of efforts to discover assembly

language or high-level language representations of a

program has become the subject of an intense

debate. 139 Both recompilation and disassembly

involve the making of at least a partial reproduction

or derivative of the machine language program, and

some people believe that reverse engineering using

these techniques is a copyright infringement.l40 The

policy question is the extent to which limiting access

to information about someone else’s program

through the workings of the copyright law is socially

desirable.

Important factors cited in the policy debate are the

uses of recompilation, the ease with which it can be

done, and the degree to which the information is

available from sources other than recompilation. It

has been argued that limits placed on recompilation

are required to provide sufficient incentives for the

development of original programs. Those who take

this position claim that recompilation is a straightforward and routine process that allows clone

programs to be implemented at much lower cost,141

Programs are decompiled and then:

. . . without the necessity for the significant R&D

expenditures made by the innovator, the pirate goes

on to alter the program to disguise the copying, and

create a second, similar program which it markets as

an allegedly different product for a much lower

price. ’42

Others argue that recompilation is technically

difficult, and is therefore unlikely to be used for

piracy. They emphasize that disassembly and recompilation can be used for a variety of other

purposes, many of which would have a less direct

economic impact on the developer of the program

being reverse engineered. For example, some of the

information gained by recompilation may be used in

developing an “attaching’ product that is to exchange data with the program being reverse engineered. Recompilation also could be used for

maintenance, debugging, detecting viruses, investigating safety or reliability concerns, or systems

integration. Indeed, some of these uses of decompilation represent situations in which an organization

might reverse engineer its own programs, not just

those developed by someone else.143

Recompilation and Disassembly

The product of recompilation or disassembly

would never be identical to the original source

program.

l44 At the very least, comments and the

names of labels, variables, and procedures would be

lost in the assembly or compilation process and

could not be recovered. In addition, the structure of

the decompiled program would not necessarily be

the same as that of the original program, although

this would depend on the compiler that had been

used. Because of the loss of mnemonics and much of

the structure of the program, considerable work is

required to understand the decompiled or disassembled program.

Disassembly is easier than recompilation. There

is essentially a one-to-one conversion between the

machine language statements and assembly language statements, simplifying the process of translating the machine language program into a more

readable form. However, it takes a great deal of

effort to understand the disassembled code from a

large program. 145 Because disassemblers are widely

available, l46 some developers assume that their

programs will be disassembled, and try to write

sensitive parts of their code in ways which make

disassembly more difficult or make the disasseml~gPamcla Samuelson, “Reverse-Engineering Someone Else’s Software: Is It Legal?” /EEE Software, vol. 7, No. 1, January 1990, pp. 9(!-96.

1~0 Victor Sihr, Coworate CO~d, IBM COW., “Interpreting Reverse Engineering Law, ’ letter to ZEEE Software, vol. 7, No. 4, July 1990, p. 8.

’41 “Decompilationof a computer program does not provide an imitator with just a good startin producing acornpeting product; it gives him virtually

everything necessary to produce a functionally identical product, ’ William T. Lake, John H. Harwood, and Thomas P. OISOU “Tampering With

Fundamentals: A Critique of Proposed Changes in EC Software Protection,’ The Computer Lawyer, vol. 6, No. 12, December 1989, pp. 1-10.

1J2 Testimony of JmeS M. B~ger, Chief Counsel, Apple Computer, Inc., on behalf Of the COmPUter and Business %Uipment ‘tiacturers

Association, at hearings before the House Subcommittee on lntcllectwd Property and Judicial Administration, May 30, 1991.

IAJ This situation presen~ no infringement issues.

Iti ~c lack of idcntlty is not relevant to tie legal question of Ilnautiofizcd COpylIlg.

145 An go,~byte machine lmwage pro~m for ~ ~M pC_class computer would result in 32,000 lines of assembly code. Clark Calkins, ‘ ‘Tailoring

the MD86 Disassembler for Thrbo Pascal,’ Tech Specialism, vol. 2, No. 6, June 1991, pp. 41-46.

1~6 For adlscusslon of ~ommerclally available disasscmblcrs, see Brc([ Glass, ‘ ‘Disassembler Roundup, ‘‘ Programmer’ sJournaI, vol. 9.2, March/April

1991, pp. 66-71.
148 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

bled code more difficult to understand.147 Figure 4-2

shows a high-level language program, the corresponding machine language (compiled) program,

and the results of disassembling the machine language program.

Recompilation is much more difficult; at this time

there appear to be no commercially available decompilers. For this reason, it is unclear whether decompilation is widely used by ‘ ‘pirates” to decompile

entire programs and then rearrange the code in an

attempt to hide the copying, 148 It is possible that the

term “recompilation ‘‘ is being used in the policy

debate to include disassembly,149 as “decompilation’ is often characterized as any technique that is

used to transform ‘‘machine readable’ code into

‘‘human readable’ code.150’

Today, any effort to decompile a program would

start with disassembly. Then, if one knew something

about the compiler that had been used, it might be

possible to match certain patterns of assembly

language statements to higher level constructs.

However, recompilation would be much more

difficult in cases where a sophisticated compiler had

been used: optimizing compilers delete and rearrange some of the instructions in order to make the

machine language program more efficient, and the

correspondence between sequences of machine language instructions and high-level instructions becomes less direct. While a pseudo-source code

program could still be derived, it would be less likely

that the decompiled program would immediately

reveal the original program structure.

Uses of Recompilation

The information gained by reverse engineering

techniques such as recompilation can be put to a

variety of uses, each with a different economic

effect. The effect on the developer of the program

being decompiled is most direct when the information is being used to develop a competitive product,

In some cases the reverse engineer maybe interested

in learning about a small part of a program, such as

an algorithm, that gives the program’s owner a

competitive advantage.

151 In other cases, decompilation could be used to develop the specifications for

a program that is fictionally compatible—a clone

program, Sometimes the specifications are used in a

clean-room process that is intended to ensure that the

new program does not share expression with the

original, for it is the protected expression that is

protected by copyright.152

Recompilation may also be used to develop a

program or hardware device that is not competitive,

but “complementary” or “attaching.” This would

not affect the market for the original product

directly, but would create more competition in the

second market. For example, knowing interface

information might allow the development of competition in the market for peripheral devices such as

printers. Recompilation can also be used to confirm

published interface specifications; for example, in

the course of debugging a program an unexpected

problem may arise with another program in the

system, such as an operating system.

Finally, there are a variety of uses for decompilation for which no product is developed at all. First of

147 Bob Edgar, “Shielded Code: HIVW To Protect Your Proprietary Code From Disassemblers, ” Computer hnguuge, vol. 8, No. 6, June 1991, pp.

65-71.

148 Following the testimony of tie computer and Business Equipment Manufacturers Association at the May 30, 1991 hearings (See footnote 142),

OTA asked for specific examples of piracy using recompilation and descriptions of the state of the art in automated recompilation (Joan Winston+ OTA,

letters to James Burger, Apple Computer, July 5, 1991 and Sept. 23, 1991). To date, OTA has not been provided with this information.

149 {‘A computer proWm is generally written, in the fwst instance, in ‘source code’ —that is, in a relatively high-level language such as FORTRAN

or Pascal. The program is then translated (or ‘compiled’) into ‘object code, ’ which consists of instructions to the computer in the form of O’s and 1‘s.

Programs are frequently distributed [o customers only in object code fo~ the source code is retained as an unpublished, copyrighted work.

Recompilation and disassembly (which we calf ‘decompilarion’fur shorf) are methods of reconstructing the source code of a program through copying

and manipulation of its object code. ’ Lake et al., op. cit., footnote 141, p. 4 [emphasis added].

150 The leg~ issue is tie same, whether a program is “disassembled” or “decompiled.”

151 ~ ~~e Soucecode, which often c,>n~ins tie bade ~wre~of he softwmc cr~tor, rem~unpublished. M~y softw~ecompties go to great lengths

to keep their proprietary source codes confidential. . . The right to decide not to publish in any form source code goes to the heart of most software

companies’ strategies for retaining the confidentiality of their most valuable and carefully guarded trade secrets. William Neukom, Vice President, Law

and Corporate Affairs, Microsoft Corp., on behalf of the Software Publishers Association at htigs before the House Subcommittee on Intellectual

Property and Judicial Adrninistratio& May 30, 1991.

]5~ Fora discussion Ofclea room issues, see David L. Hayes) ‘‘Acquiring and Protecting ‘Rchnology: The Intellectual Property Audi4 The Compufer

Luwyer, vol. 8, No. 4, April 1991, pp. 1-20. The effectiveness of using a clean room to avoid copyright infringement depends on whether the specifications

that are used are ideas and not expression.
— — -———. -

Chapter 4--Software Technology and the Law ● 149

Figure 4-2-High-Level Language, Machine Language, and Disassembled

Versions of a Program

HIGH-LEVEL LANGUAGE PROGRAM

program sum–of–numbers;

{This program adds the numbers from first–number to last–number}

{The text between curly brackets is known as a “comment.” Comments }

{make a program easier to read and understand, but do not affect the }

{execution of the program. }

var first–number, last–number, i, sum: integer;

begin

{initialize variables}

first–number := 1,

last–number := 5;

sum := O;

{add numbers from first–number to last–number}

for i := first–number to last–number do

begin

sum := sum + i;

end;

{print the sum}

writeln(’The sum is sum);

end.

The program shown above, written in the high-level language Pascal, adds the numbers from 1 to 5.

High-level language programs have to be translated (compiled) into machine language in order to be

executed on the computer. Part of the compiled program is shown below.

MACHINE LANGUAGE (COMPILED) PROGRAM

10111000 00000001 00000000 10100011 01100000 00000010 10111000 00000101

00000000 10100011 01100010 00000010 10111000 00000000 00000000 10100011

01100110 00000010 10100001 01100000 00000010 01010000 01000001 01100010

00000010 01011001 10010001 00101011 11001000 01111101 00000011 11101001

00011010 00000000 01000001 10100011 01100100 00000010 01010001 10100001

01100110 00000010 00000011 00000110 01100100 00000010 10100011 01100110

00000010 01011001 00101001 01110100 00000111 11111111 00000110 01100100

00000010 11101001 11101010 11111111 11101000 01111010 11110111 11101000

01111100

Machine language programs are difficult to read and understand. If the original high-level language

program is not available, disassembler programs may be used to translate the machine language

program into a more understandable form called assembly language. However, assembly language

programs are still more difficult to understand than high-level language programs. Part of the assembly

language program is shown below.

2D9F MOV

MOV

MOV

MOV

MOV

MOV

MOV

PUSH

MOV

POP

XCHG

SUB

JGE

DISASSEMBLED PROGRAM

Ax, 0001

[0260], AX

Ax, 0005

[0262], AX

Ax, 0000

[0266], AX

AX, [0260]

Ax

Ax [0262]

Cx, Ax

Cx, Ax

2DC1

2DC1 JMP

INC

2DC5 MOV

Pus h

MOV

ADD

MOV

POP

DEC

JZ

INC

JMP

2DDB CALL

2DDB

CX

[0264], AX

CX

AX, [0266]

AX, [0264]

[0266], AX

CX

CX

2DDB

WORD PTR[0264]

2DC5

2558

SOURCE: OTA.
150 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

all, someone may wish to ‘‘maintain’ a program for

which no source code is available. Recompilation or

disassembly would help in understanding the program so that it could be adapted to new requirements, or to fix bugs if no other support was

available. Disassembly is also used to find viruses,

to examine the output of a compiler to see what it had

done, and finally to examine a competitor’s program

to see if they had taken any protected expression.

Other Methods of Reverse Engineering

There are other methods of reverse engineering

programs whose legal status is less controversial

because they do not involve the making of unauthorized reproductions of the machine language program.

153 In practice, a reverse engineer would

probably employ a combination of methods, depending on the application, the information being

sought, the effort involved, and legal considerations.

Some information can be obtained by simply executing the program: it can be run with many different

data sets and its behavior observed. There are a

number of different software and hardware tools that

could be used to follow the course of execution of

the program. However, the program code is the best

specification of the behavior of the program-it may

be impossible to develop tests to explore all the cases

that a program may have to handle.

Other information is available from published

specifications, manuals, and standards documents.

In some cases companies will publish interface

specifications because it is in their commercial

interest to do so. Even if the information is not

published, they may be willing to make it available

through contractual arrangements. However, in other

cases, such as when a company is active in the

market for both the primary product and a complementary product, it may want to limit competition in

the secondary market by not making the interface

information available. Published documents may

not be at the appropriate level of detail. For example,

there may be scope for differences between implementations of a standard and manuals may be

inaccurate or out of date, or leave some elements

undocumented.

Legal Arguments for Policy Positions

While there have been proposals that a new sui

generis law be enacted to protect software, much of

the discussion of software intellectual property

policy issues has been based on interpretations of

current law. Convincing legal arguments have been

made for many of the policy positions discussed in

the preceding sections. The two broadest legal

questions are the proper interpretation of the ‘‘mental steps” and “law of nature” exceptions to

patentability in patent law, and the proper interpretation of the statement in section 102(b) of the

Copyright Act that copyright protection does not

extend to ‘‘processes’ or ‘‘methods of operation.

Both the exceptions to patentability and the meaning

of section 102(b) have been given a number of

different interpretations by legal scholars and the

courts.

Patent Law

One, policy position is that inventions implemented in software should not be statutory subject

matter. It has been argued that the “mental steps”

doctrine can be used to exclude software implementations from the patent system.154 Under this doctrine, processes that could be performed using pencil

and paper are not statutory. The U.S. Supreme Court

in its Benson opinion wrote that a computer does

arithmetic ‘‘as a person would do it by head and

hand. ’’155 In the late 1960s PTO used the mental

steps doctrine to deny patents to inventions that used

software.

The view that inventions that use software are

only statutory if they are traditional industrial

processes that transform matter may also be supported by the case law. In Benson, the Supreme

Court, relying on a series of cases from the 1800s,

wrote that “[t]ransformation and reduction of an

article ‘to a different state or thing’ is the clue to

patentability of a process claim. ’’156 However, the

Court did goon to say that it was not holding that no

153 ~~

. . . the ideas and principles underlying a program ean frequently be discovered in other ways—ways that are legitimate. Examples are studying

published documentation, performing timing tests and observing the inputs, outputs, and conditions of operation,” Victor Siber, op. cit., footnote 140,

p. 8.

154 Pamela Samuelson, “Benson Revisited, ” Emory Low JournuI, vol. 39, No. 4, fall 1990, p. 1047-1048.

155 GottsctiIk v. Benson, 93 S. Ct. 253,254.

15693 S. Ct. 253,256.
Chapter 4--Software Technology and the Law . 151

process patent could ever qualify if it did not operate

to change articles or materials.157

Legal arguments can also be used to support the

position that some of what are now deemed nonstatutory mathematical algorithms should be patentable. These arguments are based on the fact that the

Supreme Court appeared to view the Benson algorithm as a ‘‘law of nature. ’ Some have argued that

the Benson algorithm was not the mathematical

expression of a scientific truth, such as F=ma

expresses the relationship between force, mass, and

acceleration, but a man-made solution to a complex

problem. 158 According to this interpretation of

patent law, industrially useful processes should not

become unpatentable merely because they can be

described mathematically.159

Copyright Law

The scope of copyright protection for computer

programs depends in part on the interpretation of the

meaning of section 102(b) of the Copyright Act.

With all works courts must engage in the process of

drawing the line between protectable expression and

unprotectable ‘‘ idea[s], procedures], processes],

system[s], method[s] of operation, concepts], principles], or discoveries]. "

160 This exerc ise becomes

more critical, and difficult, in the context of factbased works, such as history texts and instruction

manuals, and ‘‘functional’ works, such as blueprints or computer programs,

There are a number of different views of the

application of existing law to user interfaces. One

interpretation of the law is that user interfaces are

inherently functional and therefore not copyrightable subject matter. According to this interpretation,

user interfaces are in the domain of patent law,l6l

protected only to the extent that elements are novel

and nonobvious. This argument would support a

policy position that sharply limits the scope of

protection for user interfaces.

The other view is that user interfaces may be

protected by copyright. One approach has been to

protect the user interface screen displays as audiovisual works or compilations of literary terms.162

The screen displays are considered a separate work

from the program code. As for all works, the scope

of protection for the audiovisual work or compilation is determined by an interpretation of section

102(b). One interpretation is that the command

terms are ‘ideas’ and that only their arrangement on

the screen is protected expression.163 Protection of

the command terms themselves can be supported by

an interpretation of section 102@) in which the

unprotected ‘ ‘idea’ is at a higher level of abstraction, such as the overall purpose of the program. Any

design choices not necessary to the purpose of the

program, including the choice of command terms,

would then be protected expression.

A second approach to protecting user interfaces

through copyright law is to consider the user

interface as protected by the copyright in the

program. The user interface is viewed as part of the

‘‘structure, sequence, and organization’ of the

underlying program. 164 This arguably represents a

different interpretation of the meaning of structure,

sequence, and organization’ from the way in which

the term was used in Whelan: it is possible to create

two programs that have identical user interfaces but

use different subroutines and data structures (the

elements that contributed to the court’s finding of

similarity of SS0 in Whelan).

The term ‘structure, sequence, and organization’

has been criticized for failing to distinguish between

the ‘‘static’ structure of the program-the program

code—and its ‘‘dynamic’ structure-the ‘ ‘behavior’ of the program when loaded into the computer

15793 S. Ct. 253,257.

158 ~Uie, op. clt,, footnote 61, p.257.

ls~ William L, Kcefauver, ‘ ‘The Outer Limits of Software Patents, in Morgan Chu and Ronald S. Laurie (eds. ), Pa(cnf F’rofecfiun for Compu[er

Softw are (Englewood Cliffs, NJ: Prentice Hall Law and Business, 1991), p. 83.

‘~) 17 U.S.C. 102(b).

ICI S[cvcn M, Lund~rg, Michelle M, Mlchel, and John p. Sumner, ‘ ‘The Copyright/Patent Interface: Why Utilltamm ‘Look .ami Feel’ Is

Uncopyr]ghtable Subject Matter, ” The Compliter Lun’>er, vol. 6, No. 1, Janua~’ 1989.

1~1 Dl@~a[ C(lnlmldrll<.orlons ~ssoclates V. Softk[one, 659 F. SUPP 449 (ND ‘a 1987)

163 Ibid.

1~ ~)ms v. Paperkck, 740 F. SUpp, 37, 80 (D. Mass. 1990)
152 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 4-C—Neural Networks

Neural networks are a special kind of computing

architecture. 1 The network consists of a large number

of interconnected processing elements, arranged in

layers (see figure 4-C-l). The relationship between the

input and output of the network is determined by the

internal details of the network. Signals passing between the layers of the network are modi.tied by

multiplying them by “weights.” These weighted

signals are received as inputs by the processing

elements. The processors compute an output value,

which is a function of the sum of the inputs, and passes

the output to the next layer of processors.

The weights determine the overall behavior of the

network, much as the program code determines the

behavior of a conventional computer. However, neural

networks are not programmed in the same way as

conventional computers. Neural networks are

‘‘trained. The network is presented with input values

for which the desired output is known. The network

then adjusts the weights until this output is achieved.

Figure 4-C-1—Neural Network

Inputs

++++

outputs

The circles represent processing elements that perform a weighted

sum on their inputs and compute an output value that is then sent

to the next layer of processing elements.

SOURCE: OTA.

This process is repeated for a large number of input and output examples, called a training set. Given enough

examples, the desired behavior of the network can be achieved for a wide range of inputs. One focus of research

on neural network applications has been “pattern recognition” problems such as recognizing handwritten

characters: the input is image data, and the output indicates which letter has been “read.”2

Because neural networks are different from conventional computers, there is some uncertainty about the

application of intellectual property laws.3 One issue is the copyrightability of the set of weights. For example, do

the weights satisfy the Copyright Act’s definition of a computer program? Can the set of weights be said to be a

work of authorship? One could argue that the network, and not a human, actually authors the weights (see box 4-A

on authorship). On the other hand, the network could be regarded simply as a tool used by a human author-the

author chooses the training set and presents the data to the network. The first copyright registration for a set of neural

network weights issued in October 1990.

A second question is whether protecting the weights alone is sufficient to protect the value embodied by the

network. Much as two programs can have the same external design or input/output relationship but different

program code, two networks can have the same input/output relationship but different sets of weights. The ability

of a neural network to “learn” could make it easier to appropriate the value of the network—the input/output

relationship-without actually copying the weights. An existing network or conventional program could be

supplied with inputs and the outputs observed.4 These sets of input and output data could then be used to train a

second network, which would have similar behavior to the original network.

1 For ~fi@~duCti~n t. ~eL~~~or~, WC J~dith Dayhoff, Ne~ra/ Ne~Ork Achitecture~ (New Yorlq NY: mNos~d Reinhold,

1990).

2 T~ stud~ “Neur~ Networks: Computer Toolbox for the 90’s,” R&.D Magazine, vol. 33, No. 10, September 1991, p. 36.

3 ~dy Johnson-Laird, “Neural Networks: The Next Intellectual Property Nightmare?” Computer Luwyer, vol. 7, No. 3, March 1990,

p. 7; Gerald H. Robinsom “Protection of Intellectual Property Protection in Neural Networks,” Computer Luwyer, vol. 7, No. 3, March 1990,

p. 17; Donald L. Wenskay, “Neursl Networks: A Pmxription for Effective Protection’ Computer Lawyer, vol. 8, No. 6, August 1991, p. 12.

4 Jo~on-L~d, op. cit., f(MMe 3, pp. 14-15.

SOURCE: OTA and cited sources.
Chapter 4--Software Technology and the Law . 153

and executed.165 The possibility that the behavior of

a program could be protected expression led to a

discussion about the extent to which copyright

protection might overlap with patent protection of

the program function—what some have termed the

“patent/copyright interface” problem.l65 The relationship between intellectual property protection of

static and dynamic structure is also an issue in the

context of neural networks (see box 4-C).

The same issue was addressed by the Copyright

Office in 1988 when it addressed the nature of the

relationship between the program code and screen

displays. Hearings were held by the Office in

response to the Softklone court’s holding that the

‘‘computer program’ copyright did not extend to

the screen displays. The Softklone court had noted

that “the same screen can be created by a variety of

separate and independent computer programs. 167

At the hearings the IEEE Computer Society supported separate registrations of the program code

and screen displays, arguing that the nature of the

‘‘authorship ‘‘ in the program code was fundamentally different from that in the screen displays.168

However, the Copyright Office ruled that a single

registration of a computer program covered any

copyrightable authorship in the program code and

the screen displays, writing that ‘‘the computer

program code and screen displays are integrally

related and ordinarily form a single work. ‘169

Software Development

Arguments about the proper interpretation of

existing law also rely in part on characterizations of

the software development process. Some emphasize

‘‘creative’ aspects of the development process. Just

as with other copyrightable works, it is argued, this

creative effort should be encouraged by limitations

on copying, Others, however, characterize the development process as ‘‘engineering, ’ in an effort to

limit the scope of copyright protection or to argue for

the wider use of patents.170

Discussions of creativity and engineering can also

be seen as related to the scope of available design

choices. One of the goals of software engineering

methodologies is to reduce the number of design

decisions, as a way of managing the complexity of

large projects. Elements of the development process

have become more routine. High-level languages

free programs from much of what Brooks calls

“accidental complexity. ’ ’171 Shaw points out that

today “almost nobody believes that new kinds of

loops should be invented as a routine practice. ’ ’172

Subroutines, macros, and operating systems have

also been used to avoid ‘‘re-inventing the wheel. ”

The concept of reuse (see box 4-D) may also make

parts of the development process more routine. The

Federal Government, particularly the Department of

Defense, has shown considerable interest in encouraging reuse (see box 4-E).

165 ‘‘Ccn@d to Dr. Davis criticism of the Whelan ‘structure, sequence, and organization’ formulation is the fact that there is no necessary relationship

between the sequence of operations in a program, which arc part of behavior, and the order or sequence in which these operations arc set forth in the

text of the program—the source code and object code. As Dr. Davis pointed OUL ‘the order in which sub-routines appear in the program text is utterly

irrelevant, ’ and the two views of a computer program, as text and as behavior, arc ‘quite distinct. ’ ‘‘ Computer Associate.r v. A1tai, op. cit., footnote 127,

p. 14.

’66 Scc Pamela Samuclson, “Survey on the Patent/Copyright Intcrfacc for Computer Programs, ” Afl’LA QJ. vol. 17, p, 256. Scc also Computer

Associu[cs v. ,41tui, op. cit., footnote 127, p. 15. A study prepared jointfy by the Patent and Trademark Office and the Copyright Office concluded that

there is mimmal overlap between the two areas with respect to computer software. U. S. Patent and Trademark Office and U. S. Copyright Office,

Patent-Cop jv-ight La~’s O\erlap Study$ May 1991, pp. 11-1]1.

l~T Dlxltul Communl<utl[)ns Associates V. Sofik[one Distributing, 659 F. Supp. 449, 455-456. The COur’t then concluded, ‘ ‘Thcrcforc, it is the co~t’s

opinion th~t a computer program’s copyright protection docs not extend to the program’s screen displays, and that copying of a program’s scrccn displays,

without evidcncc of copying of the program’s source code, object code, sequence, organization, or structure does not state a claim of infringement.

168 Richard H. Stem, “Appropriate and Inappropriate Legal Protection of User Interfaces and Screen Displays, Part l,” IEEE Micro, vol. 9, No. 3,

June 1989, p. 84.

169 Copyright Office, ‘‘Registration Decisio~ Registration and Deposit of Computer Screen Display s,’ 53 Federu/Regisfcr 21819 (June 10, 1988).

IT~ For one view of lhc relationship between ‘‘software engineering” and intcllectuaf property, see Clapcs, op. cit., footnote 96, pp. 119-120. For

exlcnsivc discussion of (he nature of software development, see Sus,an Lammcrs, Programmers at Wori (Redmond, WA: Microsofl press, 1986).

IT 1 Frederick p, Brooks, Jr., ‘ ‘No Silver Bullet, ’ IEEE Cornpu(er, Apfil 1987, p. 12.

17Z Mary Sflaw, “Prospects for an Engineering Discipline of Software, ’ IEEE Sojtn’dre, vol. 7, No. 6, November 1990, p. 22.
154 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 4-D—Software Reuse

Productivity in software development is a concern in both the private and public sectors.1 The relatively low

productivity of software programmers is a difficult problem, so one way to improve programming productivity is

to “reuse” program code.2 This would eliminate much of the redundant work of many programmers writing code

that does essentially the same thing. One source estimated that of 15.3 billion lines of code written in 1990, only

30 to 40 percent represent novel applications; 60 to 70 percent represent generic computer tasks like data entry,

storage, and sorting.3

Reuse can be either accidental or systematic. Many programmers employ “accidental’ reuse, making use of

some elements of their own previous work or that of their colleagues. In systematic reuse, software is written from

the beginning with the intention of making it more reusable; the components are documented and put in a library.

This can be time consuming, and in the short run can be more costly than writing a specific program for the

immediate need. This cost has to be seen as an investment that pays off in the long run if the component can be reused

several times. Software development to facilitate systematic reuse could also streamline software maintenance,

which accounts for a large and increasing portion of software life-cycle costs.

When reuse is being practiced within an organization and programmers only use components from their own

organization’s software library, intellectual property considerations are not an issue. However, questions of

ownership become more important if there is to be development of a market in reusable components. This market

is growing, but is still relatively small. For example, it is possible to license libraries of code for common functions,

such as components used in developing graphical user interfaces.

Intellectual property considerations can affect reuse in three ways. First, a number of participants at an OTA

workshop on software engineering indicated that uncertainty about the ownership of a component or the scope of

intellectual property rights could discourage the development of programs composed of components from different

sources. Second, some in the reuse community think that a stable system of ownership rights4 is necessary to

encourage the investment required for creating a commercial-quality library and to handle questions of liability. In

some cases in the past, the investment for widely used libraries has come from sources other than potential licensing

fees (e.g., the X-windows library developed in a university research and education environment, at MIT, and later

used in commercial products). A final issue is whether the interfaces in libraries of reusable components are

protected by copyright law: can a competitor offer a library with the same interfaces but different implementations?6

There are a number of’ other factors which affect the degree of reuse:7

1. Development standards have not been established for software;

2. There is a pervasive belief that if it is “not developed here,” it can’t be trusted or used by “us”;

3. Software is all too often developed with respect to a specific requirement with no consideration given to

reuse in other environments;

4. Many languages encourage constructs that are not conducive to reuse;

1 s=, e.g., The SofiWare challenge (Alexan(lri~ VA: Time-Life Books, 1988); and Albert F. Case, Jr.,lnformation SysremsDevelopment:

Principles of Computer Aided Sofi!ware Engineering (New York NY: Prentice-Hall, 1986).

2s= fiUO Matsufnura et al., “Trend ‘Ibward Reusable Module Component: Design and Coding lkchnique 50SM,” in Proceedings

of the Eleventh Annual Internah”o,rtai Computer Sojlware and Applications ConferencAOMPSAC ’87 (Wash@to& DC: IEEE Computer

Society Press, Oct. 7-9, 1987), p. 45 (cited in Michael Cusumano, Japan’s Sojlware Factories: A Challenge to Us. Management (New YorlG

NY: Oxford University Press, 1991), p. 258).

3 David Eicti and John Atkins, “Design of a Lattice-Based Faceted Ckissiilcation SYW311,” paper presented at SoftwNe Engin@@!

and Knowledge Engineering (SEKE ‘90), Skokie, IL, June 21-23, 1990.

4 com~ct~g licemes or pfic~g s~c~es my be diffic~to As with my digit~ info~tion (see ch. 5), it wifl be Hto COI@Ol Wbt

a user does with a component once a copy has been obtained. To&y, some libraries are being sold on a per-copy basis as source code with no

royalties or runtime licenses, However some believe that market forces under the classical copyright paradigm-where “copies’ are priced and

sold—will not work properly (Brad Cox (Washingto~ CT), personal communicatio~ Aug. 1, 1991). To reduce individual transaction costs, Cox

suggests that use-base fees be administered collectively, similar to the way in which performan ce royalties for musical compositions are

administered.

5 Robefi W. Schei,flH ~d J~es Ge~s, X Window system @edford, MA: Digi~ press, 1990), pp. 8-15.

6 ~u~te for Defeme ~yws, pro~eeding~ Of the workshop on Qgal ls~es in Sofiare Re~e, IDA Document D-1OO4 (A.lexandri&

VA: Institute for Defense Analyses, July 1991).

7 Fmm Eic- Wd Atkins, op. cit., fOOtllOte 3.
Chapter 4--Software Technology and the Law ● 155

5. Software engineering principles are not widely practiced and consequently, requirements and design

documents often are not available with the code; and

6. No widely accepted methodology has been developed to facilitate the identification and access of reusable

components.

There is an ongoing body of research designed to: 1) identify characteristics of software components that make

them suitable for reuse, 2) identify techniques to translate a software component with marginal reuse potential into

one that can be reused, and 3) develop systems for classifying and identifying software components to make it easy

to retrieve them from databases when they are needed.8 Among the systems being considered are artificial

intelligence programs capable of browsing libraries of programs, rating their qualit y according to several reusability y

criteria (e.g., modularity, cohesion, size, control structure), and indicating those most suitable for reuse.9 Much of

this work is being done for, or in conjunction with, the Department of Defense (DOD), especially the Defense

Advanced Research Projects Agency. As a major user of software, DOD has an interest in improving its own and

its contractors’ productivity through fostering reuse of software.

Reuse is more common among some major software users in Japan. Of several firms surveyed, Toshiba

reported the most reuse with 50 percent of its delivered custom applications software being made of reused

components. 10 Toshiba has made software reuse a central strategy for increasing productivity and reliability while

reducing costs. Reuse is a high priority for both managers and programmers, Managers are rated on how well their

projects have met reuse targets, as well as more usual measures like schedules and customer requirements.

Programmers are required to report periodically on how many components they have used from, or contributed to,

the reuse database; the company rewards authors of successful components that are frequently reused by others.

Toshiba has also developed a specialized tool, OKBL (object-oriented knowledge-based language), which helps

users classify components for storage in, or retrieval from, departmental libraries. Users can also locate components

using printed catalogs. Most reuse, even at Toshiba, is within families of related products: less than 10 percent of

software is reused across departmental lines.

8 Ibid See ~so V-R. Basili, H.D. Rombac~ J. Bailey, A. Delis, F. Farhat, “Ada Reuse Metrics,” and R. Gaglkmo, G.S. Owen, M.D.

Fraser, K.N. King, P.A. Honhaneu “Tools for Managing a Library of Reusable Ada Components,” paper presented at Ada Reuse and Metrics

Workshop, Atlanta, GA, June 15-16, 1988.

9 JaU CarlOs Esteva and Robert G. Reynolds, “kirning To Recognize Reusable Software by Induction, ” paper presented at Software

Engineering and Knowledge Engineering (SEKE ‘90), Skokie, IL, June 21-23, 1990.

10 Cusumo, op. cit., footnote 2, p. 261.

SOURCE: OTA and cited sources.

However, despite these advances, Brooks argues

that part of software development will always be a

creative process.

173 After reviewing the development of software engineering, he concluded that

while the difference between poor conceptual designs and good ones may lie in the soundness of the

design method (and cart be addressed by progress in

software engineering), changes in methodology

cannot bridge the gap between a good design and a

great one. This, Brooks concluded, requires great

designers. 174

Debate continues within the field concerning the

extent to which computer science should be characterized as a science or as an engineering discipline,

its maturity as a discipline, and the appropriate

content of undergraduate education in the discipline.

175 Some recent efforts have presented a formal

definition of the discipline, its methodologies, and

1~~ Broo~$, op. cit., foo~otc 171, p. 1 ~.

1~~ Ibid.

ITS For some rc~ent discussion of these topics, SCC D~vId GrlCS Cl :11., ‘ ‘The 1988 Snowtmd Report: A Dlscipllnc Matures, ’ C{)vltTzl(rlicdtic)rl.Y of the

ACM, vol. 32, No. 3, Mmch 1989, pp. 294-297; Nor-man E. Gibbs, ‘ ‘The SEI Education Program TIc Challenge of Tcxhing Future Software

Engineers, ” ~’or~~v~u)ric-d([c)n~ of (he AC,kf, vol. 32, No. 5, May 1989, pp 594-605; :md Edsgcr W Dljk\tril ct :11.,

$ ‘A Debate on Teaching Computer

Scmwc,’ Corrmu(rr/cariorr.r o~rhe ACM, vol. 32, No. 12, Dcccmber 1989, pp. 1397-1414.
Box 4-E—Special Concerns of the Federal Government

As a major user and developerof software, the Federal Govemment has special concerns with regard to future

trends in software development. Due to the variety of missions of government agencies, its software needs span the

gamut from small standard packages (word processing, spreadsheets, graphics) to large, specialized mission-critical

systems (air traffic control, hospital information systems, military command and control) and nearly everything in

between. Concerns include procurement policies, development of large composed systems, and technology transfer.

Procurement

Government procurement of computer hardware and software has been a complex and controversial subject

for a long time. The government strategies for acquiring and managing information technology have been in a state

of flux since passage of the Brooks Act of 1965,1 which was enacted to establish procurement and management

policies. Among concerns that have generated this flux are: 1) tension between the rapid pace of change in agency

needs and improvements in technology versus the slow pace of the planning and procurement process; and 2) the

tension between agency desires to ensure compatibility between systems and congressional desires to ensure

competition among vendors.2

Software Development

Many government agencies are supported by software systems that are critical to performance of the agency’s

mission. These large systems, to be successful, require a good match between planning and assessment of

technology needs and the acquisition or development of the hardware and software to match those needs.3 In

creating their systems, agencies face the choice of developing their software in-house, attempting to purchase

‘ ‘off-the-shelf packages to meet their needs, contracting with outsiders to develop customized software for them,

or some combination of the three.

Once systems are in place, the complexities of the procurement process often ensure that they stay in place a

long time. For these complicated systems, modifications and updates over the years make the software extremely

complex and difficult to maintain. For example, the Social Security Administration’s (SSA) system, in place since

the early 1960s, had to be modified to reflect changes in benefits mandated by 15 laws passed between 1972 and

1981. Time allowed to make the changes was always inadequate, many mistakes were made, and backlogs became

a recurrent problem, By 1982 the SSA faced the possibility of a ‘‘potential disruption of service’ due to software

deficiencies, yet by 1986 a system modernization program was still mired in political and legal problems and had

barely begun.4

1 ~bfic Law 89-306.

2 A de~~led ~mdy of options for ~wgement of g~~e~nent information resources is found in U.S. Congress, office Of TechrloIogy

Assessment, Federal Government Information Technology: Management, Security, and Congressional Oveersight, OZ4-CIT-297 (lVashingto~

DC: Government Printing Office), February 1986.

3 OTA hm t~en ~ close look at soi~wwe developmen~pr~~ ement problems at sever~ agencies, including Federal Aviation

Administration% Social Security Administration and Veterans Admtm“ “stration: U.S. Congress, Office of ‘Ikchnology Assessmen6 Review of

Ffi’s 1982 National Airspace System Plan, OTA-STI-176 (Washingto~ DC: U.S. Government Printing Oftlce, August 1982); The Social

Security Administration and Information Technology, OTA-CIT-311 (Washingto~ DC: U.S. Government Printing Office, October 1986);

Hospital Information Systems at fhe Veterans’ Administration, O’EJ4-CIT-372 (Washingto~ DC: U.S. Government Printing Office, October

1987).

4 U.S. COWS, ~lce of T5&nology Assessmen~ The Social Secm”ty Administration and/@ormation Technology, op. ciL foomte 3.

its characteristics (see box 4-F). In 1988 an Associa- through three paradigms: theory (rooted in mathetion for Computing Machinery/IEEE Computer matics), abstraction or modeling (rooted in the

Society Task Force on the Core of Computer Science experimental scientific method), and design (rooted

developed its detailed definition of the discipline in engineering).
——.

Government has a particular need, in future generations of software systems for well--engineered, maintainable

software. An additional need is for tools and methods to plan for future software needs and ability to match

technology to those needs in a timely manner. Several government projects aim at bringing government, industry,

and academic research to bear on these projects. For example, a program called Software Technology for Adaptable,

Reliable Systems works with industry to develop new software tools and methods. Part of this multiyear effort was

the establishment of the Software Engineering Institute at Carnegie Mellon University which has done research on

software reuse and other ‘‘software factory’ methods.

Technology Transfer

Software developed by the Federal Government may not be copyrighted. Under section 105 of the Copyright 

Act, copyright protection is not available for any work created by the Federal Government. Section 105 was enacted

to give the public unlimited access to important information, to prevent the government from exercising censorship,

and to prevent the government from using copyright in government works as a shield that would prevent selected

groups from acquiring information.5 In addition, it is argued that the public has paid for the creation of the work

through taxes and should not pay a second time by paying copyright royalties.

Some propose that exceptions to the provisions of section 105 be made for computer programs, arguing that

copyright protection for government software would facilitate its transfer to the private sector.6 According to this

view, private sector firms that might be interested in developing and marketing products based on governmentdeveloped software would be more likely to invest in the ‘ ‘commercialization’ of the government software if they

were assured of an exclusive license.7 Similar considerations have motivated government policy with respect to

patents granted to the Federal Government. Opponents of an exception being made for computer programs argue

that the exception is the ‘‘thin end of the wedge,” which could lead to further exceptions to section 105. In addition,

it has been suggested that the line between programs and information’ or ‘data’ is not always clear, and that granting

exclusive rights to ‘programs’ could have the effect of limiting access to ‘data’ which would be retrieved using the

programs. 

X

Legislation introduced in the 102d Congress would permit limited copyrighting of government software. H.R.

191 and S. 1581 would allow Federal agencies to secure copyright in software prepared by Federal employees in

the context of cooperative research and development agreements (CRADAs) with industry.

5 Ralph ~nuul, Rcgi~ter of cop~ghts, testimony at hearings before the House Subcommittee on sCiencC, ReSeaFCtl and T~~hn~W’! APr

26, 1990, Serial No. 117, p. 100.

6 John M, 01s, Jr., Dkector in tie Resources, Communi(y, and fionomic Development Division, General Accounting offlt~, le\(lftlO1ly

at hearings before the House Subcommittee on Scicncc, Research and Technology, Apr. 26, 1990, Serial No. 117, p. 44.

7 Ibid., p. 41.

8 Steven J, Me~litz, Vice Resident ~d General Cowel, ~ormation Indusq Association, testimony at hearings bCfOrC dlc SeIlitlC

Committee on Commerce, Science and Transportation, Sept. 13, 1991.

SOURCE: OTA and cited sources.
158 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 4-F—The Discipline of Computer Science

In March 1991, the Association for Computing Machinery (ACM) and the IEEE Computer Society (IEEE-CS)

published a joint report on recommendations for undergraduate curricula in computer science. The report,

Computing Curricula 1991, was prepared by the ACM/IEEE-CS Joint Curriculum Task Force and was intended

to present “current thinking on goals and objectives for computing curricula. ” The curriculum recommendations

in the report built upon nine areas comprising the subject matter of the discipline:

1. algorithms and data structures,

2. architecture,

3. artificial intelligence and robotics,

4. database and information retrieval,

5. human-computer communication,

6. numerical and symbolic computation,

7. operating systems,

8. programmingg languages, and

9. software methodology and engineering,

In preparing this report, the task force drew upon the comprehensive definition of the discipline of computer

science presented in 1988 by the ACM/IEEE-CS Task Force on the Core of Computer Science. In its 1988 report,

Computing as a Discipline, the Task Force on the Core of Computer Science noted that it had extended its task to

include computer engineering, as well as computer science because there was not fundamental difference between

the core material for the two fields; the difference between them is that “computer science focuses on analysis and

abstraction; computer engineering on abstraction and design. ” The task force’s definition of the “discipline of

computing” included all of computer science and engineering:

The discipline of computing is the systematic study of algorithmic processes that describe and transform information:

their theory, analysis, design, efficiency, implementation, and application. The fundamental question underlying all

of computing is, “What can be (efficiently) automated?”

Concerning the role of programming languages, the Task Force on the Core of Computer Science had noted

that the notion that “computer science equals programming “ is misleading because many activities (such as

hardware design, validating models, or designing a database application) are not “programming."Therefore, i t

concluded that computer science curricula should not be based on programming.Nonetheless, the task force did

recommend that competence in programming be part of the curricula because:

It is. . clear that access to the distinctions of any domain is given through language, and that most of the distinctions

of computing are embodied in programming notations.

SOURCES: ACM/IEEE-CS Joint curriculum Task Force, Computing Curricula 1991 (New York NY: Association for Computing Machinery.

1991); “A Summary of the ACM/IEEE-CS Joint curriculum Task Force Report,” Communications of the ACM, VO1. 34, No. 6,

June 1991, pp. 69-84; and Peter J. Denning et al., “Computing as a Discipline,’ Communications of the ACM, vol. 32, No. 1, January

1989, pp. 9-23.
Chapter 5

Digital Information

and Copyright
. .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Electronic Publishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Print-Based Electronic Publishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nonprint Electronic Publishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Copyright Issues for Digital Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

What Is a “Work”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Originality and Authorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Use of Digital Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

161

161

162

165

170

171

173

175

Boxes

Box Page

5-A. Storing and Retrieving Dada, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

5-B. Storing Text and Images . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

5-C. Digital information and the Scholarly Publishing System . . . . . . . . . . . . . . . . . . . . . . . 167

5-D. One User’s View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
—

chapter 5

Digital Information and Copyright

Electronic Publishing

There is a growing commercial markct for digital

information. The term ‘‘electronic publishing covers a wide range of processes, products, and services

ranging from traditional books and printed materials

to works that are available only in electronic form.

Digital information and computer technology is

revolutionizing the publishing industry. In addition

to commercial producers, a growing number of

businesses and government agencies are creating,

storing, and using documents in digital form.

–16l–
162 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 5-A—Storing and Retrieving Data

A database management system is a collection of files and a set of computer programs that allow users to

efficiently modify and retrieve the files. Data may be organized in a number of different ways, but the important

point about a database management system is that it allows users an abstract view of the data; that is, most users

need not understand the details of where and how each piece of data is stored and maintained. The software is

designed to offer different users a view of the data that is appropriate to the task that user is performing. Many

programming languages for database management systems use the notion of a record as a basic unit of organization.

In a bank’s database, for example, each customer would be represented by a record, and within each record would

be several fields--name, account number, balance, address, zip code, etc. Even though the information is only stored

once, different employees can retrieve and use it in many different ways; to notify all customers in a certain

neighborhood of the opening of a new branch, to send overdraft notices to appropriate accounts, or to make an

address change to a specific account.

There are a number of approaches to structuring database systems. The relational model represents data and

relationships among data by a collection of tables, each with several columns with unique names such as name,

account number, balance, etc. A number of separate computer programs are associated with the database to allow

users to perform transactions involving the data, e.g., paying interest or deducting withdrawals.

An object-oriented database is based on a collection of objects in which are stored instance variables and

methods. In a bank’s database, an account object would contain instance variables for name, account number,

balance, etc. An important difference between object-oriented and relational databases is that in object-oriented

databases, the software instructions for making use of an object are contained in the object itself. These instructions

are called methods. Methods are bodies of computer code that can act on the object or cause the object to behave

in certain ways under appropriate circumstances. For example, an account object may contain within it a method

called pay-interest which adds interest to the balance. If the interest rate changes, or the bank introduces a new policy

on paying interest, the method called pay-interest can be modified without affecting other parts of the object.

SOURCE: Adapted from Henry F. Korth and Abraham Silberschatz, Database System Concepts (New York, NY: McGraw Hill, Inc., 1991),

pp. 1-21.

Print-Based Electronic Publishing in some cases, computer-driven printing machinery.

3 Newspapers were at the forefront of impleMany books and periodicals are now written,

. . . menting computer-aided publishing,4 but the techedlted, and typeset on computers; they are only niques have rapidly spread to magazine, journal, and

committed to paper in time to be delivered to the end book publishing as well. Fairly low-cost desktop

user. Computer-aided publishing systems offer many publishing systems, using personal computers and

advantages to publishers: information only has to be laser printers, have even brought these abilities to

typed once and then the captured keystrokes can be small businesses, community groups, and schools.

edited, corrected, rearranged, or updated with relative ease. Pages can be laid out and “pasted up” The easier manipulation of digitized information

directly on the computer. Graphics can be inserted, means that many different products can be derived

either by using graphics software to draw them on from basically the same information. For example,

the computer, or by using a scanner to make digital magazines and newspapers can more easily produce

versions of printed photographs or drawings. Then different regional editions of the same issue. While

all the text and graphic information can be converted the bulk of the text may be the same, articles or

to a form usable by computer-based typesetters and advertisements of purely local interest can be

z Electronic publishing does not have a single definition. Some people insist that “print-based’ electronic publishing does not exist, and that only

processes that deliver information in electronic form directly to the end user should be called electronic publishing. More ofteu however, use of compuler

technology and digital information in early stages of creation of printed materials is considered to fall under the electronic publishing rubric. For a

discussion, see Michael R. Gabriel, A Guide to the Litera@re of Electronic Publishing (Greenwich, CT: JAI Press, Inc., 1989), pp. 1-14, and Oklrich

Standera, The Electronic Era of Publi~hing (New York, NY: Elsevier, 1987), pp. 6-10.

3 Ol&lch Stmdera, The E\ec~onlc Era of publishing.. An o~,e~,iew of Concepls, Technologies and Methods (New York, NY: Elsevier SClenCe

Publishing, 1987), p. 157.

4 Ibid., p. 110.
.

Chapter 5-Digital Information and Copyright ● 163

Box 5-B—Storing Text and Images

Text storage and retrieval: Text retrieval system, text base management system, or text data management

system are terms for computer-based storage and retrieval systems that store documents in machine-readable,

character-coded form so that they can be retrieved by a user or processed by a computer.1 Text databases differ from

other kinds of databases described in box 5-A mainly in that the fields are very large-often the size of a whole

article or book. Text databases also differ from word processing systems, which also store text in character-coded

form, in that text retrieval systems have much more powerful capabilities for creating indexes to significant words

in the text and giving rapid access to text segments that contain the specified character strings. The software of text

retrieval systems typically allows a user to search the entire text database (or text base) for all occurrences of a

specific word or a phrase. More complex searches may be constructed using Boolean logic operators (e.g., using

the terms AND, OR, and NOT to restrict or broaden a search), wild cards (e.g., searching for “creat**” to locate

all instances of “creator”, “creative”, ‘‘creativity”, etc.), proximity matching (searching for ‘‘nerve” only if it

appears within 20 words of the word “brain’ ‘), and other search tools.

Providers of on-line information developed proprietary text retrieval software for use on their own mainframe

computers beginning in the mid-1960s and 1970s, with the earliest implementations limited to relatively brief

documents like bibliographic citations and abstracts. Today text systems exist to handle documents of virtually any

length, and software is commercially available to run on hardware of many kinds, including personal computers.

Text retrieval systems are coming into use by corporations and government agencies to manage internal libraries

of letters, reports, legal briefs, and other documents. Text retrieval software is also used in scholarly work to analyze

electronic versions of books and other documents. Some systems allow users to create notes and annotations that

can be electronically linked to specific areas of the text.

Documents may be put into the text base through direct keyboard entry, by transferring text files from other

computers and word processors, or by converting printed documents to digital form through optical character

recognition (OCR). Of these three input methods, transferring files is the easiest—most text retrieval systems are

designed to ‘ ‘import’ digital text from any source. For documents that exist only on paper, scanning with OCR can

often turn out to be less expensive than keyboarding, but it is not yet a problem-free method of converting printed

text to digital text. Changes in type style or blemishes on the paper can cause scanning mistakes that must be found

and corrected by keyboard. Despite advances in sc arming technology in recent years, the conversion problem

prevents many organizations from replacing paper archives with digital text bases.

Although online document storage saves space compared to storage of paper letters, legal documents, books,

or reports, it still requires disc space. Data compression algorithms and more sophisticated indexing algorithms are

aiding in reducing these storage requirements. Some compression techniques can reduce data storage space

requirements by as much as 75 Percent.* Improved indexing algorithms allow both for faster searches and reduced

storage needs for the index database (a complete index of all occurrences of all words in a document can be nearly

as long as the document itself unless space-efficient methods are used).3 Text bases can be stored on both magnetic

and optical discs.

Image storage and retrieval: Image storage captures a document’s appearance, rather than its content. An

electronic document imaging system uses a scanner to convert documents to a form that can be stored digitally. The

most widely used scanners divide the document into many tiny areas called pixels (picture elements), measure the

light reflected from each pixel, and send a corresponding electrical signal to image processing circuitry which

converts the signal to a stream of digital code.4 The scanners are fairly reliable and simple to operate compared to

OCR. This easier input task is an advantage, as is the ability to copy the exact appearance of a page of text, including

any associated photos or graphics. A disadvantage is that text stored in image form usually can not be directly

manipulated, analyzed, or searched by text retrieval software; each image must be properly categorized and linked

with index terms when it is entered into the system. Images also require a great deal of disc storage space even after

1 wit~m Saffady, Te~ Storage ~~ Ret~e~al sy~te~: A Technology s~~ey and Product Directory (Westpofi CT: Meclcler COrp.,

1989), p. 3.

2 Ibid., p. 25.

3 SW, e.g., Dennis Alle% “’Ibxt Retrieval Witb a Twist,” Byte, July 1989, pp. 201-204.

4 For more ~o-tion on ~ge storage, see Wilfim Saffady, perso~l Computer system for Automated Document Storage and

Retrieval (Silver Spring, MD: Association for Information and Image Management, 1989), pp. 19-27.

Continued on next page
164 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change —

Box 5-B—Storing Text and Images-Continued

processing by compression algorithms. High-capacity optical discs are often the storage medium of choice for image

databases. Not only pictures of documents but also drawings, photographs, and images produced by some medical

diagnostic equipment can be stored in this way. Images are retrieved by searching the index database in many of

the same ways mentioned above (words, phrases, Boolean search strategies, etc.). Retrieved images may be viewed

on a high-resolution screen or printed out on a laser printer or other appropriate printer.

Storing and exchanging compound documents: There are many different types of documents and different

formats for storing data. Documents produced by one word processing software package, for example, may not be

readable by another because they use different conventions for indicating format changes (type styles, paragraph

indents, boldface, etc.). Format becomes increasingly important for documents produced by sophisticated

publishing software or by multimedia systems—these documents may include extensive format information about

type fonts, photos, graphics and other non-text information. If a document is stripped of this format information and

reduced to its simplest terms (e.g., when a text document is converted to a file of ASCII5 characters) it may be read

by a wide variety of software packages, but so much formatting information maybe lost that the document is useless

for certain purposes. Even if it is still readable, a document so treated may no longer be revisable, that is, it cannot

be edited or updated.

There are a growing number of situations in which fully formatted, revisable digital documents need to be

exchanged by organizations that use different software. Much architectural and mechanical design work, for

example, is done on computers. Exchanging and storing drawings, specifications, manuals, and other documents

in electronic form rather than on paper can reduce storage and maintenance costs. (For example the B-1 Bomber

reportedly has over 1 million pages of documentation, 200,000 pages of which must be updated yearly. The

Department of Defense, through its Computer-Aided Acquisition and Logistics Support strategy—CALS--is in the

process of requiring that all information submitted by contractors developing weapons systems be submitted

electronically. 6

)

Interchange of complex documents, independent of particular software or hardware environments requires

another level of standardization-standard ways to describe how data was handled by the originating software so

that the receiving software can handle it in an appropriate and compatible manner. An approach to this problem is

use of a‘ ‘document description language’ or ‘metalanguage’; the ‘‘tags’ or ‘‘labels’ generated by the document

description language are included in the document, A person reading the text mayor may not see these tags; their

purpose is to describe the document to the receiving software. Several such languages have been developed and are

competing in the marketplace; no clear standard has yet emerged. Use of document description tags within the

document greatly increases the size of the document and thus the storage space requirement on disc or other storage

medium,

s As~ Smds for ~eric~ Standard Code for Information Interchange. It is the standard 7-bit code for Wa.Osfetig infOMIatiOn On IOCd

and long distance telecommunications lines.

6 Brooke Stoddmd, “Sh~ding the Burden: The Federal Governrnent Spent $130 Million on Electronic Image fiOCeSStig hst Yem, ”

Government Computer News, Apr. 29, 1991, p. S4.

inserted in the different editions. The completed can make several different versions of a standard text

electronic text can be sent via telephone lines to for different universities. Authors and publishers

several printing and distribution facilities throughout the country, thus reducing mailing costs and

speeding delivery to subscribers.

In the book publishing arena, materials can be

customized ‘ ‘on demand. For example, publishers

can respond to requests from college professors to

create textbooks that only include those chapters that

are actually to be used in their courses. By selecting

text chapters from an electronic database, publishers

also find it easier to keep books up to date or to add

new chapters if the books are stored electronically

until it is necessary to print them.

Once information has been placed in digital form

for publishing, it is also possible to use it for other

purposes. Some newspaper and magazine publishers

also sell electronic versions of their publications in

some of the forms discussed below.
much the database is used. Having access to many

databases through one service is an advantage to

users, allowing them to search more economically.

For examplc, the largest service, DIALOG Information Retrieval Service, offers over 400 databases in

four categories numeric data, directories bib] bibliographic records. and full-text records. Examples of

numeric databases include, for examplc. stock and

bond price quotations as well as many kinds of

statistical and financial information, some based on

government statistics. Directory databases include

many standard reference works and handbooks,

many of which are also published in hard copy.

Bibliographic databases have citations to journal,

magazine, or newspaper articles and sometimes also

include abstracts of the articlcs cited. Full-text

databases contain electronic versions of magazine,

journal, and newsletter articles; they may be collections of articles from many sources, or actual

electronic editions of fu11 journall or magazine,

While many elcectrnically published journals are

digital versions of the ‘paper” journal, electronic

publishing is gradually growing and changing the

way informal ion is exchanged among research

communities. Ten refereed electronic journals are

now available on the Intcrnet,8 a collection of

research and information networks t h r

o

ugh which

many universities. businesses. and government agencics share services 1ike electronic mail, file exchange, and access to distant computers,9 Within the

Internet community, and on other computer networks, them is a growing camp of researchers who

view electronic publishing as an ongoing interactive

process. Some experimental journals on the lnternet

use publication of text as a tool to e1icit comment

from other researchers.) One on-line project on the

Genome Project at the Welch Library at J O h nS

Hopkin s University mounts text related to th e

Genome Project on an on-line database. Geneticicists

students, and critics from around the country can

———
166 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

licensing requirements or equipment limitations

often mean that only one person at a time can use a

particular disc. Licenses are becoming available that

allow multiple users to access CD-ROMs on local

area networks; while a few vendors do not charge

extra for network licenses, in most cases these are

much more expensive than single user licenses.

CD-ROMs will become increasingly popular as

more titles are offered and as the price of players and

discs fall. Recent developments that simplify creation of CD masters (from which individual discs are

stamped) will probably make this format more

accessible to small publishers.12

Photo credit: U.S. Library of Congress, American Memory Project

Multimedia databases Can give users access to

information in several forms-e. g., text, graphics,

motion pictures, or sound recordings.

access the text and respond to the authors via

electronic mail. The output in this case is an on-line

textbook which changes constantly to reflect advances in the field.l” (See box 5-C for a discussion

of how electronic publishing may change scholarly

publishing.)

CD-ROM

Another increasingly popular way of marketing

digital information is through publication of CDROMS. CD-ROM (compact disc, read-only memory) is an optical storage medium. CD-ROMs are

essentially the same as the compact discs now used

for musical recordings, although the data are stored

in a different format and require a different player.1 1

Many of the databases available through on-line

services are also available on CD-ROM. CD-ROMs

are often made available to library patrons. Some of

the databases on CD-ROM offer more ‘‘hiendly”

user interfaces than do on-line services and inexperienced or occasional users can search at their own

pace without accruing huge bills for ‘connect time’

and telephone usage. However, the user might have

to worry about holding up another user, since

Using Digital Information

Using digital information has both disadvantages

and advantages compared to books or magazines.

Information displayed on a computer screen is often

not as comfortable or convenient to read as the

printed counterpart. Certainly the computers most

people use today cannot be conveniently used at a

bus stop or on the beach, and research shows that

people read 20 to 30 percent more slowly from

screen than they do from a printed page.1

3 Perhaps

more important, the traditional search and retrieval

aids we use with books (page numbers, indexes,

tables of contents, visual memories of how something looked on the page) are not used in the same

way with digital information.

But information in digital form has powerful

advantages over printed documents. For example,

retrieval software can search through and sort

information to help a user find the specific information he/she wants, rather than reading through a

whole book or using a (usually inadequate) printed

table of contents. With a few keystrokes, a user can

use an electronic index, receive a report on how

many times a requested term appears in the text, and

then actually look at each instance in context. This

feature alone may not always be sufficiently helpful

if it turns out that there are many instances (hundreds

or even thousands) in which the desired term

1° Ibid.

11 For a discussion of different optical storage formats, see U.S. Congress, Office of lkchnology Assessment copyright and Home CoPYing:

Technology Cha//enges the Luw, OTA-CIT-422 (Washington, DC: U.S. Government Printing Office, October 1989), pp. 45-48.

12 Tom McCusker, “CD-ROM Production Power!” Datamation, vol. 37, No. 4, Feb. 15, 1991, pp. 26-29.

13 For ~ discussion of tie problem of ~wap~c design for computer scr~ns, s~ Rictid Rubenste@ Digital ~pography: An Imroducn’on tO ~pe

and Composin”on for Computer System Design (Reading, MA: Addison-Wesley Publishing Co., 1988), pp. 189-193. For research on human factors of

reading from screens, see also John D. Gould, ‘‘Reading Is Slower From CRT Displays Than Paper: Attempts To Isolate a Single-Mriable Explanation, ’

Human Factors, vol. 29, No. 3, 1987, pp. 269-299.
Chapter 5-Digital Information and Copyright ● 167

Box 5-C—Digital Information and the Scholarly Publishing System

This view of the effects of electronic publishing on the current system of scholarly publication was taken from

an OTA contractor report:

In the scholarly world today, the printed version of knowledge has the function of creating an archive of

knowledge more than it serves the function of the exchange of knowledge. This is more true in scientific and

technical fields that have access to networks and computers than to the humanities that do not. Scholarly exchange

on the network occurs through ‘‘affiity group computing, ” such as the 2,000 Listserv protocols on Bitnet. This

kind of exchange is a very good example of gift giving, since it creates a scholarly community (remembering that

the function of a gift is to create a social bond, not a profit).

The exchange of knowledge as a gift exchange system among scholars creates “the invisible college” of

researchers. The strength of this culture is that it is governed by a search for truth; the weakness is that access to

it is restricted. The invisible college traditionally occurred through ‘‘old boy networks’ meeting in face-to-face

interactions, such as conventions. But today, the use of digital networks has expanded it greatly.

(It must be stated that this “gift culture” is possible because the rewards of scholarly research are not given

by a market, but nonetheless they exist in the economic rewards of promotion and tenure. However, this is deliberate.

The system of scholarly communication was setup through a deliberate system of subsidies, such as the creation

of university presses and the higher rates that libraries paid to subscribe to journals. This system of scholarly

communication has been destroyed as book and journal publishing moved out of universities and became

profitmaking enterprises in the marketplace. Today no research library can afford to pay for the full range of

scholarly journals; the price of scholarly journals is rising twice as fast as any other research cost. The destruction

of the print-based system of scholarly communication is an excellent case study of what happens when the fine

balance between a gift exchange system and a commercial market exchange system is destroyed. However, this very

destruction may be driving the development of digital-based scholarly communication. See below.)

The invisible college of research activities today exists on the network. Since nearly every scientific and

technical field is growing and changing much faster than the print publication process can reflect, the real exchange

of knowledge occurs long before the publication process. Most scientists must actively seek “preprints” in order

to find out the current state of research in their field; the actual publication in printed form only validates the

contribution for historical reasons and creates an archive. The most interesting experiments in digital publication

reflect this; for example, the Online Mendelian Inheritance in Man (OMIM) and Genome Data Bank (GDB) projects

at Johns Hopkins University, in which current research findings are peer-reviewed online in databases, are available

electronically throughout the world. In essence these projects have done away with the print publication process

altogether. Similarly, there are now about a dozen online peer-reviewed scholarly journals which essentially do

away with the print publication process.

This evolution has several causes. One is the rapid increase in the cost of scholarly print publications,

remembering that scholarly communication was conceived of as a gift exchange process that has been distorted by

the marketplace. But another is that digital media have some of the qualities of an oral culture, and oral cultures have

traditionally been more effective in providing natural homes for gift activities.

The example of scholarly journals shows that if the marketplace is allowed to define knowledge solely as a

commodity, the system of dissemination of ideas and subsequent intellectual innovation can break down. This is

happening now, as libraries cancel journal subscriptions, and are not allowed to share subscriptions because of the

limitations of print copyright. Exchange systems governing intellectual products on the network must be devised

that encourage use by “the invisible college. ”

SOURCE: Steven W. Gilbert and Frank W. Connolly, ‘‘A Wealth of Notions: Regaining Balance as New Information Technologies Collide With

Traditional Controls and Incentives for Intellectual Work” contractor report prepared for Office of Technology Assessment, July

31, 1991.

appears. Users of databases usually find that a major Retrieval and text analysis software are becoming

problem with digital retrieval is ‘getting too much increasingly sophisticated. Still, getting the precise

information. Most on-line database retrieval systems information one wants without reading through lots

allow the use of several strategies to narrow the of irrelevancies, or worse yet, missing something

search to retrieve a reasonable amount of informa- important, can sometimes be a daunting challenge;

tion. (See box 5-B. ) the challenge can be even greater if one doesn’t
know which of several databases offered by different

publishers has the information. In today’s market,

different publishers have different user interfaces

and search protocols. Learning to use them all can be

time consuming and expensive. A class of software

tools called ‘ ‘agents’ or ‘‘ filters are coming on the

market. These can collect information from multiple

sources, including electronic mail, on-line news

services, and internal corporate databases, and sort

it according to the user’s priorities and interests.14

Some database providers are offering more sophisticatcd software tools that w will allow users specify

a search and then have it automatically performed on

a number of different databases offered by that

provider. In some cases these new tools controvcrsial because~ owners of the databases disagree

about how royalties should be calculated when such

software is used. 15 As use of digital information

grows, people are going to need even more sophisticatcd search tools. One group envisions ‘‘knowbot

programs’ that will act as personal librarians in the

future. These artificial intelligence tools would

accept the users requests for information, search

many different sources, and then ret urn the results in

a form (hat would be most useful to the reader. 16

One great advantage of digital information is that

it does not have to appear to the user in the same

order in which it was written by the author, nor

indeed does it need to appear to different users in the

same way if they have different needs. ’ 7 The ability

of computer software to link different pieces of

information also allows information to be presented

in innovative formats, ‘ ‘Hypertext and “hypermedia’ are generic terms for systems that link related

pieces of information for presentation in a nonsequential manner. Hyperlinks give the reader the

power of ‘‘subjective linearity."18 When the material is read, the reader chooses the particular items

to be presented, and the order of presentation,

depending on his or her needs or level of interest.

Dictionaries and encyclopedias, with their many

discrete entries and heav y dependence cm crossreferencing are obvious candidates for hypertext, and

some have been published in this format. With a

hypertext encyclopedia, the user may begin reading

an entry on ‘‘elephants and upon seeing the

mention of ‘‘ivory may ‘ ‘click on’ (select) that

topic. The hypertext software will then usually open

a window with a brief discussion of the term; by

clicking again, the user may then choose to get more

details on the new topic or go back to the original

topic. In this way, the user can search through many

related topics without toting half a dozen volumes

from shelf to table, and without trying to mark a

place in several books at once. Electronic bookmarks and other aids help the reader navigate

through the information.

Hypertext is useful for on-line help systems for

computer users. Hypertext provides the ability for a

user to go directly from an error message to the

relevant section of the on-line user’s manual or even

to a tutorial program giving computer-aided instruction on how to avoid the problem in the future.

CASE (Computer-Aided Software Engineering) systems have been created in hypertext, allowing

soft ware developers to link and navigate through the

various versions of the reports, documents, and code

objects developed during a major software development project. 19 In the commercial world, prototype

hypertext systems have been developed for financial

auditing, a field that is heavily dependent o n

crossindexing and relating information from different sources. Hypertext also lends itself to advertising, product catalogs, and tourist guides.

Hypertext is also used for educational and scholarly work. For example, Harvard’s Perseus project

brings together information from ancient Greek

14 David S. Marshak, ‘‘Fi]tcrs: Sepiuating (hc Wheat From the Chaff, ’ Patricia SevboM’.~ Ofice Compu[ing f?epm, \’01. 1 ~, No. 11, November 1990,

pp. 1-15.

.

IS For example, sce Mick O’hary, ‘ ‘Dialog and the American Chem]cal Society Play a High Stakes Game, Onllnc, January 1991, pp. 15-20.

16 Ro~fi E, K~ ~d Vhton G, ~crf, The D1qitu/ Llbrun. project, }’o/ume ], The ~~jrl~ (>f Kn~ub~t.T (Mc Lean, VA: Corporation for ~iillolld

Rese,arch [nitiativcs, 1988), p. 60. ‘‘Knowbot” is a registered ~ridcmark of CNRI,

17A few ~ol,cllst~, e,g,, Juno Cofia:U ~ ~opSco~ch (New York, NY: Macmill~, 1972), ~ve experimented witil gi~,ing readers alternative sequences

in which to read chapters in printed books. Nonfiction writers often give prefatory warnings, such as those cautioning lay readers to review explanatory

appendices before starting difficult text, In general, however, it is difficult to overcome the linear mwre of printed information.

18 Rick Gcssner, “Building a Hypertext Systcm: Hypertext for Every Pmgrammcr’s Toolbox, ” Dr Dobb’s .Journal, vol. 15, No. 6, June 1990,

p. 22.

19 Ibid., pp. 4445.
Digitized video and audio require a lot of storage

spacc compared with text. Optical media such as

CD-ROM are good storage media for such types of

information, but even here there are limits. The

capacity of one CD-ROM easily accommodates a

26-volume encyclopedia and leaves room for the

.

text retrieval software, 15,000 illustrations. 45

animation sequences, and one hour of audio.23A C

can normally hold about 540 megabytes or 275,000

pages of text, 2 4

but only about 74 minutes of

high-fidelity digital audio and far less of full-motion

digitail video .25 Several digital compression methods

can be used to reduce the space required for digital

audio or video by 2 to 10 times, though most of these

methods are ‘ ‘ lossy, ’ ‘ that is, the playback version is

not of the same quality as the original because some

information is lost.26

Digital Libraries

If digital technology is changing publishing it is

also changing libraries. Libraries have been experimenting with and investing in computer technology

for 25 years. Patrons at many libraries across the

country have been either thrilled or dismayed to find

that computer terminals have replaced the card

catalog. High school students no longer thumb

through musty index volumes at the public library in

J) Ibid, p 68.

2[ [;ary I i, Anlhcs, ‘‘Llt)riU} Rclcascs Data via L:mr Disc, ’ C{))t/~~[/rer}\I~~r/C/, Sept. 10, 1990, p. 53, Also Carl FIcishaur, Director, American Mcmory

F>ro]cc[. [~. S Llbra~ of Congress, personal communic:ition, January 1991.

‘~ RotM’rt }I:uiwln(i, ‘‘ Ilypcrtcxt ” The Smart Tool for Information C)vcrload,’ Te(hr/olo#-y Rekicn’, November-Dcccmber 1990, p. 47.

z { JiAob Nic[\on, }ijr?cr[e~[ utid H}pernl~’,iiu {Boston, MA: Acadcrnic Press, Inc , 199(1), p, 53

‘~ David C. Mlllcr, f’l{bl[~tler.r, L/br~jrie.\ & t7D-ROA~ lmpl[(a[ion.r of Di,qiful Opricul fri)~tin,< (Portland, (3R: Librar} and Information Rcsourccs

for (IIC Northwest, 19X7), p, 7,

15 For a dlscussiorr of compact disc, C1)-RON1, and other optical formats, scc (-1. S. Congress, Office of Tcctmolo~ Asscssmcnl, Copjr[ghfand Home

[’{~p}iuy, op. cit., footnote 11, pp. 44-48 and Nrelscn, op. cit., footnote 23, pp. 123-126.

~b Edward ,j, Fox, ‘ ‘ACM Press D~tilbir.sc and Electronic Products--New Scrviccs for the Information Agc, Con~r~rl(nicarior~.~” (~[hc ACM, vol. 31,

N{). 8, p, !)~8.
170 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

search of magazine articles; they search CD-ROM

databases.

For most libraries, the first step was to use

computers to streamline acquisitions, circulation,

and other administrative operations. An early development was the Library of Congress’s MARC

(Machine Readable Cataloging) system, begun in

1966. The MARC system provides standards for

encoding bibliographic information in machine readable form; many libraries use it to create their own

machine readable records as a basis for on-line

catalogs. By the early 1980s, many research libraries

had some on-line cataloging capability; in same

cases it was available for patron use. Cooperative

agreements among libraries have led to major

bibliographic databases such as OCLC (On-line

Computer Library Center) and RLIN (Research

Libraries Information Network) which receive contributions from, and process inquiries for, thousands

of libraries.

On-line catalogs are a great aid to library users,

allowing them to search large collections, or multiple collections, for the resources they need. For

example, a user can now search the catalog of the

entire University of California system at any time,

from home or office. Ten years ago, the task would

have required visits to over 1100 card catalogs on nine

different campuses across the State. In addition, the

cross-referencing possible with an on-line catalog is

far superior to what was possible with cards. For

example, a user can easily identify all holdings of the

library published in a given foreign language during

a given time period—a search which would be

impossible with a card catalog. 27 Some university

and research libraries have also begun providing

users with on-line access to journal literature, either

citations or full-text form, by obtaining licenses to

some of the commercial databases or on-line services discussed above. (See box 5-D.) The next step

for some research libraries in the forefront of

automation is the automated delivery of library

materials that have been identified through a search

of the on-line catalog; materials might be delivered

either in either in hard copy or in electronic form. An

experimental project at Carnegie Mellon University

will provide links from catalog citations to either

full-text records or digitized images of printed pages

available on-line .28 The same project is also attempting to make extensive digital resources such as

databases and electronically published journals available at any terminal on campus. Part of this project

is the enhancement of the university’s electronic

catalogs to give more useful search information.

Examples of enhancements include listing of chapter titles, separate listing of authors of stories, essays,

or chapters in books, and abstracts of technical

papers.

What will be the digital library of the future?

Though many of the building blocks are in place,

many say that its potential has not been realized,

primarily because so much of the world’s knowledge

is still not in digital form and will not be for some

time to come.

Copyright Issues

for Digital Information

The previous sections pointed up some major

differences between digital information and information in more traditional forms. These differences

have been summarized as a list of six characteristics

of digital information29:

1.

2.

3.

4.

5.

6.

Works are easily copied.

They can be easily transmitted to other users or

be accessed by multiple users

They can be easily manipulated and modified

Works are essentially equivalent: text, video,

or music are all reduced to a series of bits and

stored in the same medium.

Works are inaccessible to the user without

hardware and software tools for retrieval,

decoding, and navigation.

Software also allows for new kinds of search

and linking activities that can produce works

that can be experienced in new ways.

These characteristics of works in digital form

have implications for copyright because they change

how authors create, the kinds of works they can

27 Cliffor(i A. Lynch, “Library Autxnation and the National Research Network, ’ EDUCOM Revien’, fall 1989, pp. 21-27.

28 Denise A. Troll, Library Injirmation System II: Progress Report and Technical Plan, Mercury Technical Report Series, No. 3 (Pittsburgh, PA:

Carnegie Mellon University, 1990), pp. 5-16.

~y Adapted f’rem: Pamela Samuelson, ‘‘Digital Mafia and the Changing Face of Intellectual Property Law, ‘‘ Rutgers Computer& Techr~olog) .Journal,

vol. 16, No. 2, 1990, pp. 323-340 and from discussion at the OTA workshop on “Digilal Libraries, Electronic Publishing, and Intellectual Property, ”

Feb. 11, 1991, Washington, DC, A similar set of issues was also dcvclopcd in C~~p}r-ight IJrd Home cop}’ing, op. cil., footnolc 1 I, especially ch. 2.
.

Chapter S--Digital Information and Copyright ● 171

Box 5-D-One User’s View

The availability of digital information offers many new opportunities for people of all kinds, but it also gives

rise to some uncertainties and confusions, as discussed in this first-hand account taken from an OTA contractor

report:

When I was in high school and college, I took handwritten notes of the library material I would use for research

papers. Often the teacher would put material on reserve and I would trudge over to the library and laboriously copy

stuff out by hand. By the end of college in the late 1960s, copy machines were installed in college libraries, but the

copy quality was not particularly good and the price was pretty high, at least compared to handwritten note taking.

A few years later, in graduate school, copy machines were common in college libraries, copy quality was pretty

good, and the price of a copy was coming down. Colleges had even put in copy service centers in the library so I

didn’t have to stand at the copy machine; I could take my stuff to a central location and someone else would copy

it for me. Still, as in high school and undergraduate days, I did my research manually using print indexes. But with

the cheaper price of making copies and the better quality, my professors began to compile packets of material which

lessened the number of trips to the Reserve Room.

When I began my doctorate, on-line search services were available but expensive for a graduate student without

a research grant, so again, most of my research was done manually, using print indexes. In contrast to my

undergraduate days, I did little manual note taking, using the copy machine instead. Most of my doctoral research

was done on ERIC (Educational Resources Information Center—a bibliographic database), which I poured through

volume by volume, year by year, About a month before I finished my research, my library installed ERIC on

CD-ROM—too late to be of much use to me. Now, however, I’m not even sure where the paper copy of ERIC is

in my university library. Should I so choose, I can download from CD-ROM ERIC and use the information in my

home or office computer. In addition, I can access the university/consortium catalog of holdings from my home or

office computer. No longer am I bound to the physical location of the library as I was as an undergraduate. Nor am

I bound to paper. Should I want to compile a bibliography from ERIC, I can simply reformat the information I’ve

downloaded to a format acceptable for whatever purpose I’m using it for.

To me, at this point, that ‘stuff’ that I’ve gotten from ERIC is similar to music coming over the radio or a

television program. Either the music or the television program I can tape-it’s coming into my home; I have the

technology to tape it and so I do. And that’s legal (I think). But what if I use that tape in my classroom? Is that legal?

What if I simply reformat the information from the ERIC CD-ROM I’ve downloaded, and distribute that

information to my students? Is that legal? Do I even stop to wonder whether it’s legal? Suppose I’m working on

a video disc presentation using Hypercard. I have these television programs I’ve taped, radio music I’ve taped, the

bibliography I’ve downloaded, and the technology to put it all together into a video disk that will be used only by

my students to help them learn better. Do I stop to wonder whether it’s legal? Probably not, I have the tools

(technical) to do the job and the information and material to put into the tools, so I probably just go ahead and make

the video disc without too much concern about legality. I want to use the most effective tools and resources available

as quickly as I can to help my students learn—and I could be frustrated waiting for every legal clarification and

permission-if I could even find the sources.

SOURCE: Essay by Judy Ann Pearce in Steven W. Gilbert and Frank W. Connolly, “A Wealth of Notions: Regaining Balance as New

Information Technologies Collide With Traditional Controls and Incentives for Intellectual Work”, contractor report prepared for

Office of Technology Assessment, July 31, 1991.

create, and the ways that readers (or users) read (or Thus, when an author writes a novel on a computer

use) the works. or word processor, it is clear that a printout is fixed

and tangible and protected by copyright. It is also

What Is a “Work”? fairly clear that the words on the cathode-ray tube are

As mentioned in chapter 2, copyright protection evanescent and therefore unprotectable.30

attaches to an ‘‘original work of authorship’ when A new kind of work that is increasingly being

it is ‘ ‘fixed in any tangible medium of expression, produced today is the electronic mail message,

-m st~ey hf. Besen and hO J. Raskind, ‘‘ An Introduction to the Law and Economics of Intellectual Property, ’ The Journal ofEconomic Perspectives,

winter 1991, vol. 5, No. 1, Case law has held that the fixation requirement for computer programs is met when the source code is written on paper or

when the object code or microcode is fixed in a computer chip.

J ,,( J //1, [) l“ IL
172 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

which usually exists only in digital form (fixed in the

magnetic disc of the computers where it is sent or

received) unless it is printed out. Users of electronic

mail on nationwide systems like Internet, Bitnet or

CompuServe send millions of messages a year. In

addition, many agencies, corporations, and universities have internal electronic mail systems. Some

types of electronic mail communication are intended

by their senders to be private, others are public.

However, there are currently no well-established

rules of etiquette for electronic mail nor is there a

clear distinction between public and private communications. Most messages are of an ephemeral nature

and their writers may or may not care whether their

rights under copyright are protected. Other users of

electronic mail use this medium to contact and

collaborate with colleagues, to express ideas, to

exchange drafts of work in progress. In these cases,

people would be interested in retaining the rights to

their writings.

Technology allows a person to forward an electronic message received from someone else very

easily to any number of other people, Is this kind of

distribution the same as ‘‘publishing’ (a right which

the copyright law gives exclusively to the author)?

A message can also be modified before forwarding;

does this create a derivative work (for which

permission from the author should be gained)? Most

people would probably agree that mail messages

belong to the writer and that publishing them

without attribution or modifying them without

permission is a breach of manners, at best. However,

whether it is an infringement of copyright has not yet

been tested.

A further complication in the definition of a work

arises because computers make collaboration and

multiple authorship so easy. Many electronic mail

messages are generated as a part of computer

‘‘conferences. Conferencing is a method whereby

people can communicate about topics of mutual

interest, even though they are geographically separated. Conferencing software on the host computer

records and organizes incoming messages so that

each participant can read what has been written by

others and then add his or her own responses.

Conferences can be of short duration (a day or two)

or they can go on for years; they can be limited to a

few authorized members or open to anyone with

access to the host computer.

Are the “proceedings” of a computer conference

one joint or collective work, or many separate

works? If it is a collective work with may contributors, the individual contributors can claim authorship in their respective contributions, but who can

claim authorship in the collection as a whole? If it is

not a joint work, does each individual message

constitute a separate work, or do all the contributions

of one author constitute a work? The question of

what constitutes the work, and the identity of the

author or authors, will determine the right of various

contributors. For example, if the conference is a joint

work, each contributor would have the right to

publish the whole conference (subject to accounting

to the other joint authors for their pro-rata shares of

any royalty). Each joint author would have the right

to sue for infringement of any portion of the

conference. On the other hand, if the conference is

composed of separate works of authorship, each

individual author could exercise exclusive rights

only over his or her own portion.31

In addition, the question of the size of a work

might be important in determining if infringement

has taken place and if a “fair use” defense against

infringement is appropriate. Fair use is determined

by four criteria (discussed in chapter 2), one of which

is the amount and substantiality of material used

with respect to the whole. If a computer conference

is one work, then using a single message in toto is a

small part of the whole; if each message is a work in

itself, then copying a single message would be

appropriation of the entire work and the fair use

defense would be on shakier ground.

Mixed-Media Works

The fact that digital storage makes all works

essentially equivalent complicates the definition of

a digital work. Current copyright law treats works

according to the category to which the work belongs.

Categories defined by the law include: literary

works; dramatic works; pictorial, graphic, and sculptural works; audiovisual works; motion pictures;

musical compositions; computer programs; and

sound recordings. These different categories sometimes have different implications for protection of

the work. There is no category for a mixed-media

work that combines examples from each of these

categories.

31 Mofion David Goldberg, p~er, Schwab Goldberg Price & D,armay, perSOnal communication, OCt. 3, 1991.
Chapter S--Digital Information and Copyright ● 173

One school of thought holds that a mixed-media

work should be considered to be a series of different

works, with each type of work being treated according to its class. Another approach would be to

consider the whole package as if all the parts were of

the same category.32

Converting Works to Digital Form

Developers of mixed-media products encounter

copyright questions not only in protecting their

works, but in trying to create them. Getting permission to put copyrighted works into digital databases

has sometimes been so difficult as to prevent

projects from getting underway. Because the medium is new, most people have never dealt with it

before and the channels for copyright clearance and

agreed upon rates for royalties have not yet been

worked out. And because many mixed-media projects are large collective works, many different rights

owners often need to be satisfied.

In the field of music, songwriters and music

publishers collect royalties through ASCAP (American Society of Composers, Authors and Publishers)

and BMI (Broadcast Music International), who grant

licenses for public performances of music, and

through the Harry Fox Agency, which grants mechanical licenses for incorporating music into re33 The fee structures of these cordings or movies .

organizations are geared to traditional uses of music,

and permission to use music typically costs a few

percent of the expected sale price of a published disc.

The price structure is reasonable for traditional

recordings that use a small number of complete

songs on each disc, but prohibitive, for example, for

a multimedia library intending to use small parts of

hundreds of songs. Until new structures are developed, mixed-media producers are generally limited

to works in the public domain, or works composed

especially for use in multimedia presentations.

Several companies are developing libraries of such

works. 34

Another layer of complication arises if multiple

licenses are needed for each work, for example, if

multimedia presentations are deemed to be public

performances of the copyrighted works they include.

It is fairly common in the music industry for

performance rights to reside with one entity, while

reproduction and derivative use rights rest with

another. If one user sits before a computer terminal

and hears part of a copyrighted song in the presentation, has a public performance occurred? One

royalties-collection agency has taken the position

that each use of computer-based presentation is a

public performance.35 The definition of public

performance is not clear in the case of computerbased works.

Similar, or worse, difficulties exist in other areas,

particularly in areas like images and writings where

there are no collective organizations like ASCAP,

and negotiations must be made with many individuals. A project to copy baseball cards on CD-ROM

was scrapped when it was realized that the publishing company did not have, and could not grant to a

licensee, the rights to make digital versions of its

own printed cards. The rights would have to be

obtained through separate negotiations with more

than 500 individual players or their lawyers, but the

royalty that could reasonably be expected from sales

of the CD-ROM product would be far too small to

justify such an undertaking.36

Getting permission to convert whole works, such

as books, into digital form is generally easier. A

number of books have been converted to digital form

(some packaged with text analysis software to

facilitate scholarly research). Many of these are in

the public domain, but for those that are copyrighted,

a typical contract follows the model of a contract

granting translation rights.37

Originality and Authorship

Copyright attaches to ‘ ‘original works of authorship. . . ."38 Original, in this case, means that the

work was independently created by the author and

32 Amcrjc. .,+ Ssoclatjon of Law Libr~cs,

. ‘ ‘Copyright Considerations for the Use of Mixed Media in Libraries’ discussion draft, appeared as an

appendix [o A-i’ & M[crograph[cs SLY Neti’sletter, vol. 10, No. 2 , May 1990, and Automation, vol. 9, No. 2, winter 1990, pp. 12-23.

S3 For ~orc discussion of royalty stm~tur~s for music, scc cop]r~ght and Home CUp}Z/Ig, op. ~lt., footnote 11, especially ch. 5.

-~ Jack Shandlc, ‘ ‘Multimedia Computmg Hits a Sour Note, ’ Electronics, June 1991, pp. 48-53.

~s Ibid,

36 Ibid., p. 50.

37 Mlc~el NcW~~, Di~~tor, Center for Text ~d Technolo~, Gcorgc[own Univcrsltyt personal communication, June 21, 1991.

~~ 17 USC. lo2(a).
174 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

not copied from another work. Original does not

mean novel—two writers could conceivably create

identical works, but as long as neither copied from

the other, the works would be original. In earlier

cases, the U.S. Supreme Court has also held that

some degree of creativity must be involved, and that

protectable writings are the “fruits of intellectual

labor.’ ’39 The U.S. Supreme Court has also defined

‘‘author’ as ‘‘he to whom anything owes its origin;

originator; maker. ’ ’40

A lot of digital information is in the form of

compilations of facts. Facts themselves are not

copyrightable. However, an author’s selection, arrangement, and organization of facts may be sufficiently original to make the compilation copyrightable. Many publishers, for example, compile and

resell information available from the Federal Government (e.g., court decisions, laws and regulations,

economic and financial statistics). The database

publishers add value to the government material by

organizing it, adding indexes, packaging it with

search and retrieval software, etc. Government

information is in the public domain, not covered by

copyright. Yet the publisher’s selection and arrangement of the public domain information can be

copyrighted .41

How much of the publisher’s contribution should

be protected is sometimes subject to controversy. In

a lawsuit involving two major legal publishers, West

Publishing Co., claimed that a competitor, Mead

Data, infringed by offering Mead’s subscribers an

electronic information service with citations including the page numbers on which legal opinions

appear in West’s publications. The district and

circuit courts found that the organization of the

information, including page and section numbers,

was copyrightable expression and that a competitor’s unauthorized use of them was an infringement.42 The case ultimateyy ended in settlement and

the decisions remain controversial.43

A recent case decided by the U.S. Supreme Court,

Feist Publications v. Rural Telephone Service Co.,

found that telephone White Pages are not copyrightable, and that copying them into another compilation

(a regional telephone book) was not an infringement.

Lower courts had ruled, in accordance with earlier

‘‘sweat of the brow’ or ‘‘industrious collection’

tests, that Rural Telephone was entitled to copyright

because of the effort it expended to created the White

Pages directory. However, the U.S. Supreme Court

held that the proper test for copyrightability of a

compilation is originality-in this case, the intellectual work of selection and arrangement of facts.

Rural Telephone did not select the facts (it was

required to list all subscribers with published

numbers) and the arrangement was the same as is

traditionally used in White Pages telephone directories. Thus, this compilation did not have the minimal

spark of creativity to warrant being called an

original, copyrightable work.44

Database publishers also consider their user

interfaces and search and retrieval aids to be

copyrightable expression, but it is not always clear

how much of this is actually protectable.45 The same

controversies apply here as with the discussions over

protectability of user interfaces as discussed in

chapter 5.

‘‘Authoring’ is a technical term used in the

process of constructing works in hypertext. In this

case the ‘‘author’ is the one who turns a lot of

different objects (words, paragraphs, pictures,

sounds) into hypertext by establishing the links

among them. This ‘‘author” may or may not be the

Y) The Trade.&fark Cases, 100 U. S., at 94.

~ BurroW,-Gi/es, 111 U. S., at 58.

41 For a ~orough dl~~u~~i~n of ~latronlc publishing and government information sec us. Congress, Office of TMhnoIogy Assessment Informing

[he Na(ion: Federal Information Dissemination in an Electronic Age, OTA-CIT-396 (Washington, DC: U.S. Government Printing Office, October

1988).

4Z we~f Pub/l~hing co, “. Mead Data central, Inc., 616 F. Supp. 1571 (D. Mire. 1985) (grant of prelfiinary inJ~ction ‘n copyright ‘sSue)* affd’

799F.2d 1219 (8th Cir. 1986), cert. denied 479 U.S. 1070 (1987). Trial was held on April 5-15, 1988 in the U.S. District Court for the District of

Minnesota. Prior to a decision on the merits, parties resolved their dispute and entered into a confidential settlement with approval of the District Court.

Order No, 4-85-931, (D.Mim. Jul:y 21, 1988).

43 For example, see L. Ray Patterson and Craig Joyce, ‘‘Monopolizing the Law: The Scope of Copyright Protection for Law Reports and Statutory

Compilations, ” UCLA Luw Re\’iew, vol 36. April 1989, pp. 719-814. The authors note that the defendant did not copy the numbering system, but merely

cited it; in addition they believe the courts gave too much weight to economic effects on the plaintiff rather than to the purposes of copyright.

44 Feist Pub[icutionst Inc. v. Rural Telephone Sentlce Cornpon>’, 1nC t No. 89-1909,59 U. S.L,W. 3243 (U.S. Oct. 1, 1990).

45 Pamela Sarnuelson, “Some New Kinds of Authorship Made Possible by Computers and Some Intellectual property Questions They Raise, ”

presented at the Intellectual Propelty and Authorship Conference, Case Western Reserve University, Cleveland, OH, Apr. 19-21, 1991
. .

Chapter 5-Digital Information and Copyright ● 175

same as the one who actually wrote the words that

appear on the screen. Yet the establishment of the

hyperlinks can be a significant intellectual effort;

one that greatly contributes to the usability of the

final product.

What are the implications of “authoring” if one

person establishes new hypertext linkages within a

system to which copyright is already held by

someone else? If a scholar, working with ordinary

print materials, were to make a new discovery, he or

she would report it by writing an article; the article

would undoubtedly be a copyrightable work of

authorship, even though it contained many quotations from other works. An annotated bibliography,

in which a scholar cites many references and adds his

or her own comments, is also considered a copyrightable work.

However, an electronic library offers scholars

new ways of publishing articles and guiding readers

through relevant literature. A scholar could develop

a set of hyperlinks that directly leads readers through

the referenced materials in just the order the author

wishes to make a point or demonstrate a discovery.

Such a work might represent considerable intellectual effort, and might be considered a work of

scholarship (the scholarly communities will have to

work out their own standards about publishing in an

electronic environment), But is it a writing? Could

a set of hyperlinks be considered a copyrightable

work? Or is it an idea or discovery, and therefore

unprotectable? Could an electronic article consisting

of a set of hyperlinks be considered a “derivative

work’ based on the underlying works, in which case

permission should be obtained before it is created?46

Use of Digital Information

Book authors ultimately seek to collect financial

rewards for their work by selling copies of their work

to readers (often through publishers). A reader who

has purchased a copy of a book is free to do whatever

he or she wants with it—read it aloud to a child,

make notes on it, give it to a friend, or return it

undamaged to the store for a refund. The book is

property that the reader owns, and under the “frost

sale doctrine, ’ the owner is free to sell it to someone

else.

Electronic publishing is also about delivering

works to readers and returning royalties to copyright

Photo credit: Mark G. Young

A CD-ROM database containing images of magazine and

journal articles. Users can read from the screen or printout

an authorized copy.

holders. However, several characteristics of digital

information make the delivery system different and

also lead copyright owners and their publishers to

want more control over the readers’ uses of the

information.

When Is Information Used?

In using an on-line information service, a reader

does not purchase any piece of property; rather he or

she buys access to the electronic information. Once

that access is permitted, the information is out of the

control of the copyright owner and the publisher.

The user might decide the information is useless and

do nothing further with it; on the other hand, he or

she may download it (store it in the user’s own

computer) for future use. For the most part, publishers have no way of knowing the final disposition of

the material. For this reason, publishers consider

information as “used’ as soon as it reaches the

reader. They wish to be paid in advance. In the case

of on-line vendors today, most fees from users are

paid as periodic subscription fees plus use charges

related to the amount of time spent searching each

database, and sometimes charges for specific documents retrieved. The various schemes for digital

libraries usually postulate charging for use of

46 Ibid
176 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

documents based on how much information a user

has retrieved.

From the user’s point of view this means that

some amount of useless material is paid for. A partial

remedy for this is to improve search and retrieval

software and to offer means to browse through

information (with tables of contents, abstracts, free

or low-cost views of a portion of the document, etc.)

before a reader coremits to requesting a whole

document.

To get access, users generally have to agree to

certain limitations on their use of the information.

People sometimes purchase a copy of a work on

CD-ROM or floppy disc;, but in many instances,

close reading of the wrapper may show that it is

leased or licensed, not purchased. In these cases, the

first sale doctrine does not apply; the use of the

material is subject to the terms of the license

agreement. The license may state, for example, that

users may not resell the disc, or alter it, or place it on

network where more than one person can use it.

Users may have to return old discs when new ones

are supplied, or when the subscription period ends.

Digital information often comes to the end user

through a long chain of intermediaries-the publisher, the database service, a library. Contracts

govern the rights and responsibilities at each link of

this distribution chain.

If there is a long chain of suppliers, there can

additionally be many “layers” of users. It is

sometimes hard to actually identify the end user of

information in a real sense. A student researcher

downloads an article from a CD-ROM database to a

floppy disc and gives the disc to a teacher who posts

it to an electronic bulletin board. Someone sees it on

the bulletin board, makes a printout, and faxes a

copy to a colleague who hangs it on a physical

bulletin board. Each layer of use here has adapted the

article to a new medium and involved a new end

user. Users may or may not be aware of how the

article got to them or what happened to it after it

passed from their hands. Issues like copyright

infringement and breach of contract may be involved, but who is at fault—the maker of the first

copy or of the second or the person who received the

last one? Often infringement is so widespread and

diffuse that it is difficult to determine damage.47

Traditionally, copyright law does not give copyright owners rights to control the access that readers

have to information. 48 Copyright owners in the

electronic world use contracts to impose restrictions

to make sure that they are paid for every instance of

access or use. Still, as a practical matter, these

restrictions do not prevent unauthorized copying.

Once a user has paid for one legitimate copy of

something, there is often not much except moral

suasion to prevent his or her making other copies.

Digital information is easily copied and easily

transmitted to many locations. These characteristics

make electronic distribution an attractive publishing

medium; but they have a flip side; almost any reader

is a potential ‘‘publisher’ of unauthorized copies.

Unauthorized Copying

Unauthorized copying and distribution is not a

problem unique to digital information. Over the past

20 years, the photocopy machine has made copying

of books, articles, and other printed works very easy.

The introduction of the fax machine has even made

it easier to deliver photocopies over long distances.

Still, there are limitations to the distribution of

unauthorized copies on paper: copy quality degrades

with each generation; fax machines, at least at the

present time, take some effort to program for large

distribution lists; a copied document is still in the

same format as the original and can be easily

identified as a copyrighted work; photocopying

large amounts of material can be inconvenient and

time-cons ming.

Digital copies, on the other hand, do not degrade;

each copy is of the same quality as the original.

Distribution is easy; the copy could be posted on a

computer bulletin board, or distributed to a list of

users on a computer network. If one wants to

disguise the origins or authorship of the document,

format changes can be made with a few keystrokes,

Scanning technology now allows one to turn information on paper into digital information so that it

can be changed or manipulated.

Some proposals have been put forward to use

technology to control unauthorized copying in the

47 ~~t.R~S~~~ Talab fol. ~icula~g tie concept of layc~ of use. Rosem~ T~ab, Kwas State University, personal communicatio~ NOV.

28, 1991

~ Samuelson, “Digital Media and the Changing Face of Intellectual Property Law,’ op. cit., footnote 29, pp. 323-340.
context of a digital library. One option is to assign

intelligent software agents, for example the knowbot

programs mentioned above, to the job of representing the copyright holder’s interests. A special type of

knowbot program is called a courier. A courier is

assigned to a specific item of information (a

database, a document, or a paragraph). Depending

on the wishes of the owner, the courier can record all

uses of the information so that charges can be

applied or it can immediately request permission

before releasing the information to the user (and

deny access if permission is not granted.) The

system could also allow for users to make derivative

works or to extract parts from a protected work while

still giving full credit (and paying royalties) to the

original owner. When a user includes a piece of

protected information in another document, the

courier will create another version of itself to

accompany the extract and to represent the owner’s

potential interest in the new work.49 Some proposed

systems hope to encourage users to do all their

reading, writing, and adapting electronically and to

discourage unauthorized copying with a pricing

structure that makes working within the system and

using authorized copies less costly than making

unauthorized copies.50

In any case, technological proposals for limiting

unauthorized copying generally seem to work only

within a closed system. Once a user moves an

authorized copy out of the system there seems to be

no way to prevent further copying. Some writers

suggest that there is no solution to the problem of

unauthorized copying and that the problem is

sufficiently grave that electronic publishing will

never thrive as an industry because authors and

publishers will not release works in digital form.51

However it is possible that, as in the case of the

photocopying of books or home taping of musical

recordings, a viable market will persist despite the

presence of unauthorized copies.52

Chapter 5--Digital Information and Copyright ● 177

Special Concerns of Libraries

Libraries, as mentioned earlier, have been actively

making use of computers and digital information for

two decades. Digital information allows libraries

new ways to offer services, and completely new

services to offer, but some uncertainties still need to

be worked out.

Many of the rules under the copyright law

regarding lending and sharing library materials or

making preservation copies or replacement copies of

damaged works were developed with printed books

and journals in mind. For example, for purposes of

preservation or security (or to deposit with another

Library) a library has the right to make a “copy in

facsimile form” of an unpublished work.53 Neither

the law nor the legislative history define “facsimile, ’ but the dictionary definition is ‘ ‘an exact

copy, ‘ ‘ which may indicate that conversion of a

printed work to machine readable digital text is not

permitted.

Some provisions in the copyright law also deal

with copying and other use of ‘‘computer programs,” but do not specifically extend to digital

information. For example, the copyright law gives

the owner of a computer program the right to make

an archival (backup) copy under certain conditions.

There are two points here. In the first place, the

library may not be the owner of the computer

program. Vendors often say that programs are

licensed, not sold. The library, as a licensee rather

than an owner, does not have the rights described in

the copyright law; these are abrogated by the terms

of the license. There is considerable controversy

over the enforceability of many of these contracts

where the vendor has enough barg aining power to

force terms on the user.54 At present, there is a wide

variety in the terms and conditions of software and

database licenses. An institutional user like a library

or university computer center often uses hundreds of

different program and data packages, and to ensure

49 Cefl and Kahn, op. cit., footnote 16.

50 D~iel Gro~~, Magnetic ~~s, ~c., disass~ tie pricing Smctue of tie propos~ Xanadu s~~stern uder development by Autodesk and its partners

at the OTA workshop on “Digital Libraries, Electronic Publishing, and Intellectual Property, ” Feb. 11, 1991.

51 See, C.g., Robert Weber, “The Clouded Future of Electronic Publishing, ” Publishers Weekly, vol. 237, No. 26, June 29, 1990, pp. 76-80.

w copyright and Home Copying, op. cit., footnote 11, especially ch. 7.

53 See 17 U.S.C. 108(b).

~ American Association of Law Libraries, op. cit., footnote 32.
178 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

compliance with all of their different requirements is

difficult. 55 (For more on licenses, see chapter 2.)

The second point is that the copyright law

currently refers only to computer programs and not

to data or digital information. Computer data is

stored in the same medium as computer programs,

and it would seem logical to treat them in the same

way, but the argument remains that digital data does

not fit the definitions currently set out in section 101

of the Copyright Act so owners have no right to

make archival copies. 56 The two points raised here

become even more complicated for libraries in the

case of mixed-media works where printed material,

digital data, computer programs, microfiche, and

other forms might be packaged and used together.

Libraries have a long tradition of resource sharing. Several libraries may cooperatively purchase

material, and some libraries may refrain from

making certain purchases in the knowledge that the

material can be obtained through interlibrary loan

when needed, Resource sharing practices have long

been viewed as prudent use of both funds and storage

space, especially for items for which demand is low.

Lending of materials among libraries is institutionalized both by tradition and under the provisions of the

Copyright Act (section 108), and interlibrary loan

usage has increased dramatically in recent years.

However, resource sharing practices have recently

come under fire from some publishers who see them

as depriving information providers of sales.57 Publishers strengthen their position by leasing, rather

than selling materials, thus denying libraries the

rights which ownership permits under the ‘‘fust sale

doctrine.’ Contracts with electronic information

providers sometimes limit or forbid sharing or

lending of materials. Libraries, particularly public

ones, have an obligation to balance the interests of

users and producers—a balance which the Copyright

Act is intended to maintain.

It has been suggested that the growing use of

electronic information, and the tendency of information providers to control the uses of this material

through contracts, will lead to greater distinctions

between for-profit and not-for-profit libraries, in

terms of their library operations, cost differentials,

and access .58 Not-for-profit libraries may find themselves placing heavier reliance on free or lower-cost

databases, and there may be less ability to share

materials between libraries. Profit-based libraries

will have access to more expensive information

resources, but will also have great controls on their

abilities to share resources or to network with other

libraries.

Many libraries are examining their own role in

offering digital information services to patrons. The

shift to digital information introduces new kinds of

costs. Public libraries are struggling to determine

fair allocation of resources between digital information and printed library materials; in addition there

is the question of whether, or how much, to charge

patrons using some expensive data services. Public

libraries have traditionally been free (supported by

taxes) so taxpaying users have already paid for

services. In addition, public libraries have an obligation to provide information services to those who

cannot get them otherwise. Some libraries are

developing usage charges for access to some databases, or are trying to allocate use of scarce resources

among users by imposing time limits on the use of

workstations with access to certain databases. Over

the years the balance in cross subsidy between

traditional and electronic services may change

several times.

Another question is remote access to library

services. The technology exists to allow users at

home, office, school to use essentially any computerbased service they could use within the library walls.

That many libraries are not now offering such

services reflects both the costs of starting up such a

service as well as questions that must be resolved

concerning license policies. One observer points out

that remote access could be a ‘‘boon to the user and

a bane to the supplier. ”59 In many cases, libraries

would be passing on to users access to data that has

been obtained through a contract between the library

and an information vendor. Many contracts now

forbid remote access or make it prohibitively expen55 Coment5 at OTA Advisow p~(;] rneetig, Sept. 11, 1991.

56 ~eficm A~s~iation of ~w Librties, op. cit., footnote 32.

ST Rosemary Talab, “General Trends in New Technology Usage: Stages of Copyright Development on a National Level, ” in Advances in Library

Resource Sharing, vol. 3 (Greenwich CT: Meckler, in press), pp. 82-83.

58 Ibid., p. 78.

59 Ibid., p. 79.
Chapter 5-Digital Information and Copyright ● 179

sive. Libraries and vendors will have to work out the

pricing of such services.

Also to be worked out are policies about the use

of material obtained by patrons. Some libraries

already offer on-line information, and other services

such as access to electronic bulletin boards,60to their

patrons; they therefore become an additional link in

a complex of transactions. To what extent are

libraries responsible if users make unauthorized

copies, post copyrighted material on electronic

bulletin boards, send obscene messages, or otherwise infringe copyrights, violate contracts, or break

laws? These problems are not new. The advent of the

photocopier eventually caused libraries to evolve a

policy of providing copiers, posting a notice about

relevant aspects of the copyright law, and then

leaving users unsupervised to follow their own

consciences. Policies regarding digital information—

what can be downloaded, number of printouts

allowed, etc.—will also need to be worked out, but

the policy setting process may be more complex

since contracts with information vendors will also be

involved.

Another area of uncertainty is in the creation of

information based on library holdings. On-line

catalogs can be made more useful by adding more

information about the works being cataloged—

tables of contents, lists of illustrations, etc., but there

may come a point where enhancements to the

catalog infringe the copyright on the underlying

works. As libraries increasingly work to create new

information these questions may arise. Some envision libraries, especially research libraries of major

universities, as eventually becoming electronic publishing centers for scholarly work.61 If this is to

happen some of these questions will have to be

settled.

a See Nancy Cline, ‘‘Information Resources,” EDUCOM Rev’ieut, s umrner 1990, pp. 3034.

61 Ibid.
Chapter 6

Economics, Intellectual Property,

and Software
Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Public Goods and the Underlying Rationale for Granting Rights . . . . . . . . . . . . . . . . . . . . . 185

Intellectual Property Systems and Net Social Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

“Strength” of Protection and Social Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

Industry Differences in the Perceived Efficacy of Intellectual Property . . . . . . . . . . . . . 190

Cumulative Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

Patents and Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

Choices in the Optimal Design of Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

Optimal Patent Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Optimal Patent Term and Breadth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

Compatibility, Network Externalities, and the Installed Base . . . . . . . . . . . . . . . . . . . . . . . . 197

The Economics of Copyright and Home Copying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Boxes

Box Page

6-A. Some Software Industry and Technology Changes Since CONTU . . . . . . . . . . . . . . . 188

6-B. Literature on Home Copying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
—

Chapter 6

Economics, Intellectual Property, and Software

Introduction

Unfortunately, economists do not yet have a final

word--or words—for us concerning the optimal

intellectual property system for computer software.

The topic of intellectual property applied to software

has attracted increasing attention over the last

decade, but the literature on the economics of

software is still evolving, as is the broader economic

literature on intellectual property and innovation.l

Economists’ efforts to understand these issues are

made all the more difficult by the rapid changes in

software technologies and markets. The discussion

in this chapter, therefore, is only a‘ ‘snapshot’ at this

time, rather than an exposition of economists’

‘‘solution’ to the problem of how best to balance

private incentives and social benefits in a rapidly

moving area of technology. The following sections

offer a perspective on the development of this

literature and of economists’ understanding of innovation and technological change.

In the ‘ ‘U.S. intellectual property system, ’ copyright, patent, and trademark are administered under

Federal jurisdiction, as is protection for the topography of semiconductor chips. Laws concerning trade

secrets and the misappropriation of confidential

business information, trademarks not federally registered, and certain limited kinds of ‘unfair competition’ are under State jurisdiction.2 The economics

literature on intellectual property concentrates on

Federal grants of patent and copyright. In large part,

this focus stems from the nature of patent and

copyright: these exclusive rights (for limited periods

of time) have been designed within a framework

involving an economic tradeoff between private

incentives and social benefits.3 The laws governing

trade secrets do not incorporate this kind of explicit

tradeoff. 4 Therefore, patent and copyright offer more

established economic bases for theoretical and

empirical analyses of markets for intellectual property. The resulting focus in the literature is reflected

in the following discussion, 5 which spotlights some

of the issues on intellectual property and innovation

that

●

●

●

●

●

●

●

economists have explored, including:

the economic rationale for granting intellectual

property rights-linkages between these rights

and economic benefits to society as a whole;

the balance between the benefits and costs

accruing to intellectual property holders and to

the public at large;

factors affecting this balance and the socially

“optimal’ degree of protection;

interindustry differences in the efficacy of

patent protection;

implications of dynamic models with cumulative innovation;

choices in “optimal” patent design (term,

breadth); and

network externalities and compatibility.

10TA note: Unless otherwise specified, OTA uses ‘‘innovation’ and ‘‘innovative activity’ in this chapter to refer to research and development

(R&D) and other creative processes producing scientific and technological advances, whether the form of these advances would legatly be considered

copyrightable, patentable, or neither. Precisely speaking, ‘ ‘innovation’ is the technological implementah”on of a new idea, method, or device discovered

by the process of ‘ ‘invention. ” The economics literature on R&D, intellectual property, and technological progress has focused mainly on

patcnt=omputer software is one of the few copyrightable works where ‘‘authorship’ directly con.. titutes technological progres~and has tended to

use the tcrrm ‘‘imovation’ and ‘‘invention’ synonymously. In reviewing the economics literature on this topic, OTA uses the authors’ terminology.

2 See Stardcy M. Bcsenand L-co J. Raskind, ‘ ‘An Introduction to the Law and Economics of Intellectual Property, ‘‘ Journal ofEconomic Perspectives,

vol. 5, No. 1, winter 1991, pp. 3-27. Besen and Raskind review the basic economics of intellectual property and look at each of the modes

in some detail.

3 ~lvate ~ccntlves ~c expected t. fise from tic fight holder’s llmlted monopoly powers; social benefits are expected to include additional bCIICfilS

to society from the induced discloswe and/or dissemination of innovations and technological advances.

For discussions of this balancing between private incentives and social benefits in the “intellm~~ propefly ba.fgain,’ sce ~J.s. congress, OffiCc

of Technology Assessment, Ittfellecfual Property Rights in an Age of Ehmronics and Informuion, OTA-CIT-302 (Melbourne, FL: Krcigcr Publishing

CO., April 1986). See also Paul Goldstein, Copj)righQrincip~e$’t ~aw and pr~ctire (Boston, MA: Little, Brown ~d co.~ 1989)’ ‘Ccs 1 ~ 1 ‘d 12

~ See Bescn and Raskind, op. cit., footnote 2, p. 23.

The rightful possessor of a trade secret does not have an exclusive right to usc the sccrct information, and the law only provides for Icgal rcmcdics

when the sccrct is lost through breach of contract or ‘‘improper’ means of discovery (e.g., industrial espionage). A trade secret may bc maintained

indefinitely. Scc ch. 2 and the section on trade secrets below; see also David Friedman et al., ‘‘Some Economics of Trade Secret Law, ’ Journal of

Economic Per.rpecti~cs, vol. 5, No. 1, winter 1991, pp. 61-72.

5 This OTA report docs not deal with tradcmark issues except as they relate to counterfeiting (see section on piracy in ch. 3).

–183–
184 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Kenneth Arrow’s seminal 1962 paper examined

resource allocation problems in markets for information and invention and the obstacles to efficient

functioning that information markets face.6 He

concluded that in a free-enterprise economy, there

will be underinvestment in invention and research

and underutilization of the resulting information:

To sum up, we expect a free enterprise economy

to underinvest in invention and research (as compared with an ideal) because it is risky, because the

product can be appropriated only to a limited extent,

and because of increasing returns in use. This

underinvestment will be greater for more basic

research. Further, to the extent that a firm succeeds

in engrossing the economic value of its inventive

activity, there will be an underutilization of that

information as compared with an ideal allocation.7

The bulk of economic analysis on linkages among

technological progress, economic welfare, and intellectual property has dealt with the patent system,

rather than copyright-software is remarkable in

being a technology for which copyright is so crucial.

However, there is also a well-developed literature

dealing with economic welfare, copyright, and

consumer copying of journal articles, music, software, etc. (see the final section on home copying

below). Moreover, many of the arguments concerning patents and duplication of innovations can be

applied to software copyright, especially to issues

like copyright protection of interfaces and the

appropriate breadth of copyright protection.

As noted previously, this is an evolving literature.

Sometimes, the analyses discussed in the following

sections will differ in conclusions or policy implications. In particular, some of the economic research

done since the National Commission on New

Technological Uses of Copyrighted Works (CONTU)

“One of the hallmarks of a competitive industry is

the ease with which entrepreneurs may enter into

competition with firms already doing business. The

absence of significant barriers to entering the program-writing market is striking. There are several

hundred independent firms whose stock in trade is

computer programs. New software firms may be

formed with few people and little money; entry into

the market has thus far been fairly easy. None of the

evidence received by the Commission suggests that

affording copyright to programs would in any way

permit program authors to monopolize the market for

their products. Nor is there any indication that any

firm is even remotely close to dominating the

programming industry.”

Final Report of the National Commission on New TechnoIogical Uses of Copyrighted Works (CONTU), July 31,

1978, p. 23.

"It seems to take courage even to register doubts

about the net benefits oft he patent system. Some of

the faithful, ardent believers in the patent system in

its present form as an inherently moral institution, as

a necessary component of private property, as an

integral part of a free-enterprise economy, and as an

indispensable spur to economic progress, have

been quick to bear down on unbelievers with

invectives and innuendoes. Perhaps this sort of

pressure has something to do with the fact that

agnostics on t he econom ics of patents often preamble their apprehensions about the consequences of

patent protection in our time with affirmations of faith

in the achievements of the past.”

Fritz Machlup, An Economic Review of the Patent System,

Study of the Subcommittee on Patents, Trademarks, and

Copyrights of the Committee on the Judiciary, U.S. Senate,

Study No. 15 Pursuant to S. Res. 236, 85th Congress, 2d

Sess. (Washington, DC: U.S. Government Printing Office,

1958), p. 43.

suggests policy implications that differ from those of

earlier work in the 1950s, 1960s and early 1970s.8

These differences result because the economic

models depict different industry conditions, differs Ke~e~ J. kow, ‘‘~onomic Welfme and tie Allocation of Resources for Invention ” in National Bureau of Economic ResearcE The Rate and

Direction of Inventive Activity: Economic and Socia/ Factors (Princeto% NJ: Princeton University Press, 1962), pp. 609-624.

Because information is intangible, even with legal protections, sellers cannot fully appropriate its value. On the demand side, potential buyers fmd

it difficult to value information correctly, unless they have already acquired it. (Ibid., p. 615.)

T ~w, ~po cit., footnote 6, P. 619.

In his analysis of incentives to invent in both monopolistic and competitive markets, Arrow found that atthough the incentive to invent was greater

under competitive conditions, even then ~t was less than optimal, especially for major inventions (ibid., pp. 619 and 622). Arrow concluded that, while

a preinvention monopoly might increase appropriability, the advantages of this additionat incentive would have to be “offset against the monopolist’s

disincentive created by his preinvention monopoly profits” (ibid., p. 622). Therefore, he concluded, government subsidies or other nonprofit financing

for research and invention will be needed to compensate for the underallocation of resources to these activities (ibid., pp. 623-624).

8 As described by Sidney Winter, the pendulum of opinion on the “optimal’ term of protection (e.g., whether increasing or decreasing the term of

patent protection would be more socially desirable) has swung back and forth over the years. For his discussion of changes in economic thinking about

the term and strength of protection see Sidney G. Winter, “Patents in Complex Contexts: Incentives and Effectiveness, ” in Vivian Weil and John W.

Snapper (eds.), Owning Scientific and lZchnical lnfinnation (New Brunswick NJ: Rutgers University Press, 1989), pp. ’4l-43.

For another discussion of the economics literature on innovation, see Robert P. Merges, “Commercial Success and Patent Standards: Economic

Perspectives on Innovation,” California Law Review, vol. 76, pp. 803-876, 1988.
Chapter 6-Economics, Intellectual Property, and Software ● 185

ent types of innovation, and different timeframes.

Much of the earlier economic work on intellectual

property (mainly patents) focused on cost-saving

process innovations, while later work looked at

product innovations. Until after the mid- 1970s, most

analyses of (socially) optimaI patent design focused

on patent term and assumed static (one-shot) models

of innovation. The more recent work focuses on

breadth of protection, as well as term; dynamic

models of innovation include the possibilities of

multiple inventors, 9 cumulative innovation, and

network externalities. The more recent work, using

dynamic models for innovation, supports shorter,

rather than longer, terms of protection.l0

Public Goods and the Underlying

Rationale for Granting Rights

In economic terms, a “public good” is one that

has the property of nonexclusivity: once the good has

been produced, it is impossible (or prohibitively

costly) to exclude any individual from benefiting

from it, whether or not he or she pays.11 Indeed,

individuals have an incentive not to pay for the good,

or to undervalue it, in hopes of getting access as

‘‘free riders. ’ The inability to exclude free riders

distorts market signals and is thought to result in

inefficient allocation of resources to nonexclusive

goods and underproduction of them, relative to

socially optimal quantities.

Public support is provided for some activities in

order to overcome this imperfection in the market.

Thus, some public goods—like national defense—

are produced publicly by government and paid for by

collective taxation. Some goods that are produced

privately also face the problem of (at least partial)

nonexclusivity. For these also, ordinary market

forces may not produce the most desirable social

outcomes. 12 Goods that have the property of nonexclusivity will tend to be produced in insufficient

quantity or variety because producers are unable to

fully benefit from investments in creating them.13

Establishment of a system of defined “intellectual property rights” can help alleviate this difficulty.14 The Framers of the U.S. Constitution dealt

with this market imperfection by giving Congress

the power to grant copyrights and patents:

The Congress shall have Power. . .To promote the

Progress of Science and useful Arts, by securing for

limited Times to Authors and Inventors the exclusive

Right to their respective Writings and Discoveries.

(U.S. Constitution, art. I, sec. 8, cl. 8.)

In granting a limited monopoly through copyright or

patent, government attempts to compensate for

distortions arising from nonexclusivity. According

to this rationale, without the counterbalancing grants

of monopoly power bestowed through copyright and

patent, the inability of authors and inventors to

appropriate economic returns from their labors

would result in the underproduction of new works

and inventions.

Using government grants of exclusive rights to

produce countervailing distortions is not the only

means to improve the efficiency of intellectual

property markets; indeed, using a balanced set of

public and private measures, rather than relying on

expanded or strengthened intellectual property

rights alone, may be desirable: 15

9 In multiple-inventor ‘ ‘patent races, ’ the rate of R&D spending affects the probability of invention.

10 See Winter, op. cit., footnote 8, and below.

11 For a discussion of public goods, see John EatWell et al, (eds.), The New Palgrave; A Dictionary oflkmomics (The Stockton Ress, NY: 1987),

PP. 1061-1066.

11 ~is ~ppe~ bo~ ~causc nonpaying individuals ca g~ access as free ridecs and because the information at tie hem of tie ‘itellec~ propefly

can be ‘‘consumed’ without supply being exhausted. In contrast to markets for houses or antiques, consumers don’t have to bid to exclude each other

in order to use information.

13 me Natioml Comlsslon on New UseS of Cop@ghted works (cow r~ognized tit the infomtion Ccxnprising software innovation in

computer programs ‘is a prime example of a public good’ (Peter Menell, ‘‘An Analysis of the Scope of Copyright Protection for Application Programs,’

SranforJ hint Re>’ien, vol. 41, No. 5, May 1989, pp. 1045-1104, citing pp. 9-12 of the CONTU report on p. 1059).

14 Imppropr-iabili& tends t. result in underallocation of resowces to the production of these goods. Legally defined ‘ ‘rights can ~leviate tie Probl~

of inappropriability. See J.A. Schumpcter, Capitalism, .SociaZism, and Democracy (New York, NY: Harper, 1950); and R.H. Cease, ‘‘The Problem of

Social Cost+” Journal of Law and Economics, vol. 3, No. 1, October 1960, pp. 1-44.

15 See Peter S. Menell, ‘‘Tailoring Legal Protection for Computer Software, ” Stanford Law Review, vol. 39, No. 6, July 1987, pp. 1329-1372.

In this article, Menell concludes that copyright protection for computer software does promote some types of innovation by prohibiting piracy, but

with some diminution of benefits from increased diffusion of innovations, cumulative innovation and network externalities. Menell suggests a new

congressional commission to study software protections. He also suggests that Congress should consider tailoring special protections for software to

avoid overextending protection under copyright, and that protection be tailored differently for operating systems and application programs.
186 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

●

●

●

The introduction of monopoly rightsl6 can have

adverse effects on the market in question.

Economic theory holds that a monopolistic

producer will tend to produce less of a good and

charge a higher price, relative to competitive

levels. 17 Moreover, the prospect of monopoly

rights can create excessive incentives for certain classes of innovative activity, diverting

resources from more socially beneficial ones.

The monopoly rights can produce unintended,

‘‘ spillover’ effects in other markets (e.g.,

transfer market power18 from the software

market to the hardware market or vice-versa).

Establishing and administering intellectual property systems impose costs on the private and

public sectors (e.g., costs to secure rights,

litigation and/or negotiation costs, costs to

‘‘invent around’ or otherwise avoid infringing

others’ rights).

Therefore, as Peter Menell has noted, in assessing

the need for new (or stronger) intellectual property

protections:

[I]t is important to assess the extent to which other

forces-both market and non market-tend to offset

the adverse effects of the public goods problem.19

These ‘‘other” forces can include leadtime advantages from being first to introduce a product,

licensing and service agreements, anticopying technologies, secrecy, government policies concerning

antitrust and standards, research support, etc.20 (For

how and why some of these forces may have

changed since CONTU, see box 6-A.)

Intellectual Property Systems and

Net Social Benefits

The linkage between intellectual property rights

and economic benefits to society as a whole has

traditionally followed this logic: intellectual property rights increase innovators’ ability to obtain

returns from their intellectual labors; the resulting

potential for increased private gains to innovators

stimulates additional innovation; and, because of

increased innovation, additional benefits accrue to

society as a whole.21 In Mazer v. Stein, the U.S.

Supreme Court stated this rationale as follows:

The economic philosophy behind the clause empowering the Congress to grant patents and copyrights is

the conviction that encouragement of individual

efforts by personal gain is the best way to advance

public welfare through the talents of authors and

inventors in Science and the useful Arts.22

The U.S. system of patents and copyrights is

intended to strike a balance between the rights of

intellectual property holders and the public at large.

It is important to recognize that systems of legal

protections for intellectual property impose costs on

a society, as well as benefits. These costs include the

costs of the additional innovation resulting from the

intellectual property incentive, plus administrative

16 OTA n~re: In this report, ‘‘monopoly’ is used in the economic sense and should not be taken as synonymous with illegal monopolization of a market

or markets. For discussion, see F.M. ~;cherer, Indusrria/ Market Structure and Economic Pe@ormunce, 2d Ed. (Chicago, IL: Rand McNatly College

Publishing Co., 1980), pp. 527-594. As Scherer notes, “Congress [chose] the word ‘monopolize’ to describe what it condemned, and not some more

conventional phrase such as ‘obtain ox possess monopoly power’ ‘‘ (ibid., p. 527),

17 See Scherer (1980), op. cit., footnote 16, pp. 14-20; and Walter Nicholson, Intermediate h4icroeconomics and Ifs Application, 2d ed. @retie,

IL: The Dryden Press, 1979), ch. 2 (“Pricing in Monopoly Markets), pp. 305-354.

‘‘Monopoly rents’ are the long-tenm economic profits resulting from prices that exceed average total cost: “These profits can be regarded as a return

to that factor that forms the basis of the monopoly (a patent, a favorable locatio~ a dynamic entrepreneur), hence another possible owner might be willing

to pay that amount in rent for the righ! to the monopoly” (Nicholson, ibid., p. 309).

18 For a thmretic~~ysls of 1evel-agfig m~et power, see Michel D -ton, ‘ ‘wing, Foreclosure, and Exclusion, ’ The Ante~”can Economic

R~~ien), VO1, 80, No, 4, September 1990, pp. 837-859.

For a discussion of market power and the practice of ‘bundling’ software and support with computer hardware, see Franklin M. Fisher et al., Folded,

Spindled and Mu~ilated: Economic Analysis and U S. SS. IBM (Cambridge, MA: The MIT Press, 1983), pp. 204-215.

19 Menell (1987), op. cit., footnote 15, P. 1339.

N1bid., pp. 1339-1345.

21 For~excellent, Comprehemlve review of the development ~d f~ctio~ng of tie patent system, including historic~ perspectives on iILStitUtiOnid

issues and economic opinion on the social advantages and disadvantages of patent monopolies, see Fritz Machlup, An Economic Review of rhe Parent

Sys[em, Study of the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, U.S. Senate, Study No. 15 Pursuant to

S. Res. 236, 85th Congress, 2nd Sess. (Washington DC: U.S. Government Printing Office, 1958). Ch. IV reviews economic theory on patents from the

mid- 18th to mid-20th centuries.

22 Ma~er”. stein, 347 U.S. 201,219 (1954)
Chapter 6--Economics, Intellectual Property, and Software ● 187

and transaction costs23 and foregone benefits to

society from other innovations that would have

taken place, without such protection.24 Strengthening” the system or expanding its scope can increase

these costs, and also increase economic losses to

society from monopolistic exploitation of innovations:

From the perspective of the public interest, the

optimal system for protecting intellectual work

equates the marginal benefit of enhancing the scope

of intellectual work protection with the marginal cost

of greater protection. . .That is, it equates the benefits

of the availability of more and better products with

research costs, losses due to monopolistic exploitation, administrative costs, and inhibiting effects on

inventive activity. n

Nevertheless, much discussion about the U.S. intellectual property system is based on the assumption

that, from an economic perspective, “better” or

‘‘stronger’ intellectual property protection is

unequivocally ‘good. ’ This is based on the presumption that ‘ ‘stronger’ rights increase private incentives for innovation, producing additional technological progress and increased benefits to society

overall. 26 But this is not necessarily the case.

“An economic evaluation of the patent system as

a whole implies an analysis of the differences

between its existence and nonexistence-perhaps a

hopeless task,”

Fritz Machlup, An Economic Review of the Patent System,

Study of the Subcommittee on Patents, Trademarks, and

Copyrights of the Committee on the Judicary, U.S. Senate,

Study No. 15 Pursuant to S. Res. 236, 85th Congress, 2d

Sess. (Washington, DC: U.S. Government Printing Office,

1958), p. 76.

‘The analysis of the ‘increment of invention’

attributable tot he operation of t he patent system, or

to certain changes in the patent system, can only be

highly speculative, because no experimental tests

can be devised to isolate the effects of patent

protection from all other changes that are going on

in the economy.”

Fritz Machlup, An Economic Review of the Patent System,

Study of the Subcommittee on Patents, Trademarks, and

Copyrights of the Committee on the Judiciary, U.S. Senate,

Study No. 15 Pursuant to S. Res. 236, 85th Congress, 2d

Sess. (Washington, DC: U.S. Government Printing Office,

1958), p. 62.

‘The point is that inventive activity must precede

the patent, whereas innovating activity may follow it.

But the justification of the patent system as an

incentive for innovating enterprise and for entrepreneurial investment would call for different supporting

arguments than the justification as an incentive for

invention. . .Moreover, there would be the additional

question whether the promotion of innovating enterprise and of entrepreneurial investment can be held

to be subsumed in the promotion of ‘science and t he

useful arts’ which the Constitution of the United

States stipulated as the sole objective of patent

legislation.”

Fritz Machlup, An Economic Review of the Patent System,

Study of the Subcommittee on Patents, Trademarks, and

Copyrights of the Committee on the Judiciary, U.S. Senate,

Study No. 15 Pursuant to S. Res. 236, 85th Congress, 2d

Sess. (Washington, DC: U.S. Government Printing Office,

1958), p. 56.

“Strength” of Protection and Social Benefits

In his recent review of theoretical issues and

empirical findings regarding the patent system,

Sidney Winter explains why there is now no general

theoretical presumption in economics that the consequences of "stronger’ protections are favorable for

society as a whole.27 According to Winter, this

contrasts with earlier thinking, when economists

23 Someties tiese -action costs can be reduced by collective administration of licensing. In copyright markets for music and literary matefial,

where the transaction costs of licensing are large compared to the value of the work to be licensed, collectives have been established. For example, the

American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music Inc. (BMI) collect and distribute performing rights royalties

for composers, songwriters, lyricists, and music publishers; and the Copyright Clearance Center (CCC) collects and distributes photocopying royalties

for journal and book publishers.

See Besen and Raskind, op. cit., footnote 2, pp. 14-16; and S.M. Besen and S.N. Kirby, Compensating Creators cfln~elZecmu/ Property: Collectives

That CoZlect (Washington, DC: Rand Corp., 1989). For descriptions of ASCAP and BMI, see U.S. Congress, Office of ‘lkchnology Assessment,

Copyright and Home Copying: Technology Challenges the Law, OTA-CIT422 (Wasbingtoq DC: U.S. Government Printing Office, October 1989),

ch. 4.

~ Menell (1987), op. cit., fOO@IOte 15, pp. 1339- 1s45.

~ Ibid., p. 1340.

26 For an important exception (from the law literature) see Stephen Breyer, “The Uneasy Case for Copyright: A Study of Copyright in Books,

Photocopies, and Computer Programs, ’ Harvard Law Review, vol. 84, No. 2, December 1970, pp. 281-351. In this article, although unable to conclude

that copyright should be abolished, Breyerargued against extending the boundaries of copyright. He also concluded that advocates of copyright protection

for computer programs had not yet made their case (in terms of empirical evidence and argument) and that if a need for program copyright was shown+

efforts should be made to tailor protection to minimize economic harms to society (pp. 349-350).

27 Wtiter, op. cit., footnote 8, pp. 41-60.

~ / : ?’J 1 - ’42 ~ J
188 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 6-A—Some Software Industry and Technology Changes Since CONTU

Explosive growth in personal computers and packaged software: When Congress created the National

commission on New Technological Uses (CONTU) in 1974, the “PC revolution” had not yet begun to bring

desktop computing power to the millions of individuals that now use it. But, by the time CONTU issued its final

report in 1978, the PC revolution was under way, creating a new generation of computer users who were not

primarily programmers or computer experts. The rapid proliferation of PCs in homes, offices, and schools created

a very large retail market for application software-for word processing, spreadsheets, even games-as well as a

lucrative market for PC operating-system software. Large communities of users are now able to obtain powerful

hardware and software tools. This broad base of users permits realization of network externalities; users increasingly

exhibit preferences for programs with similar (and/or easy-to-learn) user interfaces.

Because of timing, CONTU and the analyses prepared for it could not really foresee the time when powerful

computers could be in every office or every home, or when individuals would be able to create sophisticated and

valuable software outside large organizations. There was an intimation of the possibilities, but no way to

comprehend their full impact a decade hence:

[T]here are some individuals who believe that future technological changes will permit individuals to do some

programming useful to themselves and potentially valuable to others in their own homes. . .Changes in computer and

progr amming technology may also make possible a degree of do-it-yourself programming by consumers. (Report to

CONTU prepared by the Public Interest Economics Center (PIE), June 1977, pp. IV-4, IV-6.)

Increased barriers to entry by small firms: The CONTU report and the economic analysis prepared for it

in 1977 by the Public Interest Economics Center noted rapid growth in the “independent” software industry,

characterized by ‘‘many small firms and rapid entry into the market, ” and also noted the likelihood of continued

viability for software as a ‘‘cottage “ industry. Today, the software industry remains vigorous and there certainly

are many successful and innovative small firms. However—unlike when Lotus and Microsoft were founded-the

packaged software market is a huge mass market, not a collection of small networks of hobbyists and aficionados.

Moreover, as hardware has improved, packaged software programs have become larger and more complex,

increasing the cost of writing a commercial program,

A cottage entrepreneur may still be able to develop an innovative and important program with few resources

but his or her own wit and time. But, for that program to have substantial commercial success in the retail market,

substantial marketing and distribution resources, including national advertising campaigns and customer-support

services, will usually be required. Therefore, there has been a trend toward centralized software-publishing houses

that acquire rights to software and then distribute and market it, paying royalties to the program authors.

Maturity of industry and increasing firm size: Once a small firm becomes successful, it appears to be

relatively difficult to develop the firm to a meaningful size with the capacity to capture a significant fraction of the

considered that stronger protection for intellectual . . the desirability of strengthening or weakening

property was desirable to promote innovation.28 invention incentives in a particular context depends

Theoretical and empirical work from the mid- 1970s on the existing balance (in that context) between (1)

to present has challenged the assumption that the joint effectiveness of a variety of means of

stronger intellectual property regimes yield positive appropriating returns and (2) the extent to which the

advances in question are actually a net contribution

economic consequences. Moreover, industries have to societv. rather than a capture of wealth from the

been found to vary in the extent to which rights public domain.29

holders are able to acquire competitive benefits from

their ‘‘properties” under the current regime. As Sometimes strengthening patent protection can

Winter puts it: produce excessive incentives for certain types of

28 ‘ ‘Arrow’s [ 1962] article also contained a simple (but seminal) formal model of process innovation. The message of this model was unambiguously

that even an ideal system of patents (of infinite duration and costlessly enforceable) might well provide an “inadequate’ incentive to invent. . .To the

extent that any policy implication is inferable from this very simple economic model of inventiom it is clearly in the direction of stronger protection for

intellectual property rights, and perhaps other measures to reduce transaction costs in markets for such rights. ’ (Winter, op. cit., footnote 8, p. 42.)

29 Ibid., pp. 41-60 (quote from p. 45). Winter draws his empirical evidence concerning fimctioning of the patent system from a Yale University study

conducted by Richard Ixvin, Alvin Klevorick Richard NCISOW and Winter. See R, bvin et al,, “Survey Research on R&D Appropriability and

Technological Opportunity, ’ Brookings Papers on Economic Acri}i~l, 1987, pp. 783-820.
.—...—— —-

Chapter 6---Economics, Intellectual Property, and Software ● 189

market and to expand internationally. Part of the difficulty seems to come from the technological nature of the

enterprise, A startup is often technology-oriented: the founder may be chief programmer, perhaps designer of a

single product. As the firm grows, it needs to shift to a market (rather than technology) focus: advertising, packaging,

and user support become increasingly essential. A corresponding increase in personnel may also require the firm

to acquire new managerial expertise. The notion that a firm must achieve a certain size and have a certain amount

of marketing and managerial savvy in order to be a significant player in the software industry seems to receive

support from the increasing number of software mergers and acquisitions.

Acquiring or merging with a company with similar product offerings can be efficient. It maybe less costly to

acquire a small firm with a niche product, rather than developing it internally; conversely, once a small niche

company has peaked, its logical evolution may lie in being acquired by an established firm, rather than trying to

expand. Business alliances with firms that are “complementary” in terms of products, technologies, and market

focus can also be very advantageous—the 1991 alliance between IBM and Apple is a notable example.

Increasing concentration: It still seems to be true—but perhaps not so true as in the early 1980s--that the

software industry is a haven for small entrepreneurs. One estimate is that there are 9,000 to 12,000 software

companies in the United States. However, a closer look shows that the industry is relatively concentrated, dominated

by the top 200 companies or so. Distinct segments of the industry illustrate this relative concentration: according

to Soft-Letter, the “Top 20” PC software companies reported 1990 revenues of about $3.3 billion. The “Top 5,”

however, accounted for two-thirds of these revenues, with the “No. l“ firm accounting for almost 30 percent of

the total (for the “Top 10,” see table 3-2 inch. 3).

Prominence of hardware manufacturers as software producers: CONTU saw the software-market shares

of hardware producers being ‘‘steadily eroded” by independents and concluded that, with software protection,

competition in software would be enhanced in the future due to entry. (CONTU Report, p. 24). Despite vigorous

growth by the independent software sector, the hardware firms retain a major share of the software market overall.

In terms of revenues, IBM is the leading U.S. software producer overall and is the largest packaged software vendor

in the world (see ch. 3).

SOURCES: OTA workshop on “Software Developers’ Business Needs and Concerns, ” Sept. 25, 1990; also Everett M. Rogers and Judith K.

Larsen Silicon Valley Fever (New York: Basic Books, Inc., 1984); Robert Schware, The World Software Industry and Software

Engineering (Washington DC: The World Bank, 1989); Final Report of the National Commission on New Technological Uses of

Copyrighted Works (CONTU), July 31,1978 (referred to by OTA as CONTU Report); ‘‘AnAnalysis of Computer and Photocopying

Copyright Issues From the Point of View of the General Public and the Ultimate Consumer,’ Public Interest Economics Center

(Washington DC: June 1977); INPUT, U.S. Software Products Market, 1988-1993 (Mountain View, CA: INPUT 1988);

Organization for Economic Cooperation and Development Internationalization of Software and Computer Services (Paris, France:

OECD, 1989); data compiled by Soft-Letter (Watertown, MA: 1991).

inventive effort. Private returns from an invention social value of the invention.

31 The possibility for

are usually expected to be lower than the benefits extraordinary returns from inventions with valuable

accruing to society. 30 However, there are exceptions. complementary assets might divert inventive efforts

For certain types of inventive efforts, private returns from other areas that might be more beneficial to

may exceed social returns. This might occur, for society as a whole, although less rewarding to the

example, if the inventor is able to invest in comple- individual rights holder.

mentary assets whose prices will tend to increase

after his or her invention is disclosed and imple- Another source of excessive incentives for invenmented. The inventor’s gain from these complemen- tive activities comes about from the possibility of

tary assets need not be related to (or bounded by) the multiple inventors. In a dynamic ‘‘race to patent, ’

30 Mmfleld~s 1977 s~dles comp~g average ~~~1~ and private mtes of return from ~vestments ~ fiovation h a variety Of industries fo~d thit

estimated sociat returns exceeded private ones, usuatty quite substantially. IOTA note: This aggregate approach did not compare public and private returns

for particular inventions or inventors.] See Edwin Mansfield, ‘‘Intellectual Property, Technology and Economic Growt& ‘‘ in Intellectual Property Rights

in Science, Technology. and Economic Performance, Francis W. Rushing and Carole Ganz Brown (eds. ) (Boulder, CO: Westview Press, 1990), ch. 2,

esp. pp. 20-22.

31 w~[er, op. cit., footnote 8, pp. 4243. See also J. HiMdeifer, ‘ ‘The Private and Social Value of Information and the Reward to Inventive Activity, ’

American Economic Review, vol. 61, 1971, pp. 561-574; and Whinston, op. cit., footnote 18.
190 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

new technologies may be implemented too early-it

might be better from a social perspective to wait and

allow costs to decline due to general technological

advance. Also, assuming the possibility of multiple

independent discoveries, a patent might be granted

for an invention that would otherwise appear in the

public domain during the useful lifetime of the

patent. 32

Looking at the interplay of economic growth and

patent and antitrust policies, Janusz Ordover has

concluded that “weak” patent protection need not

hamper economic growth, if appropriate industry

cooperation is allowed. At the same time, ‘‘strong’

protection need not hinder diffusion of advances:

Appropriately structured patent law and antitrust

rules can together ensure incentives for R&D [research and development] and also induce cooperation among firms in diffusing R&D results through

licensing and other means. . .At the same time,

cooperation among firms at the R&D stage can

counterbalance weak patent protection by internalizing spillovers from ongoing R&D programs, and

such cooperation may also produce additional spillovers from existing knowledge.33

Ordover’s examination of intellectual property and

antitrust regimes in the United States, Japan, and the

European Community, suggests, however, that the

U.S. policy mix may have gone too far in favoring

the interests of the inventor:

. . the current U.S. policy thrust of strengthening

patent protection while reducing antitrust restrictions on the exercise of intellectual property rights is

not a precondition for high rates of growth and for

the maintenance of R&D incentives. 34

Industry Differences in the Perceived

Efficacy of Intellectual Property

The extent to which the effects of intellectual

property regimes on market behavior are manifested,

as well as the social desirability of these outcomes,

may vary depending on the characteristics of the

market and technology. 35 In theory, a patent confers

perfect appropriability from a technological advance

of requisite quality in exchange for public disclosure

and widespread use of the advance after the patent

term has expired. In practice, patents often do not

confer perfect appropriability (e.g., because they can

be invented around or are too hard to enforce) and

public disclosure of a patent claim need not assure

eventual diffusion of the knowledge required to

make economic use of an advance. Substantial

resources may be required to imitate an innovation,

even one in the public domain.36 Moreover, firms

may be able to ‘‘pyramid’ the benefits they derive

from their patents by “fencing in” a field of

technology through systematic patenting.37

In general, patents are thought to discourage entry

into a market by raising the costs of entering with a

“close” substitute or by deterring entry entirely,

when the costs of licensing or inventing around the

patent are too high. By comparison, copyright

(which is not intended to bar independent creation)

32 winter, op. cit., foo~ote 8, pp. 43-44. See also Y. Barzel, “Optimal T~g of ~ovations. “ Review of Economics and Statistics, vol. 50, 1968,

pp. 348-355; and R.R. Nelson and S.G. Winter, An Evolun’onary Theory of Economic Change (Cambridge, MA: Harvard University Press, 1982).

A contrasting view is that in some cases, early delimitations of patent rights can be used to make R&D resource allocation more efficient. This is

called the ‘‘prospect theory” of patents. See E. W. Kitch, “The Nature and Function of the Patent Systernj ” Journal of L.uw and Economics, vol. 20,

1977, pp. 265-290. But see Robert P’. Merges and Richard R. Nelson, ‘‘On the Complex Economics of Patent Scope, ’ Cohmbia Law Review, vol. 90,

No. 4, pp. 839-916, esp. pp. 871-878.

33JanuszA.Ordover,‘‘A Patent System for Both Diffusion and Exclusiou’ Journal of Economic Perspecfi”ves, vol. 5, No. 1, winter 1991, pp. 43-60

(quote at p. 44). Ordover suggests that dichotonues like “long-term V. short-term” and ‘‘exclusion v, diffusion’ are too simple to be used as tools to

shape public policy concerning patents.

w Ibid., pp. 44,59.

35 For ~ ~uillbfi~ ~ysls of tie re~tiomMp ~~mn ~ket s~ct~e (ficlufig patent te~s) ~d f~’ decisions to invest b R&D, see Glenn

C. Lcmry, “Market Structure and Innovation” The Quarterly Journal of Economics, vol. 93, No. 3, August 1979, pp. 395-410.

For analysis of the effects of palent scope on invention, taking into account differences in industrial patterns of technological advance, especially

in cumulative technologies, see Merges and Nelsom op. cit., footnote 32, pp. 880-908.

36 Ric~d C, LAW@ ‘‘A New Look at the patent System, “ AEA Papers and Proceedings, vol. 76, No. 2, May 1, 1986, pp. 199-202.

37 see Schcrer, ~p. Cit., foo~ote 16, ch- 16, esp. pp. 450-452. sche~r ~so discusses tisti~tioti aspec~ of patent prosecution ~d a@hliSt31itiOn.
—— — — — . . . . —

Chapter 6--Economics, Intellectual Property, and Software ● 191

is generally thought to impose lower barriers to

entry.

38 In terns of economi c welfare, barriers to

entry are not uniformly ‘ ‘bad’ in some cases, they

will be beneficial. Analysis of which condition

pertains can be quite complex and depends, in part,

on whether goods will be produced in excessive

variety (relative to the socially optimal amount of

variety), absent barriers to entry,39

In instances where consumers care little about

product variety, theory suggests that barriers substantial enough to reduce the number of very similar

products (e.g., patents) will be beneficial. Conversely, when consumers value variety highly, an

intellectual property regime that allows multiple

products with similar features (e.g., copyright) will

be preferred.40 When consumers place a high value

on products with similar features, the value of a

copyright (to the copyright owner) will increase to

the extent that it allows control over preparation of

works with similar features (e.g., allows control of

user interfaces).41

Under the present patent system, the ability of

innovators to appropriate returns via patents appears

to differ across industries and technologies.42 In the

1980s, a multi-industry study on R&D appropriability (the ‘ ‘Yale study’ was conducted by Richard

Levin, Alvin Klevorick, Richard Nelson, and Sidney

Winter. This research explored industry differences

in the perceived effectiveness of patents in gaining

and maintaining competitive advantages from new

or improved products and processes.43 The researchers surveyed industry R&D managers concerning

the relative effectiveness of:

●

●

●

●

●

●

The

patents to prevent competitors from duplicating

the new product or process;

patents to earn royalty income through licensing;

maintaining secrecy about the new product or

process;

leadtime advantage (from being first out with a

new product or process);

moving quickly down the learning curve (in

order to reduce costs); and

superior sales or service capabilities.

Yale study concluded that the role of a patent in

gaining and maintaining competitive advantage

depends in large part on specifics of the relevant

industry and technology. For example, in an industry

where inventions tend not to be technologically

independent of other patented inventions, firms with

patent portfolios may participate in patent cross

licensing. Even under these circumstances, breakthrough, “pioneer” patents can yield large advantages through excluding others and/or producing

royalty income.44

The Yale study found a great deal of inter-industry

variation in the perceived effectiveness of patents as

a means of securing innovative gains, even in

‘ ‘high-tech, ’ R&D-intensive industries:

38 However some ICg~ observers warn that overly-broad copyright protection for softwar=.g., copyright proteCtion for user interfaces-is

equivalent to p’a~ent protection, excepl that the protection has been obtained for an extremely long term and without patent criteria of novelty and

nonobviousness, (See Pamela Samuelson, ‘ ‘Why the Look and Feel of Software User Interfaces Should Not Be Protected by Copyright Law, ”

Communications of[he ACM, vol. 23, No, 5, May 1989, pp. 563-572.) Others consider that software faces a more general problem in that attempts to

apply traditional copyright principles and precedents may well restrict efficient technology development. (See Dennis S. Karjala, ‘‘Copyright, Computer

Software, and the Ncw Protectionism,” Jurimerrics Journal, fall 1987, pp. 33-96.)

Disagreeing with these views, many other legal observers consider that the courts can be (and generally have been) successful in adapting traditional

copyright principles to software cases. (See Morton David Goldberg and John F. Burleigh, ‘‘Copyright Protection for Computer Programs: Is the Sky

Falling?’ AIPLA Quarterly Journal, vol. 17, No. 3, 1989, pp. 296-297; and Anthony L. Clapes, Patrick LyncL and Mark R. Steinberg, “Silicon Epics

and Binary Bards, ” UCLA LauI Revienl, vol. 34, June-August 1987, pp. 1493-1594.

N see, e.g., Michael WatcrsOn, ‘‘The Economics of Product Patents, ’ The American Economic Re}’ieu), VOI. 80, No. 4, September 1990, pp. 860-869.

@ Wtiterson, Op, Clt,, foomotc 39, pp. 867-869. For analysis of the economic effects of increased copyright protection where co~umers ‘W in ~eu

tastes and in their costs of copying, scc Ian E. Novos and hlichael Waldw ‘ ‘The Effects of Increased Copyright Protection: An Analytic Approach, ’

Journal of Political Econom~, Aprd 1984, pp. 236-246.

‘i Michael O’Hare, “Copyright: When Is Monopoly Efficient?” Journa/ of Policy AnaZysis and Management, vol. 4, No. 3, 1985, pp. 407418.

Copyright gives exclusive rights over derivative works, to the extent that protected expression is used.

42 For theoretical ~[ysis of how the preferr~ form of research incen(ive can v,ary depending on ~ket s~c~re, see Brim ‘. w’rigl~t> ‘‘ne

Economics of Invention Incentives: Patents, Prizes, and Research Contracts, ” The American Economic Re]’ieu), vol. 73, September 1983, pp. 691-707.

Wright finds that when the probability of succcss of a project is high, contracts are prcfcrrcd; when the probability of success is low to moderate and

the supply of research is elastic (mcrc~ses in expected financial rewards attract new researchers), patents are best (ibid., p. 703).

43 Winter, op, cit., footnote 8, pp. 45-56. Sec also R. L.cvin et al., op. cit., foo~ote 29, pp. 783-~20.

u 1n 1958, Machlup noted tits~ateglc patents ~d/or rcs~lctive licensing can permit substantial control of ~ industw by blocking or excluding rivals;

accumulation or aggregation of patents can bar entry by newcomers. He also noted that ‘‘patent pooling’ (cross licensing) has ‘‘often been the vehicle

for cartel agreements of the most restrictive sort. (Machlup, op. cit., footnote 21, pp. 10-12.)
192 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

●

●

●

●

Patents were perceived as highly effective in

the pharmaceutical industry45 but were rated as

being only moderately effective in the semiconductor, computer, and communications equipment industries;

Most industries reported that using patents to

secure royalty income! was less effective than

using patents to prevent duplication;

Except in petroleum refining, patents were

considered more effective in preventing product duplication than process duplication;

With the exception of product patents in the

organic chemical and pharmaceutical industries, using patents to prevent duplication was

perceived as only moderately effective in

securing gains from an innovation.46

The Yale study found that the most important

perceived limitation to the effectiveness of patents

was “inventing around” by rivals able to invent a

substitute product or process or narrowly skirt the

edges of the patent claims. The fast pace of

technological advance (’‘technology moving so fast

that patents are irrelevant”) was considered much

less of a limitation. Perceived problems of “not

readily patentable” subject matter and ‘‘patents

disclose too much proprietary information” were

more severe for new or improved processes, rather

than products. These considerations help explain the

importance of other tools—like lead time and

secrecy—in securing and preserving competitive

advantages .47

The terms under which a patent is licensed depend

on a number of factors, including the relative

bargaining powers of the patent holder and prospective licensee, and how much information each has

about market conditions, the invention, and the 48 Patent licensing can economic value of the patent.

provide licensers with other advantages besides

royalty income. In some cases, strategic licensing

will permit a patent holder to structure the industry

so it consists of relatively ‘weak’ competitors. This

structure enables the patent holder to prolong its

dominant position after the patent term has expired. 49

Cumulative Technological Progress

The literature on “patent races” focuses o n

analyzing situations where multiple innovators are

vying to achieve the same goal.50 A somewhat

different set of circumstances arises when innovation is cumulative--one firm develops an initial

innovation but others can build on it. In this model,

the incentives to develop both the initial and

subsequent innovations depend on the scope

(breadth) of patent protection.51 The traditional

literature did not focus on the dynamics of cumulative progress and multiple inventors.

Suzanne Scotchmer has looked at use of (product)

patent protection and cooperative agreements to

protect incentives for cumulative research where

initial innovations facilitate subsequent ones.

52 She

finds that with broad patent protection, economic

incentives for outside firms to develop secondgeneration products (under license) can be too weak.

The incentives for the frost innovator to develop the

second-generation products (assuming he or she has

the insight and resources to do so) are much stronger;

in some cases, the prospect of licensing revenues for

second-generation products may inefficiently inflate

45 ~ tie p-ceuti~ industry, a patent often corresponds to one product.

~ Wkter, op. Cit., fm~ote 8, Pp, 4.6A9, especwy table 2.1, The study included the computer, semiconductor, and cofnm~cations ~~Pment

industries, but not a separate “software” industry. Winter notes that these findings support both Arrow’s view that transaction costs present serious

problems for information markets (i.e., patent licensing) and also Kitch’s view on the value of patents in making R&D markets more efficient.

47 rbid., pp. 48-56, esp. table 2.2 and figure 2.1.

4S For discu~~iOn of litma~e on liWm~g ~mgements and ~ysis of ~angements when tie patent holder must decide how much iIfOKnatiOn tO

share with the licensee, see Nancy T. Gallini and Brian D. Wright, “lkchnology Transfer Under Asymmetic Information” RAND Journal of

ECOffO??th, vol. 21, No. 1, spring 19’20, pp. 147-160.

49 For analysis of how a do-t patent holder may prefer to license to technologically weaker competitors, whose presence in the industry may deter

entry by other fins, even after the patent has expired, see Katharine E. Rockett, “Choosing the Competition and Patent Licensing, ’ RAND Journal

of Economics, vol. 21, No. 1, spring 1990, pp. 161-171. Rockett cites examples of the development and licensing of polyester, cellophane, and nylon

as evidence to support the genemd assumption that powerful patentholders can use licensing to structure their competition and preserve competitive

advantages beyond the patent term.

50 me f *raW” metaphor ass~es tit Ody One f~ can win tie patent and that inventions are dkcrete.

51 Besen and Raskind, op. cit., footnote 2, p. 4.

52 Suzanne Scotchrner, “Standing on the Shoulders of Giants: Cumulative Research and the Patent Law,” Journal of Economic Perspectives, vol.

5, No. 1, winter 1991, pp. 29-41.
.= .

Chapter Economics, Intellectual Property, and Software . 193

incentives for the first innovation.53 With narrow

patent protection, first-generation innovators may

be discouraged from patenting and disclosing their

products (if they fear that second-generation products developed by others will hurt their profits).

They might, instead, hold frost-generation products

off the market until they had developed their own

second-generation products; alternatively, they might

rely on trade secret protection to avoid disclosing the

nature of their technological advances.54

Scotchmer explores two possible remedies for

these defects:

narrowing the scope of protection for the first patent

(so that ‘different enough’ second-generation products do not infringe), and

prior agreements, whereby second-generation innovators can sell their ideas to innovators of the first

products or integrate with them.

She finds that:

[N]o system of narrower patent protection and

licensing can give the right incentives to both the

first innovator and other firms that develop improvements, even if collusive licensing among noninfringing products were allowed. . ,[this] result depends on

my premise that the breadth of the underlying patent

cannot be separately tailored to the costs and benefits

of each second generation product.55

Scotchmer also finds that—assuming that parties to

the agreement can collude in using the resulting

patents—prior agreements (e.g., research joint ventures) are:

[A] social improvement over licensing because they

can improve incentives to invest in second generation products, whatever the breadth of patent protection,56

She finds, therefore, that there are no simple

conclusions to draw about the optimal breadth of

patents; moreover, questions about patent breadth

must be considered jointly with questions about the

extent to which firms will be permitted to cooperate

(under antitrust rules). Therefore, Scotchmer concludes that prospects for fine-tuning the patent

system for particular technologies seem limited,57

Considering further the tradeoffs between disclosure and profitability, Suzanne Scotchmer and Jerry

Green examine the effect of the novelty requirement

in patenting on information sharing and economic

welfare in industries where progress is cumulative .58

Scotchmer and Green proceed from the premise that

the effective lifetime of a patent may be much shorter

than its statutory term—the patented technology

may be displaced by a (noninfringing) and superior

innovation. Thus the novelty requirement is important in patent design. A high standard of novelty

makes displacement harder and, in principle, gives

a larger return to the patent holder, However, a high

standard of novelty also bears a social cost in that

relatively minor incremental innovations may not be

patented—thus, not disclosed. High standards may

also encourage firms who fall behind technologically to drop out of the patent race. This can be

beneficial if it reduces duplicative research by

technologically less-advanced fins. When the novelty requirement is weak, these firms may have too

strong an incentive to stay in the patent race.59

53 Ibid., pp. 32.33. ne pmSp@ of hce~ing revenues may overinflate incentives for the fkst product iMOVatiOn when it is not the Ordy possible way

to achieve the second-generation innovations. Scotchmer’s analysis assumes that the second-generation product infringes the patent on the first and

therefore, some of the second innovation’s revenues must be transferred to the first innovator under licensing.

g Ibid., pp. 38-39.

55 Ibid., pp. 33-35.

56 Ibid., p. 36, sml~ ~nefits ~o~d ~ lwgest if all possible fiovators could be ~tegrated via ~ agreement pfior to tie fkst klnovatio~ however,

this k likely to be infeasible, particularly in fields where second-generation innovations are serendipitous.

In Scotchmer’s model, collusion in use of the patents is an important way to protect incentives to innovate. When research outcomes are unpredictable,

innovators cannot know beforehand whether particular projects will result in innovations that infringe an earlier patent therefore, rules that permitted

agreements only if patents turned out to be infringing would be difficult to implement (pp. 36-37).

57 Ibid., pp. 39-40. ~ Scotcber’s model, patent bread~ ad term may some~esbe chosen ~dependenfly; iII Otier cases, breadth ~d effective term

are correlakxt.

58 Sume Scotchmer and Jerry Greem ( ‘Novelty and Disclosure in Patent Law, ” RAND .rournal of Econo?nics, vol. 21, No, I, spring 1990, pp.

131-146. In their analysis, the patent system’s criteria for novelty and nonobviousness determine both how broad the claims of a patent can be and how

different subsequent innovations must be not to infringe. Thus, these criteria determine the value of a patent, the incentives for innovative activity, and

how much technological information is disclosed and diffused.

59 Ibid,, pp. 144-145; and Garth Saloner, ‘‘Introduction to Symposium on Patents and Technology Licensing, ‘‘ RAND Journal of Economics, vol.21,

No. 1, spring 1990, p. 104. Another result from a weak novelty requirement is that firms may prefer not to disclose all of their technological progress,

unless they are able to enter into cooperative licensing agreements with firms producing similar products.
194 ● Finding a Balance: Computer Software, intellectual Property, and the Challenge of Technological Change

In the copyright regime, the dilemma of ‘cumulative progress‘‘ is manifested in controversy over the

breadth of protection extended to derivative works,

Some economists have concluded that narrower

protection for the original work will better serve the

public interest by providing incentives for others to

create derivative works. In the software arena, these

commentators consider that making it illegal under

copyright to copy in order to tailor programs to

users’ special needs, or to copy in order to analyze

programs for the purpose of improving and enhancing functions, raises the cost of subsequent innovation. 60 Others, however, conclude that granting

control of derivative works to the creator of the

original work encourages early release of the original work. Otherwise, they argue, proprietors would

attempt to secure market advantages by delaying

release until they prepared derivatives.61

Patents and Trade Secrets

David Friedman, William Landes, and Richard

Posner have examined the economics of trade secret

law, focusing on the choice between patent and trade

secret protection and why the law does not protect

against loss of trade secrets through reverse engineering. 62 In their view, although the COUr tS have

sometimes thought that trade secret law protects a

“lesser’ class of inventions (because “no rational

person with a reasonable invention would fail to

seek a patent’ ‘), this is not the case. Instead, they

argue, trade secret law supplements the patent

system. Innovators choose to maintain an innovation

as a trade secret instead of applying for patent

protection when patent protection is too costly

relative to the value of the innovation, when the

expected economic lifetime of the innovation is

expected to be longer than the patent term, or when

the innovation may not be sufficiently novel or

nonobvious to qualify for patent protection. There

are some social costs to this-with trade secrecy,

there is no finite term of protection or disclosure in

return for protection. However, these costs are

somewhat ameliorated because independent invention (and patenting) of the “secret‘‘ is permitted.63

Not prohibiting reverse engineering of trade

secrets is costly to the extent that proprietors incur

additional costs to maintain the secret or make their

products hard to reverse engineer. Nevertheless,

these authors conclude, the respective costs and

benefits weigh against protecting trade secrets from

reverse engineering: For one thing, the social costs

of enforcing secrecy through the legal system would

be high: for example, it could be difficult to prove

that a competitor learned a trade secret through

reverse engineering rather than through independent

research. 64 Perhaps even more importantly, the

information disclosed through reverse engineering

facilitates incremental innovation.65 On balance,

Friedman, Landes, and Posner consider that more

comprehensive legal protection of trade secrets as

property, ‘‘would be tantamount to a perpetual

patent law without public disclosure,” without the

economic efficiency advantages of disclosure and

limited terms.66

Choices in the

Optimal Design of Patents

Rewards to innovation can be granted by broad

patents of short duration or by patents designed with

narrow scope (breadth) but long duration (term). The

supply of R&D and other innovative activities is

usually assumed to respond favorably to improved

prospects for financial reward-i. e., increased incentives are thought to induce additional innovative

60 B~~~~ ad Ru~d, op. ~lt., f~~,~te 2, pp. 16.17 (Ci~g Y.M. Bra~tein et ~., ECOnO~”CS @~TOperfy Rights US App/ied to computer ~oftware

and Data Bases, PB-286 787 (Washingto% DC: U.S. Department of Commerce, 1977); and R.H, Stem, “Section 117 of the Copyright Act: Charter

of Software Users’ Rights or an Illusory promise?’ Western New England Law Review, vol. 7, 1985, pp. 459-489).

c1 Besen and Rastid, op. cit., footnc,te 2, p. 16 (citing W.M. Landes and R.A. Posner, ‘‘An Economic Analysis of Copyright Law, Journal of Legal

Studies, vol. 18, 1989, pp. 325-366).

62 F~e~~ et al., op. cit., footnote ~.

63 Ibid, pp. Gz@j Ffiedm~~des, ~d posner note tits~recy con~as~ wi~ me ‘ ‘prosp~t’~eoly of patenfig, where disclosure serves tO head

off wasteful duplication of inventive effort (p. 65). See Kitch+ op. cit., footnote 32.

64 For discussion of tie some of fie c[lfficulties of made s~ret prot~tio~ ~cludfig con~act~ ~d evidentimy problems in enforcement, see Steven

N.S. Cheung, “Property Rights in Trade Secrets, ” Econom”c Inquiry, vol. 20, January 1982, pp. 40-53.

65 Friedm~ et al., op. cit., footnote ~, pp. 69-71.

66 Ibid., p. 71.
Chapter 6--Economics, Intellectual Property, and Software ● 195

activities. 67 As Garth Saloner observes, determining

the optimal size of the reward that a patent should

confer and the optimal design of the patent (breadth,

term) depends on the extent to which society wishes

to encourage additional innovative activities beyond

those that would take place otherwise, absent

patents. There is a tradeoff between the social

benefits realized through economic stimulation of

innovative activities provided by the promise of a

patent and the social costs later induced by the

market power that a patent confers; the magnitude of

these social costs depends on the manner in which

innovators choose to patent, license, and otherwise

exploit their discoveries.

68 Therefore, Saloner notes,

normative questions of optimal patent design and

positive questions of how firms behave are closely

related; both must inform public policy.69

Aggregate data on R&D, patenting, and technological progress generally support theoretical findings that patents encourage innovative activities and

increase economic welfare .70 But the more detailed

theoretical models of optimal patent design will

yield different-even contradictory-conclusions

when based on different assumptions about the value

of patents71 and the behavior of innovators and

markets (see below). Disaggregate empirical evidence to distinguish among these for the purposes of

optimizing patent design is lacking. In terms of

empirical evidence to support unambiguous ‘ ‘improvements ‘‘ in patent design, we have not moved

very far from Fritz Machlup’s conclusions:

One important moral of the argument [about the

effects of an extension of patent protection by 1 year]

is that no one who thinks it through can be very

sanguine concerning the effects to be expected in

‘‘reality’ and certainly, no one cart be at all sure

about any of these matters.72

Optimal Patent Term

Along with its breadth, the term of a patent is

related to its ‘‘strength. (As was discussed earlier,

thinking about whether ‘‘stronger’ rights are unequivocally ‘‘better’ has changed.) Economists have

a long history of participation in the debate on

‘‘optimal’ patent terms.73 As Fritz Machlup related

in his 1958 review of the patent system:

The duration of patents has been determined by

historical precedent and political compromise. The

14-year term of the English patents after 1624 was

based on the idea that 2 sets of apprentices should,

in 7 years each, be trained in the new techniques. . .

There were all sorts of arguments in later years in

favor of a longer period of protection: it should be

long enough to protect the inventor for the rest of his

life; to protect him for the average length of time for

which a user of the invention might succeed in

keeping it secret; or for the average time it would

take others to come up with the same invention; or

for the average period in which investments of this

kind can be amortized; and some pleas were made for

perpetual coverage.

Economists usually argued for shortening the

period of protection: the bulk of inventions are not so

costly as to require the stimulus provided by

6T However, Merges and Nelson conclude that, ‘‘Ultimately it is important to bear in mind that every potential inventor is also a potential infringer.

Thus a ‘ ‘strengthening” of property rights will not always increase incentives to invent; it may do so for some pioneers, but it will also greatly increase

an improver’s chances of becoming enmeshed in litigation. .When a broad patent is granted or expanded via the doctrine of cquivaIents, its scope

duninishes incentives for others to stay in the invention game, compared again with a patent whose claims are trimmed more closely to the inventor’s

actual results. ’ (Merges and Nelson, op. cit., footnote 32, p. 916. )

~g Saloner ( 1990), op. cit., footnote 59, pp. 103-105.

For a development and analysls of different mccharusms to secure rights for innovators (the “innovation patents” md lhc ‘‘l~ovation w~~t”).

see WIllmm Kingston (cd.), Direct Protection oflnnw’ation (Dordrccht, ‘Mc Netherlands: Khrwer Academic Publishers, 1987). This study was prepared

under contract for the Commission of the European Communities, Directorate-General Telecommunications, Information Industries and Innovation.

69 Ibid,

XI For ~xample, s= Wllllam Nordhaus, ]n},ention, Growth, and Wel@re: A Theoretical Trca(ment of Technological Change (Cambridge! MA: MT

RCSS, 1969); Zvi Grdiches (cd.), R&D, Paren/.r and Productivity (Chicago, L: micago Univcr$ity ~esst 1984); Zvi Gfiliches, ‘‘patent Statistics as

Economic Indicators: A Survey, ” Journal of EcononIic Literature, vol. 28, No. 4, December 1990, pp. 1661-1707; and Machhp, op. ch., footnote 21,

pp. 76-80.

T i ~cre is ~x~cmclj, ~ldc vWl<mce in tie econonllc value of Patents, Gfi]ichcs repofis tit, al~ough a few smaller-scale studies have been done

subsequently, the only detailed and extensive survey of patent holders was conducted in the late 1950s by B.arkev Sanders and associates at the Patent

and Trademarks Foundation. Economic gains reported from patents then in current usc were widely dispersed, with a mean value of $577,000 per patent

and a median value of $25,(XI0 (current dollars). Economic returns from all patents (including those not in usc or with negative returns) had a mean of

$112,000 and a median C1OSC to Zero. (Grilichcs (1990), op. cit., footnote 70, pp. 1679 -1680.)

~z Machlup, op. cit., footnote 21, pp. 70--73 (quote from P. 73).

T~ As dcscrlhd by Sidney Winter, the pendulum of opinion 011 the ‘‘Optfi~’ term of protection (e.g., whether increasing or decreasing the term of

patent protection would be more socially desirable) has swung back and forth over the years, For his discussion of changes in economics thinking about

the term and strength of protection, see Winter, op. cit., footnote 8, pp. 41-43.
196 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

protection for such a long time, and not important

enough to deserve the reward that it affords; a much

shorter period would provide sufficient incentive for

almost the same amount of inventive activity; the

period should not be so long as to allow patentees to

get entrenched in their market positions; “technology moves now with a speed once undreamed

of—its swift march dictates a shortening in the life

of a patent. ’74

The cyclical debate has continued into our time.

In the 1960s, following At-row’s seminal paper,

economists turned to mathematical analyses of the

optimal patent term. William Nordhaus extended

Arrow’s model of incentives for invention, exploring the relationship between the ‘‘size’ of an

invention (measured as the decrease in unit production cost of a good) and the patent term. Nordhaus

then formulated the socially optimal patent term by

maximizing social welfare subject to the inventor’s

behavior, 75 showing that shorter patent lives were

preferable to longer ones. 76

F.M. Scherer interpreted Nordhaus’ theory geometrically and showed that (process) patents induce

investments in R&D in two ways. The first of these,

the ‘‘stimulus effect, was emphasized by

Nordhaus. In this role, the optimal patent provides

just enough incentive for additional R&D so that the

marginal social gain from further cost reductions

just equals the marginal social cost. In its second

role, the patent persuades investors that competitive

imitation will be deferred long enough so that the

stream of (discounted) monopoly rents will exceed

outlays for investments in additional R&D. 77

Scherer’s model indicated that ‘easy’ inventions—

those yielding big costs savings in relation to R&D

resources invested-warranted shorter protection

than “hard’ inventions, unless the inventor had

faced extraordinary risks or had exhibited extraordinary creativity. Scherer concluded that policies

tailoring the life of each patent to the economic

characteristics of the invention might be accomplished by a flexible system of compulsory licensing, where a patent would expire or be licensed

openly at modest royalties after 3 to 5 years, unless

the patent holder could show that special conditions

warranted longer terms (e.g., market is small relative

to research costs, the invention will yield small cost

savings relative to research costs). For patents held

by dominant corporations with large market shares,

Scherer suggested that a presumption of early

expiration or open licensing would be appropriate

because the firm would have other ways of appropriating innovation gains.78

Empirical studies of R&D incentives and rewards

suggest that the useful economic lifetime of a patent

is often far shorter than the statutory term. From a

multi-industry survey of R&D fins, Edwin Mansfield found that the effective economic lifetime of

most patents is much less that 17 years; moreover, he

found that about 60 percent of patented products

were successfully imitated by others within 4

years.

79

Optimal Patent Term and Breadth

More recent analyses have considered breadth, as

well as length, as tools with which to craft optimal

patent designs. Gilbert and Shapiro examine the

tradeoffs between patent term and breadth in designing a patent to provide a reward of a given size,80

Their model of the flow of profits available to the

patent holder assumes a predictable underlying

environment and homogeneous products, where the

breadth of the patent corresponds to market power—

the broader the patent, the greater the ability to

increase price over marginal cost. With this model,

increasing patent breadth yields a greater flow of

profits but also increases the dead weight losses

74 MacMup, op. Cit., foo~ote21, p. g. me quote about the swift pace of technological advance is from 1941. ~~uP discusses tie imPficatio~ o

f

changes in patent term on pp. 66-73.

75 See ~so Morton J. Kamien and NrMICy L. Schw~, “Patent Life and R&D Rivalry,” The American Economic Review, vol. 64, March 1974, pp.

183-187.

76 Nor~us, op. cit., foo~ote 70.

77 Scherer ~s tis the “Lebensraum deCt.’

78 F.M. Scherer, “Nordhaus’ Theory of Optimat Patent Life: A Geometric Reinterpretation” The American Economic Review, vol. 62, June 1972,

pp. 422427.

79 RIwfi-field, ‘R&D and Innovation: Some Empirical Findings, “ in Zvi Griliches (cd.), R&D, Patents andProductivify (Chicago, IL: Chicago

University Press, 1984). (Cited in Scotchmer and Gree% op. CI(, footnote 58.)

some tie question of how much t. reward patent holders requires some assumptions about the elasticity of suppll’ of inventions, designing ~

economically efficient patent with a given reward does not. See below.
. . . .

Chapter 4-Economics, Intellectual Property, and Software ● 197

stemming from the patent monopoly .81 Under these

conditions, Gilbert and Shapiro conclude that longer

patent terms are preferable to broader patents.

However, they warn, their assumptions of a stable

environment (with predictable supply and demand)

and their focus on a single product is critical to this

conclusion. Under other circumstances-for example in markets where research is cumulative—an

overly long patent might block subsequent innovations by establishing monopoly rights over an entire

line of research. In that case, optimal patents would

be tailored differently.82

Paul Klemperer uses a different model to explore

the tradeoff between patent term and breadth in

designing a patent yielding a reward of a given

size.83 In his model, entry into the market is free and

substitute goods are available. Consumers are assumed to prefer the patented good, but they vary in

their demands and their costs of switching to

less-preferred goods (either close rivals or goods in

a different product class). As the breadth of the

original patent decreases, rivals are able to position

their substitute goods closer and closer in product

space. Conversely, in Klemperer’s model, a broader

patent corresponds to fewer close substitutes, more

market power for the original patent holder, and

larger welfare losses.

Klemperer’s model yields differing results, depending on how consumers vary in their costs of

substituting to close rivals and substituting out of the

product class entirely. If consumers face similar

costs of substituting rival products (close substitutes) but vary in their costs of switching out of the

product class, then Klemperer also shows that the

optimal patent is very narrow and long-lived.

However, if consumers have similar costs of switching out of the product class but vary in their costs of

substituting rival products, then his model shows

that optimal patents are broad and short-lived.84

“Protection of the general good is found in the

limited term and stringent standards associated with

patents, the proscription of the protection of ideas

under copyright, and the refusal to allow the extension of patents and copyrights beyond their limited

scopes. This last matter may be the heart of the

concern about the economic effects of program

copyright.”

Final Report of the National Commission on New Technological Uses of Copyrighted Works (CONTU), July 31,

1978, p. 23.

Compatibility, Network Externalities,

and the Installed Base85

For many products, the satisfaction a user derives

from consuming the good increases as the good

becomes more popular. As Michael Katz and Carl

Shapiro explain, these positive externalities can

arise for a number of reasons, besides the purely

psychological, “bandwagon” effect”: market size

and share may signal product quality to consumers,

or product information may be more plentiful or

accessible for popular products. Some products,

such as computer software and hardware, also

exhibit what are called network externalities, where

user satisfaction is greater, the more popular the

network of users. Network externalities-manifested, for example, in users’ preferences for ‘popular’ programs with established user communities, or

for programs performing different functions but

having similar user interfaces-are much more

important now than at the time of CONTU. As the

“PC revolution’ has taken place, “networks’ and

their corollary benefits have become much larger.86

(See discussion of software network externalities in

ch. 4.)

Network externalities sometimes arise from a

direct physical effect on product quality (e.g.,

telephones and facsimile machines become more

al R1c~r~ Gilbert and Carl Shapiro, “Optimal Paumt hngthan~ Breadth, ” RAND Journal of Economics, vol. 21, No. 1, spring 1990, pp. 106-112.

The dead weight loss comes about because monopoly power permits the patent holder to maximize profits by producing the patented good in fewer

quanhties, and charging higher prices, than under competition.

~~ Ibid,, pp. 107, 111-112.

‘7 Paul Klcmpcrcr, 4 ‘How Broad Should the Scope of a Patenl Be?” RAND Journal of Economics, vol. 21, No, 1, spring 1990, pp. 113-130.

~ Ibid., pp. 12(5- 127; and Saloner, op. cit., footnote 59, p. 1~.

S5 OTA ~<)tc, A scpuate OTA report on G[obal .~tandurd,$: Bliildi~lg B/C)C-~.~f~r the Fu&re will be published in early 1992.

~~ peter Mencll llotcs that CONTU ‘ ‘entirely overlooked’ networh cxtcmalltlcs in its analysis and recommendations (Mcnell, May 1989, op. cit.,

footnote 13, p. I(K6).

In fairness, this iS not surprising because of: 1 ) the relative paucity of economic analysis of network effects prior to the completion of the CONTU

report, and 2) the fact that the main sources of these network effects in the computer industry-microcomputers and mass-marketed software-had yet

to come into prominence.
198 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

valuable, the larger the network of users). Network

externalities can also arise from indirect effects—for

example, the availability and quality of service can

depend on the number of units that have been sold

(e.g., well-established products or brands are more

likely to have well-developed service departments).

In some cases, network externalities occur for

complementary products like computer hardware

and software-the amount and variety of software

available for use with a particular type of computer

will increase as the computer itself becomes more

popular.

The size of the network giving rise to these

externalities depends on whether products produced

by different firms can be used together.87 Looking at

markets where network externalities are present,

Katz and Shapiro find that firms’ choices whether or

not to make their products compatible will be one of

the most important dimensions of market performance. In many cases, firms will disagree on the

desirability of making their products compatible:

doing so may raise the profits of some firms while

lowering the profits of others, even if total output

increases. Katz and Shapiro also conclude that

intellectual property laws help determine how compatibility is achieved—through joint adoption of an

industry standard (e.g., when patents are strictly and

broadly enforced) or through unilateral actions of

adapters (e.g., when patents are loosely enforced or

narrowly applied) .88

For example, in the absence of legal protection for

user interfaces, a firm’s private benefits from

introducing a new interface may be short-lived, If it

is a market success, other firms will be free to adopt

it. When they do so, they will share in the network

externalities (which are largely due to the originating firm’s market success), With protection for user

interfaces, a firm can introduce a new interface into

the market and begin benefiting from network

externalities, without allowing its rivals to participate in the new network.89 Looking at user interface

standards for PC application programs, Menell finds

that these considerations might encourage firms

with brand recognition to introduce proprietary

(noncompatible) product standards, even though

adopting compatible standard would increase net

social welfare.90

Joseph Farrell finds that compatibility and standardization raise difficult economic and policy issues

for intellectual property, particularly when network

externalities are present. Looking at formal and

informal standards-setting processes for computers

and software, he concluded that:

[I]ntellectual-property rules determine the boundaries of what is protected, and thus determine the

borders at which fighting, or competition, takes

place. 91

Farrell considers that copyright law protects the

useful and valuable ideas in computer software only

indirectly, by protecting “ancillary features” (i.e.,

expression). Moreover, he argues, it can be economically inefficient to protect the latter—sometimes

they should be imitated in order to take advantage of

network externalities. Therefore, he concludes that

a different mix of protection regimes, to protect the

useful aspects of software but permit compatibility,

would be more economically efficient.92

When compatibility is important, especially when

network externalities are present, the installed base

of products and/or trainin g can affect the pace of

innovation. Joseph Farrell and Garth Saloner find

that when an installed base exists and transition to a

new standard must be gradual, the installed base can

sometimes inhibit adoption of the new standards by

creating ‘‘excess inertia. ’ ’93 In this situation, early

adopters of the new standard will bear a disproportionate share of transition costs. As a result, when

87 For ~~m~uter~dw~e.~~f~~e m~kets, the issue depends on whether softwme produc~ for use wi~ one br~d of computer (or opemtklg SyStem)

will run properly on another brand-if so, the brands can be said to “compatible.”

66 Mictiel L. Katz and CU1 ShpirO ~ ‘‘Network Externalities, Competition and Compatibility,’ The American Economic Review, vol. 75, No. 3, pp.

424-440.

89 Mene~ (my 1989), op, cit., fOOtnOte 13, pp. 1~7-1068.

~ Ibid.

91 Joseph Farrell, “Standardization and Intellectual Property,” Jurirnerrics Journul, vol. 30, No. 1, fall 1989, pp. 35-50 (quote from p. 49). As

compatibility becomes more important in an industry, Farrell sees formal standardization beginnning to predominate, even though intellectual property

protections may slow this process by irlcreasing vested interests.

92 Ibid., pp. 49-50, F~ell suggests t~[ (depend@ on COurt interpretation of laws) this mix might consist of a larger role for patent ~d less rel~ce

on copyright to protect the most valuable aspects of software. See also Menell (July 1987), op. cit., footnote 15.

93 For disCussio~ of tie ~le of the imMled &se of ~dw~e ad softwme in e~fier ~kets, see Fisher et ~., op. cit., foOtKIOte 18, pp. 197-204.
.

Chapter 6--Economics, Intellectual Property, and Software . 199

important network externalities are present, the

switch to a technologically superior new standard

may be slower than socially desirable; even when all

users intend to switch, they may prefer to wait for

others to switch first.94 But the opposite distortion is

equally possible: when the new standard offers early

adopters sufficient advantages over the old technology, they may be willing to switch long before a

‘‘network’ of users is well-established. As they

switch, the new technology becomes increasingly

attractive for later adopters, and ‘‘excess momenturn’ ’-the inefficient adoption of the new technology—may occur, ‘‘stranding’ the old standard and

hurting the old installed base’s remaining users.95

In Farrell and Saloner’s model, the presence of an

installed base and network of users tied to the old

technology creates a bias against a new (even

superior) technology. Additionally, users who intend to switch may prefer not to be early adopters of

the new technology. Farrell and Saloner show that

incumbents can exploit these biases for anticompetitive purposes via anticompetitive product preannouncements and predatory pricing. Premature

preannouncements of improved products using the

old technology may prevent a new technology from

gaining momentum. An incumbent firm may also be

able to deter entry by a credible threat of price cuts

in response to entry.96

The Economics of Copyright and

Home Copying

Almost all of the literature discussed so far in this

section has operated in a business context in

examining linkages between intellectual property

systems and technological advance, appropriability

of rewards to creativity, etc. As we have seen, these

linkages are complex. Therefore, the net effects on

rights holders and on society from stronger/weaker,

broader/narrower, longer/shorter protections are difficult to predict, let alone measure.

Similarly, the effects of noncommercial, private

copying by consumers (which OTA calls ‘‘home

copying’ are also complex and ambiguous. Economic theory suggests that the possible effects of

home copying on resource allocation and on society’s economic welfare will vary qualitatively, as

well as quantitatively, depending on the economic

and technological specifics of the industries and

markets. Even for one specific type of home copying

(e.g., home audiotaping), empirical effects are difficult to estimate with certainty: using survey data to

estimate effects on industry revenues or consumer

benefits necessarily involves many assumptions and

approximations. Because many critical factors are

difficult to measure and because choices among

assumptions about underlying factors are subjective,

even the same survey data can support disparate

estimates of the economic effects of home copying.

A 1989 OTA study, Copyright and Home Copying:

Technology Challenges the Law, examined issues

related to home copying in general, especially home

video- and audiotaping. Chapter 7 of that report

discussed the economics literature on home copying

(i.e., of music and computer software) and reported

on empirical analysis of home audiotaping based on

an OTA survey of consumer taping practices (see

box 6-B for a summary).

~ Joseph Farrell and Garth Saloncr, “Installed Base and Compatibility: Imovation, Product Preannouncements, and Predation, ’ The American

Economic Review, vol. 76, No. 5, December 1986, pp. 940-955, Farrell and Saloncr use as an example the persistence of the “QWERTY’ keyboard

in the face of the ergonomically more efficient Dvorak keyboard.

95 Ibid,, pp. 941-942.

% Ibid,, 954. ~cdatlon ~d ~ticompctltil,~ preannouncements have been al]cged in anti~st lltigatlon, but are tid to prove (p. 942). ~SO, Sf3Velld

cconomisk+ maintain that truthful preannouncements arc procompctitive because they provide new information to the marketplace. (See Fisher et al.,

op. cit., footnote 18, p. 289.)
200 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Box 6-B—Literature on Home Copying

Prompted in large part by the copyright debates of the 1970s and 1980s concerning home audio- and

videotaping, several economists have examined the economics of home copying: the effects of copying on the

supply of copyrighted works (e.g., prices, quantities, variety), on consumer demand (e.g., whether copies substitute

for purchases), and on society’s net economic welfare (e.g., whether copying is economically inefficient, whether

there would be an “excessive” variety of works absent copying). Because the economic effects of copying are

complex and often ambiguous, each of these analyses relies on simplifying assumptions or specific conditions in

order to reduce ambiguity. Therefore, the literature must be interpreted in light of the corresponding assumptions

and conditions.

The Effect of Private Copying on Economic Welfare

Because intellectual property is a public good, ordinary market forces will not necessarily produce the most

desirable social outcomes. Chanting a limited monopoly (e.g., via copyright) attempts to balance distortions arising

from the partial inability of creators to exclude all nonpayers from obtaining their works. According to this rationale,

the inability of creators to appropriate returns from their intellectual property would otherwise result in the

underproduction of new works.

In the long run, the effect of unlimited private copying on society’s economic welfare is ambiguous. As

Johnson (1985) discusses, the long-run effect depends on a number of factors, including relative costs (of producing

a home copy versus another “original”), the degree to which copying affects the demand for originals, the degree

to which copying affects the production of new works, and the degree to which consumers value additional variety.

The net social welfare effect of copying has two components: the effect on producers and the effect on consumers.

Changing the amount of private copying (either increasing or restricting it) will affect not only the net level of

society’s economic welfare, but also the relative balance between producer and consumer welfares.

For example, Besen (1986) notes that copying can increase consumer welfare and producer profits in the short

run-if private copying is efficient and the price of originals can be raised to reflect the value of the copies. On the

other hand, copying may cause producers to reduce prices; this decreases both consumers’ and producers’ welfare.

If, however, copying (by reducing the number of originals produced) reduces ‘excessive’ variety, this can increase

welfare in the long run. This balance between gains and losses for producers and consumers is often the most visible

and most hotly contested issue in debates over copyright scope and enforcement.

Will increased copyright protection for goods like musical recordings and software increase or decrease

society’s economic welfare? Overall, the economics literature indicates that the implications of increasing copyright

protection are complex, and the policy tradeoffs are not simple. Some claim that stronger copyright protection will

decrease the loss to society from the underproduction of works but will increase the loss to society from

underutilization of these works. As Novos and Waldman show, the net result depends on the specifics of each

situation. In some cases, market outcomes—where different classes of consumers are charged different prices of

a good (e.g., individual and institutional subscription rates for journals) or where copyable and noncopyable goods

(e.g., computers and software) are bundled-may be preferable to increased government enforcement, from an

economic perspective. In some instances, as Katz notes, home copying might generate benefits from “network

externalities” relating to the fact that consumers tend to value a hardware/software system more, the more popular

that system and compatible ones are (a larger user base can increase the amount of information available about the

system, enhance the image of a popular product, etc.)
Chapter 6-Economics, intellectual Property, and Software ● 201

Appropriability and Pricing

Private copying need not be harmful to producers, if copying is efficient and if producers can increase prices

to take into account the value of the copies that will be made. If not all consumers copy, or if consumers vary in

the number of copies each makes from an original, then efficient pricing would require discriminating among these

groups, charging them different prices according to their valuations of the originals, based on their ability to make

copies. This type of price discrimination is usually infeasible, however, because it is costly and difficult to gather

the necessary information on users’ valuations of originals and because resale is allowed. The inability to practice

perfect price discrimination among users can produce imperfections in markets for intellectual property.

A simplified form of price discrimination is two-tiered pricing, in which producers are able to segment their

customers into two classes and maximize profits by charging each a different price. Looking at the effect of

photocopying on the number of scholarly journals purchased, Liebowitz has examined journal publishers’ ability

to indirectly appropriate copiers’ true valuation of originals through higher subscription prices to libraries and

institutions. He concluded that publishers can indirectly appropriate revenues from copiers who do not directly

purchase journals. Since copying may have different effects on other media, however, case-by-case empirical

investigation of the institutions and markets involved may be necessary.

Price Discrimination, Resource Allocation, and Variety

The inability to charge different classes of consumers different prices for a good in intellectual property markets

means that the prices consumers pay need not reflect their actual valuations of the good: some value the good more,

and will be willing to pay more. Those who do not value the good at a given price will not consume it. If they could

be offered a lower price reflecting their valuation, however, then they would purchase it and both producers and

consumers would be better off. Moreover, the decoupling of prices and valuations makes resource allocation—

decisions about what to produce—more difficult and markets less efficient. Besen’s analysis for the 1986 OTA

report noted that where there are many producers of competing types of intellectual property, the resulting market

structure is one of monopolistic competition: firms will have some control over the prices they can charge because

their products are differentiated (e.g., music by different recording artists or groups). When firms are unable to

charge different consumers different prices, however, there may be either excessive or insufficient variety. Under

these conditions, when private copying serves to reduce the variety of products being offered, it does not necessarily

reduce the efficiency of supply or make consumers worse off.

SOURCES: U.S. Congress, Office of Technology Assessment, Copyright and Home Copying: Technology Challenges the Law, OTA-CIT-422

(Washington, DC: U.S. Government Printing Office, October 1989), ch. 7; William R. Johnson, “Estimating the Effect of Copying

on the Demand for Original Creative Works,” contractor report prepared for the Office of Technology Assessment (Springfield,

VA: National Technical Information Service, October 1989); Michael L. Katz, “Home Copying and Its Economic Effects: An

Approach for Analyzing the Home Copying Survey,’ contractor report prepared for the Office of Technology Assessment

(Springfield, VA: National Technical Information Service, October 1989); Ian E. Novos and Michael Waldman “The Emergence

of Copying Technologies: What Have We Learned?” contemporary Policy Issues, vol. 5, July 1987, pp. 34-43; Stanley M. Be-

“Economic Issues Relating to New Technologies and Intellectual Property,” contractor report prepared for the Office of

Technology Assessment by the Rand Corp. (Springfield, VA: National Technical Information Service, 1986); Stanley M. Be-

“Private Copying, Reproduction Costs, and the Supply of Intellectual Property,” Information Economics and Policy, vol. 2, 1986,

pp. 5-22; William R. Johnson “The Economics of Copying,” Journal of Political Economy, vol. 93, No. 11, 1985, pp. 158-174;

S.J. Liebowitz, “Copying and Indirect Appropriability: Photocopying of Journals,” Journal of Political Economy, vol. 93, No. 5,

1985, pp. 945-957; Ian E. Novos and MichaelWal&naq‘‘The Effects of Increased Copyright Protection: An Analytic Approach”

Journal of Political Economy, vol. 92, No. 2, April 1984, pp. 236-246; and Walter Y. Oi, “A Disneyland Dilemma: Two-Part Tariffs

for a Mickey-Mouse Monopoly,” Quarterly Journal of Economics, February 1971, pp. 77-94.
Appendixes
Appendix A

Selected Computer Hardware and Software

Initiatives Overseas

Introduction

European producers have long faced competition from

U.S. fins; they now face increased competition from

Japanese firms positioning themselves in Europe in

anticipation of the single European market. At the same

time, the European software market is growing rapidly

and packaged software+-long a U.S. strength-is becoming more popular. European research in computing is

fragmented; market unification is expected to permit

more integrated research in information and telecommunication technologies.l

Japanese firms are positioning themselves for rapid

expansion in the United States, Europe, and Asia;

Japanese computing research emphasizes massively parallel and distributed computing, optical computing, neural nets, and applications of fuzzy logic; software areas

receiving attention include supercomputer software and

graphical-display software for use in simulation and

animation, The Japanese approach for “manufacturing’

software has received much attention. Custom software

currently dominates the Japanese market but some

consider that Japanese “software factories’ can extend

Japan’s advantage in quality “embedded” software to

packaged software as well.2

Taiwan and Singapore are both developing informationtechnology industries, During the 1980s, a number of

government measures facilitated development of Taiwan’s microcomputer industry; the government is now

focusing on nurturing a software industry. Over the past

decade, Singapore has actively pursued a national goal of

developing a software and services industry. It is now

targeting strategic computing technologies like commercial applications of expert systems, neural nets, and fuzzy

logic.

Europe

Computer Hardware

Europe makes up about one-third of the world computer market. In 1989, U.S. firms accounted for more than

half of all computer sales in Europe and were even more

dominant in the mainframe market; Japan held only about

10 percent of the computer market.3 According to

International Data Corp., the total European mainframe

market was valued at $8,440 million in 1989 and $9,069

million in 1990. IBM, which earned 37 percent of its

revenues in Europe in 1989, accounted for 52 percent of

mainframe sales in 1989 and 61 percent in 1990.4

Computer hardware sales are slowing in Europe, due in

part to economic conditions. Mainframe and minicomputer sales have slowed the most, despite price discounts,

while microcomputer and workstation sales are more

robust. 5 The latter reflects a trend in Europe toward

smaller computers—annual growth in the microcomputer

market is estimated at 25 percent for 1990 and 22 percent

for 1991.6

During the downturn, European manufacturers like

Olivetti and Groupe Bull have been more vulnerable than

U.S. firms.7 But now, in addition to slower sales, U.S. and

European manufacturers are facing increasing competition from Japanese manufacturers, especially in the

1 Another expected outcome is more uniformity in European standards. See U.S. Congress, Office of Technology Assessment, Global Standards:

Building Blocks for the Future, forthcoming 1992.

2 Sometimes a computer, its memory, and ofteu its programs, are embedded in another device such as an automobile engine, videocassette recorder,

microwave oven, or television set. Such a computer is called an embedded computer and its programs are embedded applications programs. Some of

the market estimates cited in this chapter may include the value of some embedded software but these were not reported separately.

3 Richard L. Hudson, ‘‘Japanese Set To Do Battle in Europe’s Computer Market,’ The Asian Wall Street Journal Weekly, vol. XII, No. 34, Aug. 20,

1990, p. 1.

d Dab ci~d in ~el Komel, “Fujitsu Move Rattles Europe,’ Computerworld, vol. 24, No. 32, Aug. 6, 1990, p. 1.

5 Before the slowdom computer sales in Europe were growing at a rate almost twice that in the United States. The slowdown came after 5 years

of heavy computer buying in Europe, reflected in 30-percent growth rates in computer sales in the late 1980s. Growth rates from Jonathan tivine et al.,

“Europe Ain’t No Bonanza Anymore,” Business Week, Aug. 6, 1990, pp. 26-28.

6 By comp~so% ~m~ ~ tie U.S. ficmcomputer market is estimated at 10 to 15 percent in 1990 and 1991, compmed to 50-Percent annual Wow

rates in the mid- 1980s. (Levine et al., op. cit., footnote 5, pp. 27-28.)

7 France’s state-owned Groupe Bull’s strategy to compete in the market of the 1990s depends in part on “open systems’ based on AT&T Unix. Bull

had revenues of $6.5 billion in 1989. Bull purchased Zenith Data Systems (laptop and personal computers) in 1988; Bull and NEC bought into

Honeywell’s computer business in 1987 and Bull took majority control of what is now Bull HN in 1988. Seventy percent of Bull’s revenues come from

outside France, including 33 percent ffom the rest of Europe and 30 percent from the United States. (Jonathan Levine and Gary McWilliams, ‘‘Francis

Lorentz’ Scheme To Get Groupe Bull Charging,” Business Week, July 16, 1990, pp. 154,156.)

–205–
206 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

mainframe market. Previously, m “mainframes made by

Fujitsu, NEC, and Hitachi have been resold by European

manufacturers like Siemens A.G. and Comparex.8 Recently, however, Japanese firms have been establishing

European bases of operation in anticipation of 1993’s

single market. For example, Fujitsu has acquired controlling interest in ICL (Great Britain’s largest mainframe

manufacturer) 9 and Mitsubishi has acquired Apricot

Computers Ltd. (Great Britain’s largest personalcomputer manufacturer), now called ACT Group P. L.C.10

Nevertheless, despite slower sales and increasing competition from Japan, the European computer market is still

a lucrative and important one for U.S. manufacturers (see

table A-l).

Software

The software market in Europe, valued at $32 billion in

1990, is growing faster than the U.S. market and faster

than the European hardware market.11 At the same time,

the composition of the market is shifting. Computer

software-and-services companies, producing custom (’‘bespoke’ software tailored to clients’ operations and

needs, are facing growing competition from packaged

software. Packaged software’s share of the market is

increasing, accounting for 29 percent of software sales in

1989, up from 11 percent in 1979.12

According to the market research organization Ovum,

the top 40 packaged software vendors in Europe (including 21 U. S., 6 French, 5 German, and 4 British companies) accounted for 64 percent of packaged software sales

valued at $11 billion in 1989.13 Most of the major

European packaged software vendors have been either

large hardware manufacturers or systems houses focusing

on sales of hardware or computer services, rather than

specializing in packaged software (see table 3-3 inch. 3).

With sales of both system and applications software, the

largest vendor of packaged software overall in Europe is

IBM, with 1989 sales worth $2.12 billion. Almost all of

Table A-l —U.S. Computer Manufacturers’ Domestic

and European Sales (1989)

Revenue Percentage of sales

Company ($ billions) United States Europe

IBM . . . . . . . . . . . . . . . . . . $62.7 41 .0% 37.0%

DEC . . . . . . . . . . . . . . . . . 12.7 46.0 40.0

Hewlett-Packard . . . . . . 11.9 46.7 34.7

Apple . . . . . . . . . . . . . . . . 5.3 64.4 22.9

Compaq . . . . . . . . . . . . . 2.9 54.6 41.8

Sun . . . . . . . . . . . . . . . . . . 1.8 57.9 24.2

Tandem . . . . . . . . . . . . . . 1.6 50.1 32.5

SOURCE: 1989 data from Salomon Brothers, Inc. and company reports,

cited in: Jonathan Levine et al., “Europe Ain’t No Bonanza

Anymore,” Business Week, Aug. 6, 1990, p. 27.

the major packaged software vendors that specialize in

software are U.S. firms like Microsoft or Computer

Associates International.14

Research and Technology Initiatives

Historically, research in Europe has been fragmented

by company and country. Beginning in 1993, market

unification in the European Community (EC)15 will

permit more integration of research in member countries,

with the intention of strengthening the technological base

of industry in the EC and improving EC industry’s global

competitiveness. The Research and Development (R&D)

Title to the EC Treaty provides a firmer legal basis for

cooperation in R&D and calls for the EC to adopt a

multiyear framework laying out all its R&D activities. In

1987, the EC adopted the “New Framework Program,”

after debate concerning content of, and funding for,

cooperative R&D, and the relative merits of coordinated

research versus competition in stimulating commercially

productive innovations.l6

There have been three Framework Programs, providing

R&D funding in overlapping 4-year periods: Framework

8 Komel, op. cit., footnote 4.

g ~v~e et ~., op. cit., foo~ote 5, and David E. Sanger, “Fujitsu TO BUY la s~e~ “ The New York Times, July 31, 1990, pp. Dl, D6.

10 Ricbd L. Hudson, *’Japame Set To DO Batfle ~ Europe’s Computer ~ke$” The Asian Wall S@eet Journul Weekly, Aug. 20, 1990, pp. 1, 6.

11 Estimate from: ‘Eurowa,n Software Industry 1992 Market Changes Response Proftie (Executive SWMMIY ),’ prepared by Ernst& Young on behalf

of the Scottish Development Ageney (130stom MA: Clarke & Co., 1990).

(z “s~vation in services?” The Economist, Aug. 11, 1990, pp. 70-71.

13 Ralph Bancroft, “Europe Struggling in Software, ” Computerworld, July 23, 1990, p. 97.

14 Ibid.

15 For ~ sum of tie ~pacts of tie E(J92 fitiative on science ~d t~~ology issues, inclu@ indus~ R&D ~d s~tids, see Glenn J.

McLaughlin (coordinator), “The Europe 1992 Plan: Science and Technology Issues, ” Congressional Research Service Report for Congress, revised

Aug. 23, 1989.

16 Dis~ssion from Candiee SteverK, “ 1992: The European ‘Ikdnology ChaUenge,’ Research & Technology Management, vol. 33, No. 1,

January-February 1990, pp. 17-23.

For more discussion on science andl technology programs in Western Europe, see Congressional Rese~h Service, Library of Congress, Transfer

of Technology From Publicly Funded Research Institutions to the Pn”}ate Sector, prepared for the Subeommmi ttee on Oversight and Investigations of

the Committee on Energy and Commeree, U.S. House of Representatives, Committee Print 102-G, 102d Congress, 1st Sess., July 1991, pp. 51-68.
Appendix A-Selected Computer Hardware and Software Initiatives 0verseas ● 207

One (1987-91), Framework Two (1988-92), and Framework Three (1990-94). This is intended to allow continuation of current R&D programs while providing a way to

reevaluate them. The Framework Programs provide

support for many fields of science and technology;

support for R&D in information technology and communication technology is provided through the ESPRIT and

RACE programs, respectively .17 Phase I of ESPRIT

began in 1984, before the Single European Act, and

continued through 1988; it addressed basic technologies

and standards in microelectronics and software, as well as

computer applications like computer-integrated manufacturing and office systems. Phase II of ESPRIT (1988-92)

continues the initiatives begun in phase I and also

includes new basic research projects; currently about

3,000 researchers are involved in 200 ESPRIT projects.18

ESPRIT’s software accomplishments to date include

development of software for optimizing designs of

application-specific integrated circuits (ASICS) and softwaredevelopment and software-integration tools developed

under the Portable Common Tool Environment project.19

The EC contribution for ESPRIT II during 1988-92 is

about 1,600 million European Currency Units (ECUs),

nearly $2 billion.20

The RACE program includes research and standards

projects intended to move the EC toward combined

communications (voice, data, video, electronic mail)

based on integrated services digital network (ISDN)

standards. The EC contribution for RACE during 1987-92

is 550 million ECUs, or $660 million.21

Japan

Computer Hardware

Beginning in the mid- 1950s, the Japanese Government,

which recognized the strategic importance of the computer industry, used capital, subsidized R&D, and protective regulations and procurement policies to nurture a

developing Japanese computer hardware industry.22 By

1990, these policies had paid off in an industry with

compelling strengths in memory chips, flat-panel displays, and optical disks. In 1980, the Japanese industry

had a 10 percent share of the world computer market; a

decade later, Japan’s share of the world computer market

was expected to exceed 40 percent by 1992.23 Japan

already dominates the laptop and notebook computer

markets.

In 1990, IBM held almost 52 percent of the world

mainframe market, followed by Fujitsu (9.5 percent),

Hitachi (6.8 percent), Unisys (6.6 percent), Amdahl (4.6

percent), Siemens (2.8 percent), and NEC (2.7 percent) .24

Japanese mainframe computer manufacturers have been

positioning themselves via product development, marketing strategies, and acquisitions for rapid expansion in the

U. S., Asian, and European markets now dominated by

I B M.

25 For example, Fujitsu has acquired ICI P. L.C.,

Britain’s largest mainframe computer manufacturer26 and

the world’s ninth-largest producer of mainframe computers. Fujitsu acquired an 80 percent share of ICL for about

$1.4 billion and thereby became the world’s secondlargest computer manufacturer (in terms of sales), behind

17 ESPRIT iS tie ~monym for E~ope~ S@ateglc ~ogamme for Rcse~ch ~d Development in ~o~tion Techrlologies; RACE is tie acronym for

R&D in Advanced Communications Technologies in Europe. See Congressioml Research Service (July 1991), op. cit., footnote 16, pp. 56-58.

la Ibid., pp. 57-58.

19 Gadi Kapl~ ~d Alfred Rosenblatt (@.), “The Expanding World of R& D,’ IEEE Specrrum, October 1990, pp. 2$33.

ZO Con=essiom] Research Service (July 1991), op. cit., footnote 16, pp. 57-58.

2} Ibid., pp. 59-60.

22 me .kchordoguy, “How Japan Built a Computer Industry, ” in Charles H. Ferguso% “Computers and the Coming of the U.S. Kcirctsu, ”

HanardBusiness Review, July-August 1990, p. 65.

Between 1965 and 1985, Japanese R&D expenditures as a percentage of gross nationat product (GNP) nearly doubled, from 1.27 percent of GNP

in 1965 to 2.53 percent in 1985. Over the same period, the Japanese Government’s share of R&D expenditures fell from 31 to 19 perccn~ although totat

government funding increased, industry R&D grew more rapidly. (National Science Foundation and Japan Science and lkchnology Agency data cited

in: Leonard H. Lynn, “Technology Policy in Japan+” Forumfor Applied Research and Public Policy, fall 1990, pp. 57-61.)

For a discussion of Japan’s basic research initiatives, see “CanJapan Make Einsteins Too?” The Economist, Aug. 11, 1990, pp. 81-83. Japan’s R&D

expenditures now total over 2.9 percent of GNP, vvith government expenditures amounting to 20 percent of this sum and expected to double during the

1990s (ibid., p. 81).

23 “Computas and C)ther Targets: How Japan Learns, and Wins, Even by bshg,” The New York Times, May 11, 1990, p. A32 (editorial).

~ N~el, DC dam cited in Jean S. Bozman and LQri W@% “Long-Tkxrn Globat Strategies Unfold,” Compufenvorld, Nov. 26, 1990, p. 101.

25 For exmple,in 1989 ~~~ acqu~ed 80 ~ment of Natio~ Advmced Systems, now ~led fiMc~Dam systems @leCtK)tlic Data SyStC!mS OwIIS

the other 20 percent), and Fujitsu has owned 43 percent of Amdahl since 1984. See Robert D. Hof and John W. Verity, “The Japanese Threat in

Mainframes Has Finally Arrived, ” Business Week, Apr. 9, 1990, p. 24; Jean S. Bozman and Imri Wligra, “Imng-lkrm Global Strategies Unfold, ”

Computenvor/d, Nov. 26, 1990, pp. 1, 101.

26 Jeff Shea, ( ‘Japa Upsets Computer Applec~” ~n~ighr, Oct, 22, 1990, pp. 44-4’5. Fuji~u was &ady manufacturing ICL hardware.
208 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

IBM and just ahead of Digital Equipment Corp.27 By the

time that Fujitsu acquired ICL, the British firm had grown

dependent on Fujitsu for crucial technologies (e.g.,

computer chips, circuit boards, cooling systems) .28 Fujitsu’s

acquisition of ICL was of special concern to the European

information-technology community because ICL was a

partner in about 40 hardware and software projects being

conducted under the European ESPRIT prograrn.29 Fujitsu

also has a majority interest in a mainframe computer

factory in Spain and an agreement to sell powerful

mainframes through Siemens A.G. Coupled with concentration in the European computer industry due to financial

pressures, such acquisitions position Japanese firms like

Fujitsu or Mitsubishi Electric (which has acquired the

manufacturing facilities of Apricot, a British PC company) to participate in the EC’s single market after 1992.30

At the same time, Japanese investments in computer

and software firms in the United States have continued to

grow through minority equity positions as well as

acquisitions. In 1990, Mitsui & Co. purchased a minority

interest in Unisys with $150 million of preferred stock

that can be converted into 4.6 percent of Unisys’ common

stock outstanding. Unisys also arranged a $50-million,

31 

5-year loan from Mitsui. Also in 1990, Mitsubishi Kasei

Corp. acquired Verbatim Corp. for $200 million.32 Canon

has invested $100 million in NeXT Computer (multimedia computing), Canon Sales Co. has invested in FPS

Computing Inc. (64-bit computers), and Fujitsu has

purchased 46 percent of Poqet Computer (notebook

computers) .33

Computing Research Focus

Japan’s highly publicized Fifth-Generation project

(1982-91) was intended to create “intelligent” machines

that could support expert systems to emulate human

reasoning and could communicate with humans through

natural (rather than computer programmingg) languages.

MITI initiated the Fifth-Generation project in 1982 and

anticipated three phases: 1) study of existing knowledge

in logic processing and parallel processing and development of prototype hardware and software systems; 2)

construction of small-scale subsystems for logic processing and parallel computation; and 3) completion of a

full-scale prototype computer implementing inference

and knowledge-based functions in hardware (for speed)

and using software for knowledge-base acquisition and

management, natural-language interfaces, and “intelligent” (user-friendly) programming tools.34 Today’s Japanese artificial intelligence (AD) market reflects industry’s

commitment to increase the use of AI technology,

especially expert systems in the financial and manufacturing industries, in support of the Fifth-Generation project .

3 5

Although Japan, along with other countries, made

progress in AI research, the Fifth-Generation project fell

far short of its original goals. However, the project has had

two important consequences. First, it stimulated research

in the United States and Europe, as well as Japan, and

enabled Japan to build up a basic-research infrastructure

in computing, training, and influencing thousands of

Japanese computer professionals. Second, it gave credence to, and focused Japanese Government and industry

attention on, parallel processing.

36 Emphasis on massively parallel computing, part of what is referred to as the

27“Fuji@u’s ~~e of ICL nl~firates ItS A~ssive Pursuit of Europe Marke4° The Asian Wall Street Journal Weekly, Aug. 6, 1990, p. 5.

28 Sager(J~y 1990), op. Cit., fo’emote 9“

Z9~p~ ~d Ros~blafi (eds.), op. cit., footnote 19, pp. 28-33.

30 Singer (July 1990), Op. Cit., foo~o~ 9“

31 paul B. CWO~ $~ufiv.s, s@=@ wi~ Big ~bt ~ad, Sells pr~e~ stock to Jap~e~ F~” The Wa//Street Journa/, June 27, 1990. Mhfi

and Unisys have had long-standing business relations: each owns one-third of Nihon Unisys Ltd., a computer marketer that does $2 billion of annual

business in Japaq and Sperry (which merged with Burroughs to form Unisys in 1986) began working with Mitsti in the 1950s.

32 ~c~l R. Sesit ‘Jap~e~ Are More Willing To Buy Minority Stakes in U.S. COrnptieS, “ The Asian Wall Street Journal Weekly, Aug. 13,1990,

p. 21.

33 Neoconcq~ da@ reported in: Sh,~fid~ ~LSIMIO, ‘‘U.S. Threatened by Rash of High-lkch Buyouts,” New Technology Week, Aug. 6, 1990, p. 7.

Fujitsu also owns 44 percent of the Amdahl Corp. (mainframes). (Arniel Kernel, op. cit., footnote 4.)

34 S= Michael A. Cusuman o, Japan’ sSojiware Factories: A Challenge to Japanese Management (New York, NY: Oxford University Press, 1991),

pp. 410-417. In addition to describing the Fifth-Generation project and its outcomes, Cusumano examin es Japanese approaches to software development

in detail.

35An Asses~ent Of the JapaneseA~ificial Intelligence Market, U.S. Department of Commerce, ~t~tio~ ‘fmde~“ “stration (Springtleld, VA:

National ‘Ikchniczd Information Service, May 1989), p. xvii. According to 1~ most Japanese expert system tools used to build expert systems are less

expensive and less complex than U.S. counterparts; Japanese users prefer easy-to-use products with Japanese language capability.

The 1990 market for AI hardware and software was about $2.5 billion but the market is expected to reach $10.6 billion by 1995 (MITI estimates,

ibid., p. vii). According to ITA, most Japanese AI software runs only on the hardware for which it was develop@ the eight largest Japanese computer

firms (Hitachi, Fujitsu, Toshiba, NEC, Oki, Sharp, Mitsubisbi and Matsushita) control 60 percent of the total Japanese AI hardware and software market

(ibid,, pp. xix, 42).

36 see Cusumano, op. cit., foomote 34, and David E. Sanger, “Japan Is Planning ‘lb Challenge U.S. in Computer Field,” The New York Times, Apr.

30, 1990, pp. Al, D14. The Japanese Government provided about $250 million in funding from 1981 to 1990 and is expected to spend another $40 to

$50 million before the project ends in 1992.
—-

Appendix A-Selected Computer Hardware and Software Initiatives Over-seas ● 209

Sixth-Generation project, is a change in direction from

earlier Japanese efforts to produce very fast supercomputers that relied on speed (rather than parallelism) for

computational power.

Parallel processing is thought to hold great promise for

applications like picture, sound (voice), and character

recognition. To this end, advances in parallel and

fault-tolerant architectures, as well as in chip technology,

will be required. But, interestingly, the hardware to build

massively parallel machines is simpler to design and

develop than is the complex software required to coordinate parallel processing and efficiently exploit the capabilities of the hardware. Therefore, MITI has convinced

government officials and industry to devote resources to

a large effort to develop parallel-processing software.37

In April 1990 MITI published a broad outline of how

to proceed from the Fifth-Generation project; one of the

objectives outlined was a concerted effort to master

massively parallel processing. MITI’s plans for this New

Information Processing Technologies (NIPT) program

called for leapfrogging the evolutionary technologydevelopment paths that most U.S. firms and research

programs are following, concentrating instead on massively parallel and distributed computing systems, neural

nets, 38 optical computing, and applications of fuzzy

logic. 39 By spring 1991, the focus of the program

appeared to be shifting to a more interdisciplinary, basic

research focus that could eventually lead to development

of massively parallel, distributed processing systems

based on optoelectronics.40

Software

According to a 1990 American Electronics Association

report, the software market in Japan is only about

one-third the size of the U.S. market. However, it is

growing much more rapidly-in part, because it is less

mature. The Japanese market (for packaged and custom

software), estimated at about $18 billion in 1990, is

expected to grow to some $33 billion (about 20 percent of

the worldwide market for software) by 1995.41 (In 1986,

the Japanese software market was estimated at only about

$5.4 billion.42)

The composition of the Japanese market differs significantly from its United States and European counterparts

in that custom software (rather than packaged software)

accounts for 80 percent of software sales. By contrast,

packaged software is more common in Europe and

predominates in the United States, accounting for 75

percent of the U.S. market, according to the American

Electronics Association.43 The prevalence of custom

software in Japan accounts for the situation that, although

imported software accounted for about half of packaged

software sales in Japan in 1988, imports amounted to less

than 10 percent of the total market.44

Much attention has been focused on the Japanese

approach to software development through ‘‘information

systems” factories bringing manufacturing-style production and quality controls to software development. U.S.

observers have raised concern that this approach will

extend Japanese productivity and success in embedded

software (in electronics) and in custom programming to

the packaged software market worldwide.45

37 Sager(April 1990), oP. cit., fOO~Ote 36.

38 For~mple,~Shiba co~. i5 develop~ a c~acter.r~ogrlition dev]ce tit USCS a ne~~ ne~ork to identiy boti katakana (a Japanese phonetic

alphabet) and numericat characters. The system, which will be marketed in 5 years for applications in automatic-teller machines and optical character

readers, reportedly has a 95-percent accuracy rate. (’‘Neural Network Device Can Read Handwriting, ’ The Asian Wall Street Journal Weekly, Feb. 11,

1991, p. 8.)

39 Rjctid McCo~~ ‘‘Ameri~ Scramble To Figure Out Japan’s Next Thrust in ~Omputhg, “ New Technology Week, vol. 4, No. 48, Dec. 3,

1990, pp. 1-2.

Fuzzy logic can be used to reduce superfluous software coding in massively parallel computers. A fuzzy-logic chip can be used to reduce the number

of conventional logic circuits needed, making it possible to install simpler controllers that require less-complex software to run them.

40 ~~offic~s sm~g us. Government ~ppon for p@CipatiOn in ~by u,sc ~dus~ ad a~demic researchers Were describing the program

as focused on basic research and developmen~ with a special focus on the brain and neural research. (Richard McCormack, ‘‘U.S. Chilly 10 Japan on

6th Generation Initiative,” New Technology Week, vol. 5, No. 22, May 28, 1991, pp. 14.)

41 Japa ~omtlon SeNice ~dus~ Ass~~tion es~tes cited ~: fieric~ Elec@o~cs Association ~dusq committee ill Japaq ~Ofl Landing

in Japan, (Tokyo, Japan: American Electronics Association Japan Office, June 1990), p. 7. OTA note: ‘l%ese figures may include some ‘‘services’ as

part of custom software revenues.

42 ~~so (me Computer Sofwtie ~d smi~s ~dustry Ass~iation) estimate in:JeffSh~, “competitive Softwwe ~dus~ SUitS Up for Globid

Hardball,” Insight, July 10, 1989, p. 39.

43 ~efica El~@onics Assoc~tio~ op. cit., foo~ote 41, pp. 7-8. OTA note: These fi~w may include some “services’ as part of custom software.

4Japanese SofWare: The Nat Competitive Chaflenge, prepared by Dewy, Ballantine, Bushby, P*er & Wood for ADAPSO’S ~te~on~

Marketing Seminar (Arlington, VA: ADAPSO, January 1989), p. vi.

45 s=, e.g.,Cuwmo, op. cit., footnote 34, md Ned Gmss, “Now Software Isn’t Safe From Jap~” Business Week, Feb. 11, 1991, p. 84; Shlomo

Maital, ‘‘Why Not Software Factories,’ Across the Board, October 1990, pp. 5-6; and Jacob M. Schlesinger, ‘‘Japanese Concept of Software Factory

Could Reshape Industry World-Wide,’ The Asian Wall Street Journal Weekly, Feb. 11, 1991, p. 4.
210 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Moreover, in mid-1991 MITI announced the formation

of a new R&D committee to study numerical simulation

using supercomputers and high-end workstations. The

purpose of this new MITI group, with participants from

academia and 20 companies including Fujitsu, Hitachi,

IBM Japan, and NEC, is to put together experimental and

theoretical underpinninggs for developing advanced supercomputer hardware and software for use in simulation and

animation. In concert with other Japanese technology

initiatives, such as the Sixth-Generation project and

MITIs’ new international project on next-generation

structural models for large computer systems, the supercomputer simulation initiative may give Japan strong

capabilities in supercomputer software, as well as hardware.

46 However, the United States still leads in supercomputers, as well as high-speed networks,47

Rapid growth in the Japanese market has led more than

60 U.S. software companies, including Lotus Development Corp., Microsoft, Computer Associates International, and Adobe Systems Inc., to establish subsidiaries

or offices in Japan. 48 At the same time, Japanese

companies are establishing themselves in the United

States. For example, last fall an engineering group in Sony

Corp. ’s U.S. unit began work developing a new version

of Unix as a basis for developing Unix application

programs. Sony is one of the first Japanese companies to

develop software applications (in this case, with a staff

consisting mainly of U.S. software engineers) in the

United States.49 Unix microcomputer and workstation

software is expected to grow in importance in Japan

during the 1990s.50

Taiwan

In Taiwan, government measures, including research

funding and tax advantages, spurred development of

Taiwan’s computer-hardware industries during the 1980s.

At present, Taiwan has relatively strong microcomputer

and semiconductor chip industries made up of domestic

manufacturers as well as original equipment manufacturers (OEMS) from the United States and Japan.51 In 1990,

revenues for these industries amounted to $1,566 million

for microcomputers and $450 million for semiconductor

chips.52

For the long term, however, Taiwan faces a transition

from a manufacturing to a service and knowledge-based

economy. 53 Accordingly, interest in the domestic and

global software markets has increased sharply, and

industry leaders called for the government to institute

policies and programs to assist the software industry, as

it did for the hardware industry. To this end, the

government of Taiwan has provided research funding

and, in some cases, investment and tax incentives for

software developers. 54 This software activity takes place

in a larger context of increasing total R&D expenditures

as a percentage of gross national product (GNP), increasing business expenditures for R&D; and emphasis on

target industries including microelectronics, computers,

computer peripherals, materials, automation and robotics,

as well as software and information science.55

By the mid-1980s, according to the U.S. Department of

Commerce, such government efforts had given rise to

over 100 small software houses in Taiwan, most with

fewer than 20 employees. These software houses were

46 Sheridan Tatsuno, “The Latest MITI Thrust: Supercomputer Simulation Hardware and Software,” New Technology Week, June 10, 1991, p. 3.

AT S= U.S. Cowess, office of ‘whuoIogy Assessment Seeking Solutions: High-Pe&ormance computing for science, OTA-BP-TCT-TT

(Washington DC: U.S. Government Printing OffIce, April 1991); and U.S. Congress, Office of ‘lkchnology Assessmen4 Networking the Nation: The

National Research and Education Network, forthcoming 1992.

48 Gross and Schwartz, op. cit., pp. 56-57.

For case studies of six U.S. software fm in Japan (Autodeslq Lotus, Comshare, Ingres, Oracle, and SDC), see American Electronics Associatio~

op. cit., footnote 41, pp. 77-89.

49 “Engineering Group Set Up To Work on UNIX Software,” The Asian Wall Street Journal Weekly, Aug. 20, 1990.

50 ~eficm El~@Onics ASSO&tiOn, op. cit., foo~ote 41, pp. 1~1 1. DC dam Citti by tie American IUeCtrOniCS Association indicate that While

MSIDOS will continue to dominate microcomputer operating systems in the early 1990s, use of Unix systems is expected to grow at a compound annual

growth rate of 140 percent during this period, compared to 25 percent annually for MS/DOS.

s] pad C.B. Liu, “computer Sofware and htellmtual property Law in the PaCtilC w counties, ’ contractor report prepared for the Office of

‘Ikchnology Assessment, March 1991, p. 4.

52J~fimWu, ~ket ~telligence Centa, ~ti~te for ~o~tion ~dus~, pe~o~ communication (letter), June 13, 1991.

53 ~or~g t. Taiwan’s Council of’ Economic P1 arming and Development, 50 percent of Taiwan’s GNP will come from services by the year 2000.

Chris Brow “Taiwan Software Firms Ponder World Market,” computerworld, vol. 24, No. 29, July 16, 1990, pp. 110111.

54 ~or~ t. tie ~tl~te for ~omtion ~dus~’s ~ket ~Ie~gence Centti, con~tions under which sofware fms may receive bvti~ent

and tax incentives are stricq from 1985 to 1989 only 15 soflware companies qualifkd for the tax incentive. (Jullian Wu, Market Intelligence Center,

Institute for Information Industry, personal communication (letter), June 14, 1991.)

55 Dennis Fred Simou “~koIcIgy Policy On dle PaC~lC Rim,” Forum for Applied Research and Public Policy, fall 1990, pp. 67-72. In 1978, total

R&D expenditures in Taiwan amountedl to 0.5 percent of GNP ($1 11 million); by 1987, R&D spending had increased to 1.2 percent of GNP; ‘Ihiwan’s

10-Year Science and lkchnology Development Plan projects R&D expenditures of 2 percent of GNP by 1995.
Appendix A-Selected Computer Hardware and Software Initiatives Overseas . 211

primarily developing application-software packages; by

contrast, systems-software development in Taiwan was

mostly being done in publicly supported research institutes like the Institute for Information Industry (III). Tax

incentives and the availability of skilled, lower-cost labor

led major U.S. corporations like Hewlett Packard, IBM,

and Wang to establish software-development groups in

Taiwan .56 Computerization of whole industries in Taiwan

contributed to the rapid growth of Taiwan’s software

industry. By 1990, it had grown to about 300 software

firms; 1990 revenues from sales of Taiwanese applicationsoftware packages amounted to $149.5 million.57

The government-sponsored III has been charged with

promoting progress in the software industry through a

variety of technical and institutional means. These include

development of Chinese versions of Unix and the X

Windows interface for use in workstations58 and educational efforts to promote intellectual property concepts to

the public,59 as well as market-intelligence, economic,

and legal research for the industry.60 III has also signed a

cooperation agreement with the Justice Yuan for information exchanges and joint research in computer law.61

Singapore

Over the past decade, Singapore has actively pursued

a national goal of developing a vital software and services

industry. This has largely been done under the auspices of

the National Computer Board (NCB), established in

1981.62 According to the U.S. Department of Commerce,

in 1982 the government of Singapore initiated a 5-year,

$80-million program under the direction of NCB to train

computer specialists and provide financial incentives for

local software development.63 Three government-run

training institutes were established under this program; of

the three, one was a joint venture with IBM, and another

was provided with significant funding and equipment

from the Nippon Electric Co. (NEC) of Japan.64 By late

1984, Singapore’s financial incentive packages resulted

in the establishment of software centers by Nixdorf, the

Digital Equipment Corp., Hewlett Packard, and Sperry .65

In 1983, the revenues for Singapore’s software industry

amounted to $24 million; about $4 million came from

exports.

66 AS of 1990, according to the U.S. International

Trade Administration (ITA), software and services were

a billion-dollar industry in Singapore.67

According to the ITA, having accomplished its initial

objectives, the NCB is now using its applied-research

arm, the Information Technology Institute (ITI) to strategically target R&D and commercial uses of emerging

technologies like AI and fuzzy logic. 68 At the Nanyang

Technical Institute, collaborative R&D by government

and industry targets computer integrated manufacturing,

56 U.S. Dep~cnt of Commeme, office of Computers and Business Equipment/Science and Electronics, A Competitive Assessment of the Unired

Stares Software Ittdusfry (Wa.shingtorL DC: U.S. Government Printing Office, December 1984), p. D-2.

S’7 Jullian WU, Market Intelligence Center, Institute for Information Lndustry, personal communication (letters), Jum 13 and 14, 1991.

58 c~s Brow~ op. cit., footnote 53.

59 Cmol K.N. Chang, planning Engirleer, Market Intelligence center, Institute for Information Industry, personal Commtieation (rn~ti%), Nov. g,

1990.

60 Julllm S.L Wu, ~ojcctMmger, ad Josephine L,L. Ho~g, ~g~ Rese~ch Fellow, ~ket kte~igen~c Center, hlst.itute fOr hlfOmlatiOn Industry,

personat communication (meeting), Apr. 23, 1991.

61 under tie terns of tie auement, ~1 ~11 provide tie Yum wi~ computer law and ~ket info~tion and tie YllaII wi~ provide the ~ with COti

decisions related to intellectual property. The Justice Yuan and HI held their first legal research meeting in June 1991. Jullian Wu, op. cit., footnote 57,

June 1991.

62 me NatiOn~ Computa Board WaS established with three principal objectives: 1) to COmputetie tie gov emmental services and departments, 2) to

train software professionals in sufficient numbers to meet Singapore’s needs, and 3) to develop the software and semice,s industry. For more information

see Victoria Kader, Office of Computers and Business Equipment, Intemationat Trade A&mm“ ‘stratiow “Singapore Moves Into the Advanced

Information Age,” Business America, Aug. 13, 1990, p. 9.

63 S= U.S. Dep~ent of Commerce, op. cit., footnote 56, p. D-1.

Government assistance for Singapore software development gave rise to controversy in 1989-90, when the U.S. Dcpartrncnt of Commerce

investigated whether a Singapore fmn’s software product (being marketed in the United States) was an “unfair” competitor in that the Singapore

Government had subsidized the development of a commercial software product. In March 1990 the Department of Commerce’s ITA reversed its originat

ruling that the product, a computer-aided software engineering tool, had been subsidized. The ITA ruled that software on a disk or tape, including software

on a master disk, can be subject to import duties. (David A. Ludlum, “Commerce Department Revokes Singapore Ruling, ” Computerworld, vol. 24,

No. 14, Apr. 2, 1990, p. 119.)

~ Dep~ent of Comerce, op. cit., footnote 56, pp. D-1! D-2.

65 Ibid.

66 Dep~ent of Comcrce, op. cit., footnote 56, p. D-2.

67 Kader, op. cit., footnote 62, P. 9.

68 Ibid, According to ITA, NCB accomplished its gOd Of@aining 8,000 new software professionals (Singapore started with 1,800 in 1982) in 1990,

2 years ahead of schedule. ITA also reports that computerization in the government resulted in cost savings amounting to 1.7 times the investment in

information technology.
212 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

often using U.S. expert system development tools.69 With network for foreign-exchange trading and a logistics

industry partnership, the Institute of Systems Science system incorporating fuzzy-logic principles for the Sin-

(ISI) at the National Institute of Singapore is working on gapore seaport.70

AI and fuzzy-logic applications, including a neural

@Ibid., p. 9.

To rbid., p. 10. ~wtiing to ITA, the 1S1 is active in training programs, such as a degree program in knowledge engineering, that me @lored to meet

the needs of industry. The NCB also fwces training programs in information technology and provides assistance programs for computerization of

company business operations.
Appendix B

The European Economic Community Treaty:

Structure and Function

The European Economic Community Treaty determine

the institutions of the European Community (EC) and

their basic functions. These institutions have broad

legislative, judicial, and administrative powers, which

enable them to render direct and binding orders to

member states and to their nationals. This extensive

delegation of duties in the treaty is founded on the belief

that the future economic development of the EC would

introduce changed circumstances that could not be

anticipated in the treaty, and also that the creation of a

strong central organization would lay the groundwork for

future political unity. The powers of these EC institutionsthe European Parliament, the Council, and the Commissionare allocated to maintain balanced distribution of powers

in the European Community.

The Parliament

Composition of the Parliament

The Parliament consists of representatives of the

nationals of the countries of the European Community.

The function of the Parliament is to exercise the advisory

and supervisory powers conferred upon it by the European Economic Community Treaty. The European Parliament officially came into existence in March of 1958. Its

members are appointed by and from among the members

of the national parliaments of the member states. The

number of delegates from each country is as follows.

France . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Germany . . . . . . . . . . . . . . . . . . . . . . . . 81

Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

United Kingdom . . . . . . . . . . . . . . . . . 81

Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

The Netherlands . . . . . . . . . . . . . . . . . 25

Belgium . . . . . . . . . . . . . . . . . . . . . . . . . 24

Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Portugal . . . . . . . . . . . . . . . . . . . . . . . . . 24

Denmark . . . . . . . . . . . . . . . . . . . . . . . . 16

Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Luxembourg . . . . . . . . . . . . . . . . . . . . . 6

Parliament members sit by party rather than by nation.

Political groups act according to political perspective

rather than on a national basis. As of January 1, 1986,

groups constituting the Parliament were, in order of size,

Socialists, European People’s Party, European Democratic Group, Communists and Allies, Liberal, Democratic and Reformist Group, European Renewal and

Democratic Alliance, Rainbow Group, and European

Right.

The members of the European Parliament are thus

representatives of their peoples, rather than representatives of their governments. They may not receive

instructions from the national parliaments, political parties, or interest groups, and they are expected to act in the

interest of the EC as a whole.

Functions of the Parliament

The European Parliament functions in an advisory and

supervisory capacity.

The Parliament’s advisory power is a means of

involving the peoples of the EC in the drafting of EC legal

measures, and allows the Parliament to play a part in the

legislative process of the community. The treaty provides

for consultation of the Parliament by the Council as an

essential formality before the Council makes a final

decision as to certain treaty matters. Disregard of this

formality renders the measure void. Simply presenting a

proposal accompanied by a request for an opinion of the

Parliament is not sufficient; if the opinion is never

actually rendered by the Parliament, the measure is void.

The treaty provides for the Parliament’s supervisory

functions through which it can force the Commission to

resign by a motion of censure. The Parliament and its

members may question the Council and the Commission

to obtain the information necessary to make such a

decision.

Parliament has also sought a greater voice in the

negotiation and conclusions of international agreements

to which the EC is to be party, and of treaties on the

accession of new member states. To that end, a cooperation agreement called the Single European Act (SEA) was

adopted. This agreement provides that the Council’s

common position, reached by a qualified majority, must

be communicated to the Parliament accompanied by an

explanation of the Council’s reasons for taking that

position. The Parliament must make a decision on the

Council’s position in 3 months; its failure to do so allows

the Council to pass the measure. Should the Parliament

propose amendments or reject the Council’s position by

a majority of its membership, the Council can overrule the

Parliament’s amendments or reject them only by a

unanimous vote.

All members of the Commission and Council may

attend sessions of Parliament. Those speaking in the name

of the Commission or the Council must be heard at these

sessions.

–213–
214 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

The Council

The European Council strengthens the decisionmaking

capacity of the EC since many of the Council’s decisions

can be adopted by majority, rather than unanimous, vote.

Composition of the Council

Representatives of member states make up the Council

of the European Communities. The members of the

Council represent the member states according to instructions of the individual State. The members also area part

of an EC institution and can take decisions that may beat

variance with the instructions of their governments. Such

variance does not in any way affect the validity of a

Council decision. As the council acts as a federal

institution, its decisions are valid notwithstanding any

deviation from instructions.

Representatives of the member states are required to be

members of the government of the member state they

represent. Member states may decide which member of

the government it wishes to appoint, and different

members of the government maybe delegated, depending

on the matter before the Council.

Functions of the Council

The role of the Council is to ensure the coordination of

the economic policies of the member states. Under the

treaty, the Council has the power to take decision, or adopt

legislation proposed by the Commission. The treaty also

requires the Council to confer on the Commission certain

powers for the implementation of the rules the Council

has adopted, and gives the Council the power to exercise

implementing power itself in certain circumstances.

Coordination of Economic Policies—It is the particular task of the Council to coordinate the “general

economic policies’ of the member states. Thus, general

economic policy in principle remains within the competence of the individual member states except to the extent

that the treaty confers powers upon the EC. Coordination

is to be achieved through consultations in the Council and

through the recommendations made by it. The Council’s

powers to enforce the coordination of the economic

policies reach no further than this, except insofar as it has

expressly been given such powers by specific treaty

provisions.

Power To Take Decisions––The power to take decisions or adopt legislation encompasses all acts that are to

be undertaken under the provisions of the treaty—for

example, on the budget of the EC, on the bringing of suit,

or on the appointment of officials. The power to take

decisions is limited in that most decisions require a prior

proposal of the Commission and often the consultation of

the Parliament or of the Economic and Social Committee.

Implementation of Council Acts—The Commission

has the power to implement rules the Council has made.

This power may be curtailed by certain requirements

relating to the manner in which it is exercised. The

Council may also reserve the right to directly exercise

implementing powers itself. These procedures must be in

accordance with rules and principles the Council will

specify.

The Commission

Functions of the Commission

The Commission consists of 17 independent members.

Its primary function is to see that the EEC treaty

provisions are executed. The Commission also monitors

the application of legislation promulgated by the institutions for purposes of implementing the treaty.

The Commission supervises the orderly functioning

and development of the Common Market. This includes

the removal of barriers between economies of Member

States, the smooth conduct of economic life within the

area in which a single market is to be established, and

increasing economic activity and the standard of living.

Member States have a duty to facilitate the achievement

of the Commission’s tasks, i.e., to ensure that the

provisions of the treaty and the implementing measures

adopted by the institutions are applied. Member States

have a duty to consult the Commission and they must

keep the Commission informed of measures they have

taken in fulfillment of their obligations to implement EC

rules.

The Commission may formulate recommendations or

opinions on all matters covered by the treaty. This

includes all matters that are dealt with in the treaty or

subjects having a direct connction with treaty rules.

While in some cases the treaty expressly provides for

issuance of recommendations or opinions, the Commission is not limited to the provisions of the treaty and may

issue recommendations or opinions any time it considers

necessary. Recommendations and opinions may be addressed to anyone, and are not binding.

Finally, the Commission exercises powers conferred

by the Council for the implementation of the treaty. This

cooperation between the two EC institutions consists

primarily of the Commission’s right to make proposals

for almost all important measures adopted by the Council.

These powers of implementation are exercised within the

framework of general rules made by the Council, and the

limits of the power are to be inferred from the particular

wording of the provision in question.
Appendix B-The European Economic Community Treaty: Structure and Function ● 215

The Cooperation Procedure

The Council and Commission

The Commission has the right to initiate action on most

issues under the provisions of the treaty. The Commission

exercises that right to a large extent by making proposals

to the Council. Article 149 restricts the power of the

Council to amend the proposal of the Commission. Under

that article, any amendment of a proposal of the Commission must be approved by unanimous vote, even though

the adoption of the proposal itself may require a different

majority. The effect of this provision strengthens the

position of the Commission and makes the amendment of

its proposals less likely. If a single member state objects

to an amendment, and if the Commission fails to make

changes desired by a majority of the Council, the Council

can then either accept or reject the proposal as made by the

Commission. If, on the other hand, the Council adopts an

amendment by unanimous vote, the acceptance or rejection of the amended proposal must still be voted on, and

the outcome of that vote depends upon whether the

amended proposal is approved by the majority required

under the applicable provision of the treaty, The Council

must at all times observe the other rules of the treaty.

The European Parliament

When the Council has received a proposal from the

Commission and obtained the Opinion of the European

Parliament it may adopt a “common position. ” This

‘‘common position’ must be communicated to the

European Parliament, along with the reasons that led to its

adoption as well as the Commission’s position on the

draft. The act may be definitively adopted if within 3

months (subject to a l-month extension) the Parliament

approves the measure or has not acted on it. The

Parliament may, alternatively, within this 3-month period

propose amendments to the Council’s common position,

or it may reject the position. If the Parliament rejects the

Council’s common position, unanimity is required for the

Council to act on a second reading.

The proposal on which the Council has taken a

common position must be reexamined by the Commission within 1 month, and the Commission must take into

account the amendments proposed by the European

Parliament. Any parliamentary amendments which the

Commission has chosen not to accept must be forwarded

to the Council, together with the Commission’s opinion

on them. The Council may adopt these amendments,

notwithstanding the Commission’s rejection, but its vote

must be unanimous. The Council must adopt any proposal

that has been reexamined by the Commission; if the

Council wishes to make any amendments, it can do so

only by unanimous vote. If the Council does not take any

action within 3 months, the Commission’s proposal is

deemed not to have been adopted. If the Council and the

Parliament agree, this 3-month period may be extended

for a maximum of 1 month.

Paragraph three of article 149 gives some flexibility to

Commission proposals by authorizing the Commission to

amend its original proposal as long as it has not been acted

upon by the Council.

SOURCE: Common Market Reports.

]20-) ~r, [1 92 15
Appendix C

Workshop Participants and Reviewers

Software Engineering Technology and

Intellectual Property Issues Workshop

Richard A. Belgard

Consultant

Bruce I. Blum

The Johns Hopkins University

James Chandler

The George Washington University

G. Gervaise Davis III

Schroeder, Davis & Orliss, Inc.

David Eichmann

West Virginia University

Gideon Frieder

Syracuse University

Andrew Johnson-Laird

Johnson-Laird, Inc.

Lindsey Kiang

Digital Equipment Corp.

Tom Kirkland

MCC

John F. Kramer

DARPA/ISTO

Peter Menell

University of California at Berkeley

Bryan Pflug

Boeing Commercial Airplane Co.

Hasan Sayani

Advanced Systems Technology Corp.

Software-Developer Issues Workshop

Eleanor Arita

Sunburst Communications, Inc.

Douglas K. Brotz

Adobe Systems, Inc.

Chris Byrnes

Landmark Systems Corp.

David Curtis

Microsoft Corp.

Bernard Goldstein

Broadview Associates

Jacqueline C. Morby

TA Associates

David P. Reed

Lotus Development Corp.

John Shore

Entropic Research Laboratory, Inc.

D. Ezra Sidran

Intergalactic Development, Inc.

Dennis Snow

Plimouth Research

Helene Stewart

Oracle Complex Systems Corp.

Public Interest Issues Workshop

David Bender

White & Case

Stanley M. Besen

The RAND Corp.

Anne W. Branscomb

Harvard University

Lynn Robert Carter

Software Engineering Institute

Steven W. Gilbert

EDUCOM

Janlori Goldman

ACLU-National Headquarters

Bruce A. Lehman

Swidler & Berlin, Chartered

Arthur Levine

Finnegan, Henderson, Farrabow, Garrett & Dunner

Paul Mayer

ZPAY Payroll System, Inc.

John McCarthy

Stanford University

Steven J. Metalitz

Information Industry Association

Robert L. Oakley

Georgetown University Law Center

Marybeth Peters

U.S. Copyright Office

Linda Roberts (Chair)

Office of Technology Assessment

–216-
Appendix C—Workshop Participants and Reviewers . 217

Marc Rotenberg

Computer Professionals for Social Responsibility

Irving Samuels

Capital P.C. Users Group

G. Lee Skillington

U.S. Patent and Trademark Office

Richard Stallman

Free Software Foundation

Richard H. Stern

Oblon, Spivak, McClelland, Maier, & Neustadt, PC

Digital Libraries, Electronic Publishing, and

Intellectual Property Workshop

David Bearman

Archive and Museum Informatics

Alan Bogage

Howard County Central Library

Daniel Gross

Flow Research

Steven L. Haynes

West Publishing Co.

Lee A. Hollaar

University of Utah

Mary Jensen

University of South Dakota

William Johnson

University of Virginia

Brian Kahin

Harvard University

Robert Lynch

McGraw Hill Inc.

Susan Saltrick

John Wiley and Sons

Harold Schoolman

National Library of Medicine

Marvin Sirbu

Carnegie Mellon University

Suzanne Thorin

Library of Congress

Ted K. Yamashita

CONTEL Technology Center

User Interface Technologies and Intellectual

Property Workshop

Bernard Galler

University of Michigan

Michael Good

Digital Equipment Corp.

Paul Heckel

Hyperracks

Robert Jacob

Naval Research Laboratory

Nancy Kendzierski

Hewlett-Packard Laboratories

Michael Lesk

Bell Communications Research

Aaron Marcus

Aaron Marcus and Associates

David C. Nagel

Apple Computer

Paul Reed

AT&T Bell Laboratories

Victor Rosenberg

Personal Bibliographic Software

Robert Scheifler

MIT X Consortium

The Present Copyright/Patent/Trade Secret

System of Protection for

Computer Software Workshop

Richard Bernacchi

Irell & Manella

Allen Grogan

Blanc, Gilburne, Williams & Johnston

David L. Hayes

Fenwick & West

Dennis S. Karjala

Arizona State University

Raymond Nimmer

The University of Houston

Kevin O’Connor (Chair)

Office of Technology Assessment

Charles Ortner

Milgrim, Thomajan & Lee

Pamela Samuelson

The University of Pittsburgh
218 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Robert Greene Sterne

Sterne, Kessler, Goldstein, & Fox

Nicole Field

Software Publishers Association

Bernard A. Galler

The University of Michigan Reviewers

Paul Goldstein

Stanford University Prue Adler

Association of Research Libraries

Gregory E. Gorman

Computer & Communications Industry Association Richard A. Belgard

Consultant

Stephen Gould

Congressional Research Service David Bender

White & Case

Seth Greenstein

McDermott, Will & Emery Richard Bland

Storage Technology Corp.

June Hargrove

University of Maryland Bruce I. Blum

The Johns Hopkins University

David L. Hayes

Fenwick & West Robert S. Bramson

Robert S. Bramson & Associates

Steven L. Haynes

West Publishing Co. Anne W. Branscomb

Harvard University

Paul Heckel

Hyperracks Dan Bricklin

Slate Corp.

Wayne Herrington

U.S. International Trade Commission Sara Brown

Software Publishers Association

George Hersey

Yale University Clark Calkins

CC Software

Edwin Hettinger

College of Charleston Lynn Robert Carter

Software Engineering Institute

Heidi Hijikata

U.S. Department of Commerce

Donald S. Chisum.

University of Washington

Lee A. Hollaar

University of Utah

Stephen Chow

Cesari & McKenna

Robert Holleyman

Business Software Alliance

Eileen D. Cooke

American Library Association

Robert Jacob

Naval Research Laboratory

Brad Cox

Information Age Consulting

Jan Jancin

American Bar Association

Bridget Czamota

European Community Commission

Mary Jensen

University of South Dakota

Paul I. Davis

Martin Marietta Energy Systems

William Johnson

University of Virginia

Joseph Ebersole

Attorney

Andy Johnson-bird

Johnson-Laird, Inc.

Michael Ernst

MIT Laboratory for Computer Science

Brian Kahin

Harvard University

Joseph Farrell

University of California at Berkeley
Appendix C—Workshop Participants and Reviewers . 219

Dennis S. Karjala

Arizona State University

Michael S. Keplinger

U.S. Patent and Trademark Office

Tom Kirkland

Microelectronics and Computer Corp.

Glenn J. McLaughlin

Congressional Research Service

Peter Menell

University of California at Berkeley

Steven J. Metalitz

Information Industry Association

John S. Morrison

Technology Transfer International

Glenn Myers

University of Iowa

Jeff Neuburger

Weil, Gotshal & Manges

Raymond Nimmer

The University of Houston Law Center

Alessandro Nova

Stanford University

Robert L. Oakley

Georgetown University Law Center

Charles Ortner

Milgrim, Thomasan & Lee

Ronald J. Palenski

ADAPSO

Linda Pellecchia

University of Delaware

Marybeth Peters

U.S. Copyright Office

Shirley M. Radack

National Institute of Standards and Technology

David P. Reed

Lotus Development Corp.

Pamela Samuelson

The University of Pittsburgh

Glen Self

Electronic Data Systems, Inc.

Sandra Sellers

Willian, Brinks, Olds, Hofer, Gilson & Lione

Robert Sherwood

Consultant

G. Lee Skillington

U.S. Patent and Trademark Office

Mary Smolenski

U.S. Department of Commerce

Oliver R. Smoot

CBEMA

Anne Staines

European Community Commission

Richard Stallman

Free Software Foundation

Joshua Stem

Datatrope Corp.

Robert Greene Sterne

Sterne, Kessler, Goldstein & Fox

Rosemary Talab

Kansas State University

Suzanne Thorin

Library of Congress

Kenneth A. Wasch

Software Publishers Association

Philip Webre

Congressional Budget Office

Douglas R. Weimer

Library of Congress

Suzanne P. Weisband

University of Arizona

Milton Wessel*

Georgetown University Law Center

Alice Zalik

U.S. Patent and Trademark Office

*Deceased.
Index
Index

ADAPSO. See The Computer Software and Services Industry

Association

Advisory Commission on Patent Law Reform, 10-11,55-56

Advisory Committee for Trade Policy and Negotiations, 109

American Memory Project, 169

Amnesty programs, 101

Anticompetitive product preannouncements, 199

Antitrust policies, 190

Apple v. Franklin, 13,68-69

Association for Computing Machinery/IEEE Computer Society

Task Force on the Core of Computer Science, 156

Attaching programs, 127

Authorship issues, 112-113, 131, 174-175

Background of issues, 3-4

Baker v. Selden, 69

Barriers to entry, 190-191

Berne Convention, 16, 104-107, 110

Berne Convention Implementation Act of 1988, 106-107

Biotechnology issues, 40-41

Board of Patent Appeals and Interferences, 44-45

Breadth of a patent, 194-197

Broad patent protection, 192-193

Broderbund Sofware, Inc. v. Unison World, Inc., 72

BSA. See Business Software Alliance

Bureau of National Affairs, 109

Business Software Alliance, 95, 98

overseas piracy, 101-103

CASE. See Computer-Aided Software Engineering

Case law

copyright, 13, 68-73

patents, 45-52

CBEMA. See Computer and Business Equipment Manufacturers Association

CCPA. See Court of Customs and Patent Appeals

CD-ROM. See Compact disc, read-only memory

Circular R61, 65-66

Clean room microcode, 71-72

Clean rooms, 139-140

Command language dialogue, 127-128

Compact disc, read-only memory, 166

Compatibility

network externalities and, 198-199

Compendium of Copyright Office Practices, 66

Compilations

copyright infringement and, 174

databases and, 73-77

Computer-Aided Software Engineering, 168

Computer and Business Equipment Manufacturers Association,

96

Computer Associates International, Inc. v. Altai, Inc., 13, 72,

140

Computer science, undergraduate curricula, 158

Computer Software and Intellectual Property, 4

The Computer Software and Services Industry Association, 98

Congress. See U.S. Congress

Consistency issues, 129-130

Contract law protection of electronic and computer technology,

83-84

CONTU. See National Commission on New Technological Uses

of Copyrighted Works

Cooling Systems & Flexibles, Inc. v. Stuart Radiator, Inc., 74

Cooperative agreements, 192-193

Copyright. See also Berne Convention; Copyright Act; Copyright law; Piracy

authorship, 131, 174-175

clean rooms, 139-140

copying in Renaissance art, 62-63

copyrightable expression, 60-61, 68-69, 70, 72-73, 74, 87,

139-140, 144

recompilation, 6,7, 19,25, 146, 147-148, 150

digital information issue, 19, 170-179

early protection, 58-59

economics literature, 183-185

electronic mail messages, 171-172

external design protection, 139

home copying, 199-201

intention of U.S. system, 186-187

international issues, 25

multimedia works, 36

originality, 173-174

ownership issue, 67-68

permissions and royalty collection, 36

policy areas and options, 29-31

scope of protection, 9-10, 60-61, 151, 194

size of a work, 172

statutory subject matter, 13

technical challenges, 22-23

unauthorized copying, 176-177

“work” definition, 171-173

Copyright Act, 27,87, 111, 112, 144, 178

fair use and, 61-65

1980 amendment, 67-68

Copyright and Home Copying: Technology Challenges the Law,

4, 199-201

Copyright law. See also Copyright; Copyright Act; Sui generis

backup copies of computer programs, 177

case law, 13, 68-73

categories of works, 172

control of access to information, 176

Copyright Office and, 65-66

databases, 73-77

development of, 58-60

digital information and, 178

expression definition, 144

fair use issue, 31,35-36,61-65

in foreign countries, 80-82

goals, 56-58

hybrid design protection, 77-78

industrial design protection, 76-77

levels of abstractions test, 72

limitations to owner’s exclusive rights, 61

mask work protection, 76

merger doctrine, 70, 145

mixed-media work protection, 172-173

object code and source code protection, 68-69

patent/trade secret/copyright laws relationships, 86-88

policy position arguments, 151, 153

program code protection, 144

–223–
224 . Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

rule of doubt, 66

scope of protection, 9-10, 60-61, 151, 198

structure, sequence and organization protectability, 69-72

user interface, 72-73

Copyright Office

program code and screen display relationship, 153

responsibilities, 65-66, 109

rule of doubt, 66

Copyrightable expression, 60-61

clean rooms, 139-140

definition, 144

distinguishing from unprotected elements, 72-73

expression of facts, 74

form of, 87

idea/expression merger, 70

nonliteral elements test, 73

object code and source code protection, 68-69

Council Directive on legal protection of computer programs,

16-17

authorship of programs, 118

beneficiaries of protection, 118

recompilation, 119-120

exceptions to the restricted acts, 119

object of protection, 115

other legal provisions, 121

restricted acts, 118-119

special measures of protection, 120

term of protection, 120-121

Council of the European Economic Community, 112-113

Counterfeiting, 99-100

Court of Customs and Patent Appeals

best mode requirement, 44

mathematical algorithms guidelines, 133-134

mental steps doctrine decisions, 46-52

patentability of software-dated inventions, 132-133

point of novelty test, 49-50

Cryptography, 137

Czechoslovakia

bilateral treaty, 115

Databases

copyright law and, 73-77, 113

mixed-media, 169

Recompilation, 6,7, 19,25, 119-120

definition, 146

disassembly and, 147-148

USes of, 148, 150

Design Innovation and Technology Act of 1991,77

Design patents, 42

protection, 76

statutory subject matter, 12

Diamond v. Chakrabarty, 40

Diamond v. Diehr, 12,24,32,51-52, 134

Digital Communications Associates v. Softklone Distributing

Corporation, 72-73, 153

Digital information

advantages and disadvantages, 166-168

characteristics, 170-171

controlling use of, 175-179

copying, 176-177

copyright issues, 19-20, 170-179)

digital libraries, 169-170

electronic publishing, 161-170

hypertext, 168-169

libraries and, 177-179

mixed-media, 169, 172-173

scholarly publishing system and, 167

storing and retrieving data, 162

storing text and images, 163-164

user’s view, 171

Digital libraries, 169-170

Disassembly

recompilation and, 147-148

definition, 146

‘‘Draft Final Act Embodying the Results of the Uruguay Round

of Multilateral Trade Negotiations, ” 114

Economic issues, 183-201

he-enterprise economy, 184

intellectual property, 20-21

literature on, 183-185

social benefits, 186-194

technology changes, 22

E.F. Johnson v. Uniden, 139

Electronic mail messages, 171-172

Electronic publishing

CD-ROM, 166

definition, 171

nonprint, 165-170

on-line information retrieval service, 165-166

print-based, 162, 164

royalties, 175

End-user piracy, 97-98, 100-101

Engineering Dynamics, Inc. v. Structural Software, Inc. and

S. Rao Guntur, 73

European Economic Community

antitrust regimes, 190

Council Directive on legal protection of computer programs,

16-17, 115, 118-121

Green Paper, 115, 116-118

trade agreement, 108

Expression. See Copyrightable expression

External design

copyright protection, 139

definition, 17-18

intellectual property protection of, 138-140

patent protection, 139

policy issues, 140-141

technology, 126-127

trade secret law protection, 139

Fair use

copyright issues, 31, 35-36,61-65

libraries and, 35

patents, 31

Fax machines, 176

Federal government concerns, 156-157

Feist Publications Inc. v. Rural Telephone Service Co., Inc.,

74-75, 174

France

software piracy, 102

Free-enterprise economy, 184

Free riders, 185

Freeman-Walter-Abele test, 133, 134, 137-138
Index ● 225

GATT See General Agreement on Tariffs and Trade

GCA Corp. v. Chance, 69

General Agreement on Tariffs and Trade, 16, 107-114

Office of the U.S. Trade Representative, 109-110

trade-related intellectual property rights, 110-114

Global software industry

data collection, 93-94

markets, 94-97

technology, 94-97

Gottschalk v. Benson, 12,32,4749, 133, 150-151

Healthcare Affiliated Services, Inc. v. Lippany, 71

Home copying

effect on economic welfare, 199, 200

piracy, 97

price discrimination, 201

resource allocation, 201

variety, 201

Hybrid design protection, 77-78

Hypermedia, 168-169

Hypertext, 168-169

IIPA. See International Intellectual Property Alliance

Illegal copying. See Piracy

In re Abele, 52, 53

In re Abrams, 46

In re Benson, 47

In re Bernhart, 47,48

In re Bradley, 51

In re Chatfield, 50

In re Christensen, 49

In re deCastelet, 50

In re Deutsch, 50

In re Freeman, 50, 52

In re Grams, 54

In re Iwahashi, 54

In re Johnson, 51

In re Johnston, 50

In re MacIlroy, 49

In re Mahoney, 49

In re Meyer, 53

In re Musgrave, 47,48

In re Nell, 50

In re Pardo, 53

In re Prater, 46-47

In re Richman, 50

In re Sherwood, 44

In re Taner, 53

In re Toma, 50

In re Waldbaum, 49,50

In re Walter, 51, 52

In re Yuan, 46

Incentives

for cumulative research, 192-194

excessive, 188-190

India

copyright and patent violations, 103

Industrial design protection, 76-77

Industry

perception of patent effectiveness, 190-192

Installed base, 198-199

Intellectual property

economic issues, 20-21

program function, 132-135

Intellectual Property Rights in an Age of Electronics and

Information, 3

International Intellectual Property Alliance, 98, 103

International issues. See also European Economic Community

Berne Convention, 16, 104-107

copyright law, 80-82

copyright provisions, 25

Council Directive on legal protection of computer programs,

16-17, 115-121

design protection, 77

“Draft Final Act Embodying the Results of the Uruguay

Round of Multilateral Trade Negotiations, ” 114

General Agreement on Tariffs and Trade, 16, 107-114

global SOftware industry, 14-15,93-97

level of patent protection, 25-26

patent laws, 57

software piracy, 15-16, 97-104

software revenues, 14-15

trade secret law, 89-90

treaties and agreements, 16-17

International Trade Commission, 95

Inventions. See also Patent law; Patents

excessive incentives, 188-190

incentives, 196

private returns, 189

underinvestment in, 184

Issues and options

copyright law, 22-23

digital information and copyright, 26

future options, 36

international aspects, 25-26

patents, 23-25

policy areas and options, 28-36, 184

software industry structure, 26-28

Italy

software piracy, 102

Japan

antitrust regimes, 190

competition with U.S. software producers, 15

markets, 96-97

Judicial system

software ’protection process, 11-12

Kewanee Oil case, 86

Key Publications Inc. v. Chinatown Today Publishing Enterprises Inc., 75

Kregos v. Associated Press, 75

Landmine patents, 12, 35, 136

Levels of abstractions test, 72

Libraries. See also Digital libraries

digital information and, 177-179

effect of copyright, 19-20

fair use issues, 35-36

on-line catalogs, 170, 179

remote access to services, 178-179

resource sharing, 178

Library of Congress

digital library prototype, 169

MARC system, 170

Licenses, 107, 192
226 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

Literal code, 144

Lotus Development Corporation v. Paperback Software International, 13, 73, 142-143

Machine Readable Cataloging, 170

MARC. See Machine Readable Cataloging

Market entry, 190-191, 197

Mask work protection, 76

Mathematical algorithms, 10, 17, 23, 32-33,51-54, 133-134

Mazer v. Stein, 186

Mental steps doctrine, 46-52, 150

Menus, 128

Midway Mfg. Co. v. Strohon, 69

Mixed-media databases, 169

Mixed-media works

converting works to digital form, 173

copyright protection, 36, 172-173

Monopoly rights, 185-186

Motion Picture Association of America, 103

Multimedia databases, 169

Multimedia works

converting works to digital form, 173

copyright protection, 36, 172-173

Multiple inventors, 189-190

Multivendor suit, 101

Narrow patent protection, 193

National Commission on New Technological Uses of Copyrighted Works

computer-aided or computer-generated works, 112-113

computer program copyright recommendations, 60

Copyright Act amendment recommendations, 67-68

objectives, 6

rule of doubt recommendations, 66

writing a program to perform a particular function, 145

NEC Corp. v. Intel Corp., 71-72, 145

Network externalities, 197-199

Neural networks, 152

New Developments in Biotechnology; Patenting Life, 3,4041

New Zealand

software piracy, 101

Noncommercial copying. See Home copying

Nonexclusivity, 185

Nonobviousness, 43, 76

Novelty, 4243,49-50,76, 193

Object code, 130

and source code protection, 68-69

Obviousness, 43

Omnibus Trade Act

“Special 301,” 104

On-line catalogs, 170, 179

On-line Computer Library Center,, 170

On-line information retrieval service, 165-166

Options. See Issues and options; Policy areas and options

Parker v. Flook, 12, 32,42,50-51, 134, 138

Patent Act of 1952,39

Patent and Trademark Office, 109

Patent design, 185, 194-197

Patent law. See also Patents; U.S. Patent and Trademark Office

case law evolution, 45-52

mental steps doctrine, 150

patent/trade secret/copyright laws relationships, 86-88

policy position arguments, 150-151

response to court cases, 52-56

Patent races, 192-194

Patent Reform Act of 1967,45

Patents. See also Patent law; Software patents; specific types of

patents by name; U.S. Patent and Trademark Office

“best mode” requirement, 43-44

biotechnology issues, 40-41

doctrine of equivalents, 135

economics literature, 183-185

examination quality and speed, 9, 24, 34-35

external design protection, 139

fair use, 31

infringement issues, 135

intention of U.S. system, 186-187

licenses, 192

mathematical algorithms, 10, 17, 23, 32-33, 51-54, 133-134

nonobviousness, 43, 76

novelty, 42-43, 49-50, 76, 193

obviousness test, 43

patent system description, 39-45

policy areas and options, 31-35

prior art, 6-7,8,33-35

process, 43-45

protection, 187-190, 192-193

rejection conditions, 42-43

statutory subject matter, 12, 32-33,4142, 133

technical challenges, 23-25

term and breadth, 45, 194-197

trade secret law, 194

utility, 42

Yale study, 191-192

People’s Republic of China

copyright and patent violations, 103

Permissions

copyright and, 36

Perseus project, 168-169

Photocopies, 176

Piracy, 15-16, 148

counterfeiting, 99-100

end-user, 100-101

loss estimates, 98-99

overseas, 101-103

retail, 97-98, 99-100

trade issues and, 103-104

Plains Cotton Cooperative Association v. Goodpasture Computer Serv., Inc., 13,71

Plant patents, 42

Plant Variety Protection Act of 1970,41

Point of novelty test, 49-50

Policy areas and options

CONTU research, 184

copyright protection scope, 29-31

libraries, 35-36

patent protection scope, 31-35

principal policy areas, 28-36

PRC. See People’s Republic of China

Predatory pricing, 199

President’s Coremission on the Patent System, 45

Prior art issue, 6-7, 8, 33-35

Private copying. See Home copying

Program code
Index ● 227

copies, 145-146

definition, 18-19

literal code, 144

literal copying, 146

nonliteral copying, 144-145

policy issues, 146

protected and unprotected elements, 146

protection, 144-146

screen display relationship, 153

technology, 130

Program function

definition, 17

intellectual property protection of, 132-135

software patent policy issues, 135-138

technology, 126

Programm ing languages, 7, 127, 130

PTO. See U.S. Patent and Trademark Office

Public goods

rationale for granting rights, 185-186

PVPA. See Plant Variety Protection Act of 1970

Q-Co. Industries, Inc. v. Hoffman, 70, 145

Reciprocity protection, 105

Recording Industry Association of America, 103

Research and development

optimal patent and, 194-196

underinvestment in, 184

Research Libraries Information Network, 170

Restatement of Torts, 79

Retail piracy. See Piracy

Reverse engineering, 31, 76, 148, 150. See also Decompilation

Romania

bilateral treaty, 115

Royalties

collecting, 36

electronic publishing and, 175

SAS Institute, Inc. v. S&H Computer Systems, Inc., 70, 145, 146

Schroeder v. William Morrow & Company, 74

SCPA. See Semiconductor Chip Protection Act of 1984

Semiconductor Chip Protection Act of 1984, 13, 27, 75

Sentry Market Research, 95

Small fins, 188

Societal benefits

cumulative technological progress, 192-194

intellectual property systems and, 186-194

market entry, 190-191

stronger patent protections and, 187-190

Yale study, 191-192

Software debate

complexity, 4-5

evolution, 5-12

stakeholder groups, 8-11

Software development

policy position legal arguments, 153, 155-156

Software industry

changes since CONTU, 188-189

global, 93-97

structure, 26-28

Software Patent Institute, 34, 56

Software patents, 32-33, 134-138

Software Publishers Association, 96, 98, 100, 101

Software reuse, 154-155

Software technology

changes since CONTU, 188-189

elements, 17-19, 125-126

external design, 126-127

program code, 130

program function, 126

user interface, 127-130

Source code, 130

South Korea

software piracy, 102

Soviet Union

bilateral treaty, 115

software piracy, 102-103

SPA. See Software Publishers’ Association

Spain

software piracy, 102

SPI. See Software Patent Institute

SS0. See Structure, sequence, and organization

Standardization

network externalities and, 198-199

Structure, sequence, and organization, 69-72, 145, 151, 153

Study approach, 4-12

Substituting programs, 127

Sui generis approaches, 7-8, 26-28, 75-76,78

Supreme Court. See also specific cases by name

authorship definition, 174

obviousness test, 43

statement on patents and copyright, 57

Synercom Technology, Inc. v. University Computing Co., 72

Technology transfer, 98-99

Telemarketing v. Symantec, 142

Term of a patent, 194-197

Thailand

copyright and patent violations, 103

Trade Act of 1988, 103

Trade-related intellectual property rights

databases, 113

economic rights, 113

protection, 111-113

rental rights, 113

U.S. proposal to the GATT, 16, 110-114

Trade secret law

basis, 79

external design protection, 139

in foreign countries, 89-90

object of, 78-79

patent/trade secret/copyright laws relationships, 86-88, 183

protection indicia, 82

shrink wrap license, 84-86

software and, 82, 84-86

Trade secrets, See also Trade secret law

characteristics, 79, 82

definition, 79

economics of law, 194

efforts to retain secrecy, 82

statutory subject matter, 12-13

Treaties. See also specific treaties by name

bilateral, 114-115

TRIPS. See Trade-related intellectual property rights
228 ● Finding a Balance: Computer Software, Intellectual Property, and the Challenge of Technological Change

UCC. See Universal Copyright Convention

UNESCO. See United Nations Educational, Scientific and

Cultural Organization

Uniform Trade Secrets Act, 79

United Kingdom

software piracy, 102

United Nations Educational, Scientific and Cultural Organization, 106

Universal Copyright Convention, 16, 106, 115

Uruguay Round, 107-109

U.S. Congress. See also Copyright law; Patent law; Trade secret

law; specific laws by name

“fast-track” negotiating authority, 109, 110

power to grant copyrights and patents, 185

U.S. Department of Commerce, 109

U.S. Department of State, 109

U.S. Economic Policy Council, 103

U.S. Patent and Trademark Office. See also Patent law; Patents;

specific types of patents by name

administrative problems, 54-55

examination quality and speed, 9, 24, 34-35, 40

Freeman-Walter-Abele test, 133, 134, 137-138

mathematical algorithms guidelines, 133-134

patent protection scope, 31-35

program code, 132

program examination guidelines, 45

response to court cases, 52-56

technological and institutional changes, 23-25

utility patent classes, 42

U.S. Trade Representative, 103, 109-110

User interface

case law, 72-73

constraints, 129-130

copyright law protection, 151

design, 18, 128-129

and network externalities, 198

policy issues, 143-144

protected and unprotected elements, 142-143

standards, 143

technoIogy, 127-130

User satisfaction, 197

USTR. See U.S. Trade Representative

Utility, 42

Utility patents, 42

statutory subject matter, 12

UTSA. See Uniform Trade Secrets Act

Vault Corp. v. Quaid Software Ltd., 86

West Publishing Co. v. Mead Data Central, 74

Whelan Assocs., Inc. v. Jaslow Dental Laboratory, Inc., 13,

69-70, 145, 146

White Consolidated Industries, Inc. v. Vega Servo-Control, Inc.,

44

Williams & Wilkins Co. v. United States, 64

Williams Electronics, Inc. v. Artic International Inc., 68

Windows, 128

WIPO. See World Intellectual Property Organization

Workalike programs, 127

Workshop issues, 5

World Intellectual Property Organization, 106, 108

draft treaty, 11,56

patent system modification treaty, 26

Wright v. Warner Books, 65

Yale study, 191-192

320-226 (236)