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 I 1 IIC t IIIC Is i C'1 Illllcll 1'1 1111111 1 I ILL' $llp l 1111 11 1 111 Ihk UIIIL'll Alclll slop Ss 1' W' l lllll$l m 1-H 2 ' zs ISBN 0-16 -036188-5 -- Foreword Our Nation's intellectual property system is intended to strike a balance between private incentives and protections of public interest This report examin es 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 Robbie Hardy Senior Principal American Management Systems Inc Dana E Cartwright III Director Academic Computing Service Syracuse University Mitchell D Kapor chairman ON Technology Inc Bill Curtis Director Software Process Program Software Engineering Institute Ronald S Laurie Partner Weil Gotshal Manges Randall Davis Associate Director Artficial Intelligence Laboratory Massachusetts Institute of Technology Clifford A Lynch Director of Library Automation University of California Walter J Doherty Program Manager Scientific Systems Support Laboratory Computing Systems Department IBM T J Watson Research Center Anita Mergener Director Product Design Kelly Services Jerome H Reichman Professor of Law Vanderbilt University Carol Edwards formerly Project Director Southern Coalition for Educational Equity Richard Rubinstein Manager Technology Assessment and Planning Digital Equipment Corp Nick A Farmer Director of Information Systems Chemical Abstracts Service Robert Schware Senior Information Technology Specialist The World Bank John Gage Director of Science Office Sun Microsystems Mary Shaw Professor of Computer Science Carnegie Mellon University Morton David Goldberg Partner Schwab Goldberg Price Dannay 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 Technologies Program Manager Project Staff 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 Intern 2 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 1 2 Until August 1990 Catholic University of America fall semester 1990 Page Chapter 1 S ummary Issues and Options 3 Chapter 2 The Law 39 Chapter 3 The International Arena 93 Chapter 4 Software Technology and the Law 125 Chapter 5 Digital Information and Copyright 161 Chapter 6 Economics Intellectual Property and Software 183 Appendix A Selected Computer Hardware and Software Initiatives Overseas 205 Appendix B The European Economic Community Treaty Structure and Function 213 Appendix C Workshop Participants and Reviewers 216 Index 223 Chapter 1 Summary Issues and Options Contents Page 3 summary 3 Background and Study Approach 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 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 ex amined 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 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 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 study 6 Thus it appears that-although the particulars differ--many current questions concerning the 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 ' 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 inan 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 o f f i ce of c olo Aswssment New Developments in Biotechnology pa enn ng Lif pecial R e p o r t OTA-BA-370 Washington DC U S Government Printing OfXce April 1989 6 mmy respects ow w obs 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 assist- Many 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 ti tW 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 examinin g 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 19 for software-related inventions Over the p a s t decade patents have been issued for softwarerelated inventions such as linear-programmin g 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 discoveries 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 are questions as to whether this process of accommodation 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 soft- ZZ 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 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 and in dealing with large competitors 23 OTA has 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 programmingl a n g u a g e s a n d e x t e r n a 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 publicity 25 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 q u e s t i o n s 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 sys27 See Federa Register vol 56 No 95 M2y 16 1991 W '22 702-22 706 j r - z b Y7 - 2 Courts 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 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'landm ine' 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 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 13 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 Exfi ation 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 andthe 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 s spec 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 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 15 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 4 2 R e t a i l p i r a c y -- 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 44 copyright law 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 $1 billion in 1986 47 Industry estimates of losses from piracy abroad are larger the Business Software Alliance BSA estimates that-looking at all types of software-software piracy worldwide causes the w OTA note Revenue reported for 'software and S iCeS includes revenues from processing and professional services as well as from custom and packaged software products 40 Ollver SmW4 CBE rso comWication J e 30 1991 SW so EMA Tfie Computer BWiness Equipment Sofiwure u ld Services and Telecommunicafi ons Indusrry 1960-2000 Washington DC CBEMA Industry Marketing Statistics 1990 p 100 Estimates from BDA Assoc forecast 41 SPA estimate StTZ ch 3 42 For diXussion of revenue losses due to piracy see U S Lnternationzd Trade C0mmi55i0% Foreign Protection of Intellectual Property Rights and the Effect on U S Industry and Trade February 1988 ch 4 43 OTA ofe s text uses the p W ''re l p cy$ 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 Re- 4S 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 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 17 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 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 50 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 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 s urnrner 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 pro59 are easier to write and understand but grams 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@s inside 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 71 see winter 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 con- 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--Summary J 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 technology 80 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 84 PT0 OTA finds that the PTO faces considerable challenges in examining applications for softwarerelated inventions At the same time there ap- 77 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 ex amination 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 selec- BS '' 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 There- fore Congress may wish to determin e 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 learnin g 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 Bfi m '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 sectors 96 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 9 5 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 104 appropriate The argument that computer programs are ''useful articles' or otherwise fall outside the range of statutory subject matter was rejected by 105 CONTU and has been consistently rejected by the 106 courts 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 difficulties that the functional aspects of computer programs present in determining the appropriate scope of copyright protection for programs 2 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 3 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 tit the 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 108 longer-term options 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 29 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 determin e 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 1 explicitly affirm the status quo and course of case law e g in terms of the scope of copyright and patent 2 make small adjustments at the margins of copyright and patent e g through procedural changes 3 clarify or modify the scope of patent and or copyright e g through definitional changes but leave the basic paradigms the same 4 introduce one or more complementary sui generis regimes tailored specifically to certain aspects of programs and software functionality recognizing particular patterns of innovation or 5 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 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 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 afirmin g the status quo can or should be selected more quickly 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 Definitional Issues and the Scope of Software Copyright 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 remain the same as for other copyrighted literary and artistic' works 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 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 Alternatively if it chose to make explicit exclusions Congress could 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 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 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 110 engineering 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 legis- lation 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 ex aminer 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 examin ation 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 pends 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 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 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 5 Encourage PTO'S ongoing efforts to improve funding training and support for PTO examiners in order to assure highquality examinations Examination quality de- 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 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 -- 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 dete rmining 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 compli- cated 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 k in 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 tration See 35 U S C 271 and 21 U S C biological products which must undergo an often lengthy approval process with thr Food and Dmg Adrmms 355 j 4 B iii Chapter 2 The Law -- -- Contents Page Patents 3 9 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 Page Box 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 System 3 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 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 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 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 exarmin ed 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 to be deemed patentable 8 The invention must 1 be patentable subject matter 2 be useful 3 be novel 4 not have been obvious at the time it was made 5 be disclosed in sufficient detail to enable persons of ordinary skill in the art' to practice the invention without ''undue experimentation The patent must also disclose the best mode of practicing the invention known to the applicant as of the filing date These issues of statutory subject matter utility novelty nonobviousness and enablement best mode are addressed by 35 U S C 101 102 103 and 112 respectively If it is determin ed that these requirements have been fulfilled and if certain other formal requirements are met a patent will be granted The grant of a patent by the U S Government to an applicant gives a property right from the U S Government to the applicant or the applicant's assignee Subject Matter A patent may issue to w hoever invents or discovers any new and useful process machine manufacture or composition of matter or any new and useful improvement 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 to11 exclude others from their use or exploitation 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 14--A plant patent may issue ' Plant patents the inventor of any distinct and new variety of plant which is capable of asexual reproduction 0 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 sup- IODia 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 43 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 inven- Is 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 b Nost 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 Sherwood 20 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 determin ation 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 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 22 ire con o idared u m e$ 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 at 816 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 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 31 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 extended for an additional 5 years 33 For example 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 45 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 H earings 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 software nel and the area finding qualified examiners for computer technology the lack of experienced personthe inadequate examination procedures in 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 Yuan 42 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 di- rected 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 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 4 8 T h e i n v e n t i o n at i s s u e i n 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 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 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 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 47 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 45 Moskowitz Op cit footnote 34 p 287 at foo ote 26 Gottschalk v Benson 409 U S 63 1972 qg n re Benson 441 F 2d 682 C C P A 1971 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 mathematical formula' and went on to rule that processes are not patentable if they only claim or preempt a mathematical formula computer which means that if the judgment below is affirmed the patent would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself 55 It is conceded that one may not patent an idea But in practical effect that would be the result if the formula for converting binary code to pure binary were patented in this case The mathematical formula involved here has no substantial practical application except in connection with a digital Nevertheless the court stated specifically that it did not hold that there could be no patent for any program servicing a computer 5G In ensuing cases before the C C P A the court attempted to interpret the Benson decision and apply it to a variety of 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 742 C c P A lgTOJ s e Wufdbaurn 559 F 2d 611 C C P A 1977 4 n e ahonq 421 F 2d 6 n e cllroy 442 F 2d 1397 C C P A 1971 SOURCE Oll 1992 Post-Benson to Diehr 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 informa- 57 In re Christensen 478 F 2d 1392 C C P A 1973 'g Ibid at 1394 tion While the C C P A was clearly of the opinion that 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 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 1 In re Noll 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 In this case the majority opinion comments that the C C P A 'S point of novelty test in 2 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 7 In re deCastelet 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 9 In re Torna 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 application characterized the claims as apparatus claims for a computer program which conti-oiled an automatic computerized check sorting device The C C P A held the invention patentable construing Benson to apply only to process claims Although the Supreme Court reversed the decision finding the invention obvious the Court did not consider the matter of subject matter patentability under section 101 Parker v Flook The Supreme Court again addressed the question 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 a Parker v F ook 437 U S 584 1'978 219 1976 Chapter 2--The Law 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 51 Bradley 66 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 determin e 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 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 bs n re waiter 618 F 2d 758 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 PTO Policy and Procedural Response to Court Cases 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 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 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 The PTO relied upon the two-part test of In re Freeman 72 as modified by In re Walter73 and In re Abele 74 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 guide- 6 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 o 53 Box 2-D--The Cases of Pardo Taner Abele and Meyer In re Pardo The case of In re Pardo involved an invention which controlled the internal operations of a computer l 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 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 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 2 A mathematical algorithm is not rendered 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 54 Finding a Balance Computer Software Intellectual Property and the Challenge of Technological Change 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 5 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 examin ers 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 87the prior-art database and problems of classification 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 agen- Table 2-l--Number of Patents Issued for SoftwareRelated Inventions 1970-91 Year Number 1970 27 1971 51 1972 70 1973 35 11 1974 14 1975 1976 5 7 1977 30 1978 23 1979 25 1980 1981 21 1982 52 1983 64 1984 136 153 1985 1986 187 227 1987 131 1988 193 1989 1990 599 1991 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 pro- 86 us conge Semtc su o ttee on 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 Copyright law in the U S protects the right of an author to control 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 Copyright 97 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 The economic philosophy behind the clause empow- ering the Congress to grant patents and copyrights is the conviction that encouragement of individual Mazer v Stein 347 U S 201 219 1954 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 a limited monopoly for authors is based upon a dualism the belief that the public should benefit from the creativity of authors and the belief that a copyright monopoly is necessary to stimulate the 58 Finding a Balance Computer Software intellectual Property and the Challenge of Technological Change Box 2-F--Early Protection Against Copying l 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 2Thereupon he decided to keep a book and began copying the composition of all the pictures which left his studio 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 this concept is that the grant of a monopoly would not be justifiable if the public did not benefit from 101 the copyright system 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 Copyright 102 Much of the structure and basis for American law is derived from its British legal antecedents After the introduction of the printing press in England in 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 tit tie 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 5 recorded privilege in 1469 and soon began to grant privileges for prints as well 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 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 Delaware enacted some form of copyright statute 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 1870 111 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 1909 112 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 113 sound recordings 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 116 The copyright statute 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 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 114 Public IAW 94-553 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 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 1 2 1 The statute does however specify certain limitations to the copyright owner's exclusive rights that are noninfringing uses of the copyrighted works These limitations include the fair use of the w o r k122 1 7 U S C 1 0 7 1 9 8 8 c e r t a i n k i n d s o f 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 reproduction by libraries and archives 17 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 2--The Law 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 Use 123 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 the125copyright holder to arrive at an acceptable balance 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 con- 120 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 antees tie s tie ri@t o sp k s OWTI expressio and tit it 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 Art l 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 4 and it kept the artist in touch with the wellsprings of the past 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 S mm is 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 5C ennino 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 in enacting copyright legislation Much of the historical balancing has occurred in the context of the fair-use doctrine The doctrine o f fair use as codified in the 1976 Copyright Act has antecedents in English law of the 18th and 19th centuries and in 19th-century U S case law 127 Various approaches have been adopted to interpret the fair-use doctrine It has been said that the doctrine of 'fair use' allows the courts to bypass an inflexible application of copyright law when under certain circumstances it would impede the creative activity that the copyright law was supposed to stimulate 128 Indeed some commentators have viewed the flexibility of the doctrine as the ''safety 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 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 1 the purpose and character of the use including 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 ex amining 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 s fWtor 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 Table 2-2--Copyright Registrations Generally 1974 to Present Year 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 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 Number 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 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 l44 the work is not eligible for protection 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 2-3-Copyright Registration Computer-Related Works FY 1986 to Present Year Textual 1986 5 565 1987 5 137 1988 5 124 1989 4 397 1990 5 350 1991 1st quarter only 2 441 Unpublished textual works 4 744 4 433 6 046 5 412 5 214 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 examin ers 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 146 However der tie Beme Con ention d tie Beme 1rnplernen tiOn Ac 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 MT 37 C F R denied 479 U S 1031 1987 registration and deposit themselves tic not required Chapter 2--The Law 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 150 or even ignored by some courts 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 67 the old version of section 117 153 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 Progm as 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 Franklin 156 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 17 101 U S C 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 Strohon 162 and GCA Corp 163 v Chance 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 Organization 166 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 each167other as opposed to the literal text of the program 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 Whelan168 Assocs Inc v Jaslow Dental Laboratory Inc 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 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 172 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 Hoffman 173 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 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 17 Whelan i4wocs v Jaslow Dental Laboratory 807 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 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 determin ation 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-- 71 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 no substantial similarity of the works ' 'considered as a whole 2 insufficient evidence that NEC copied important parts of Intel's microcode 3 programming constraints accounting for similarities between the two microcodes and 4 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 dis- plays 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 C 0 181 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 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 73 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 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 re- 75 sulting 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 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 194 KregOS V 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 com201 mercial exploitation 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 204 improvement or alteration o n c e a p a t e n t i s 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 examin ation 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 211 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 3 1 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 ' 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 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 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 working219well and their economic effects are appropriate 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 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 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 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 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 Trade Secret Law Introduction 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 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 79 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 fii r 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 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 81 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 Developers of computer software have attempted to address the more difficult problem of maintaining trade secrecy in mass marketed 232 226 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 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 148 22g KeWanee Oil CO Bicron Corp 416 U S 470 475 1974 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 v 230 see e g Q co ndusrrjes ne Chapter 2--The Law 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 9 In PowerLift Inc v Watherford Nipple-Up Systems Inc 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 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 7 Universal Gym 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 83 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 13 Copyright Act have been upheld For example in SAS Institute Inc v S H Computer Systems lnc 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 12 HR No 941476 at 132 1976 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 otherwise destroy requisite secrecy by use of what is known as a ''shrink wrap ' license See box 2-J Theoretically such a license is used in conjunction with the practice of publishing program code in object code form Object code is understandable to people only after extensive effort and would ordi- narily require intermediate steps to recover a higher level language representation of the program see ch 4 Distributing the code in such a form is intended to maintain the secret nature of the information In addition it invokes the provisions of the copyright law since recovering a high-level language version 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 copy or derivative work is believed by some to be a violation of the copyright law and is not given explicit treatment under Section 117 of the Copyright Act or the doctrine of fair use 233 The shrink-wrap license further signals secrecy and is established by marketing software in a sealed package with a notice and a license agreement that is visible on the exterior of the package The agreement generally provides that the user by opening the package is deemed to have accepted the license terms and conditions The terms of such a license generally prohibit recompilation disassembly or copying of a program for any reason except for use and backup purposes so that copying of the object code in the process of obtaining a higher level language version of the program arguably becomes in addition to a violation of the copyright law a breach of the shrink-wrap agreement assuming that the agreement is enforceable Some shrink-wrap agreements contain an express prohibition on ''reverse engineering or decompilation disassembly Occasionally a card is provided which must be signed and returned in order to receive information 233 see g SAS InSn tDtc 1nc v S H C o m p u t e r 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 d o c t i n e 2 3 6 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 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 240 239 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 w skil 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 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 242 earlier filed secret patent applications are prior art 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 87 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 246 underlying idea Indeed copyright law also pro- vides 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 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 Ofllcial Journal of the European Communities No L 122 42 May 17 1991 progr gl so c pr ble para 30 publishti in the Continued on next page 89 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 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 of National Aff lm P -16 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 Page Box 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 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 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 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 Estimated revenues $ millions Company 1989 1990 IBM $8 424 $9 952 Microsoft 1 323 821 Computer Associates 1 290 1 311 Digital 825 810 Oracle 702 554 Lotus 516 635 Unisys 875 600 D B Software 450 539 WordPerfect 452 281 Novell 288 388 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 Table 3-2--Top 10 Personal-Computer Software Companies in 1990 Revenues $ millions Microsoft $953 Lotus 556 WordPerfect 281 Ashton-Tate 265 Autodesk 177 Adobe 121 Logitech 112 Software Publishing 110 Borland International 104 Aldus 88 Company 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 10f 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 theAgena2r 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 Commission by 1988 U S independent software software industry comprised 1 18 percent of GNP gross national product generated $61 6 developers' revenues exceeded $25 billion up from $20 billion in 1987 12 about 40 percent of these revenues were from foreign sales 13 According to the Business Software Alliance BSA in 1989 the computer programming and billion and generated $12 1 billion in foreign sales by U S firms 14 Sentry Market Research has estimated that 1990 worldwide sales of U S packaged soft- 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 producer of computer software U S producers are 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 Table 3-3--Top 10 Packaged Software Vendors in Europe 1989 Company 1989 sales $ millions IBM $2 120 Siemens AG 398 Nixdorf AG 374 ICL 318 Bull HN 314 DEC 279 Olivetti 236 Unisys 183 Microsoft 152 CAI 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 97 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 s twe 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 bil- lion 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 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 industry 41 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 99 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 fi Schwae notes mat di% softwme Plmcy s forc 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 been hard hit by counterfeiters 4 8 B y c o n t r a s t 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 sales 54 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 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 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 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 b 20 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 SpA press release Feb 25 1991 press release May 7 1991 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 65 102 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 Country Software sales- Value of pirated software-1989 estimate BSA estimate $ millions $ millions France Italy Sweden United Kingdom W Germany $605 190 188 795 581 $ 628 768 151 439 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 71of PC-software piracy 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 agreement 74 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 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 protections against piracy Copyright enforcement 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 77 103 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 Berne Convention for the Protection of Literary and Artistic Works is a multilateral international copyright treaty The purpose of the Berne Convention is to bring nations together in an effort to protect in as effective and uniform manner as possible the rights of authors in their literary and artistic works The Convention attempts to achieve this objective through the principal of national treatment which underlies the workings of the Convention 82 Under the principle of national treatment each member nation must give the same treatment to the nationals of the other member nations as it gives to its own nationals 83 Several secondary exceptions play a role in the Berne system 84 These exceptions include recip- 8Z 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 I 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 DCams lr dcr op cit foomotc 3 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 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 C 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 91 a defense of innocent infringement 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 Th e 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 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 3 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 4 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 94 compulsory licenses 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 54 Duration of protection-The Berne Convention establishes the minimum terms of protection that must be provided by member coun- tries 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 6 Ilona B Nickels Trade Agreement Subsidies The New Yo k Times NOV 13 1990 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 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 98 D sc oder op cit footnote 83 at 390 property provisions in the GATT will depend in 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 Chapter 3--The International Arena 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 l00 T 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 109 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 S o m e 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 The perception exists however that the USTR has not involved the Congress as fully as would be 105 Indeed the fast-track considered appropriate procedure for passage of implementing legislation relies upon congressional awareness and participation throughout the negotiation and drafting proce s s 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 104 G@er w Ernst Yomg was go DC perso commmication Rights Part Two of the U S Trade Representative's 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 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 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 l a This provision essentially incorporates the 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 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 2 108 Tiflc 17 sec 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 111 protection of algorithms and computer languages 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 examin ed 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 instru- 110 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 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 117 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 113 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 -- 116 Ibid 117 Ibid 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 - of Justice July 30 1990 Ibid oPcrtY and 'hc 'mlnistratlOn 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 123 Comcfl Dir tiv of May 14 1991 on tie egal 124 me GA and U S proposals protection 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 of computer pmgr s 91 '250 EC 4 C fc r @ade related intellectual propefiy rights are discussed earlier in this chapter ------ Chapter 3--The International Arena 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 115 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 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 133 130 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 whether copyright protection should apply to computer programs fixed in any form 2 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 3 whether access protocols interfaces and methods essential for their development should be excluded from protection 4 how broadly the use right should be formulated 5 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 6 whether reproduction without authorization of programs should be permitted for private purposes 7 what the term of protection should be 8 how authorship should be defined including authorship of computer-generated programs 9 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 10 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 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 Article 4-Restricted Acts 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 143 to the rights of the person who alters the program The distribution of a computer 137 Ibid W 2 However ticle 2 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 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 146 correction of errors Article 5 also provides that the right to make a backup copy by a person having a right147 to use a program cannot be contracted away 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 119 provided for in article 5 148 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 1 49 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 153 created program It may not be given to others except when necessary for interoperability of the 154 independently created program 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 possessing a copy of a computer program for commercial purposes knowing or having reason to believe that it is an infringing copy 3 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 158pursuant to the individual member state's legislation 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 1 Ibid art 9 sec 1 1 Ibid art 9 167 SCC 2 Ibid art lo 2 Chapter 4 Software Technology and the Law Contents Page Introduction 125 Technology 125 Introduction 125 Program Function 126 External Design 126 User Interface 127 Program Code 130 Software and the Application of Intellectual Property Laws 130 Program Function 132 External Design 138 User Interface 142 Program Code 144 Recompilation 146 Introduction 146 Recompilation and Disassembly 147 Uses of Recompilation 148 Other Methods of Reverse Engineering 150 Legal Arguments for Policy Positions 150 Patent Law 150 Copyright Law 151 Software Development 153 Boxes Page Box 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 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 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 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 programming g 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 7 -T Original Program 1 ' --r 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 user can select choices from a list of alternatives 13 displayed on a screen 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 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 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 F o r 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 -u R 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 32 by the computer 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 performin g 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 nonobviapparatus or process is not necessarily ' 'statutory subject m a t t e 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 ous program function whether claimed as an 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 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 38 - -- 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 symbols 43 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 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 39 It is uS clew tha he 'nutshell' lmwge '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 45 In e a y 600 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 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 L pamc la Samuclson 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 general 62 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 64added costs of searching and filing for patents 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 68that do not in fact represent significant advances 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 Wllllm Hulbig @ 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 become 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 as faster processors have become available Second 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 communi- 704$ 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 Chapter 4--Software Technology and the Law 139 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 interface82through the copyright in the underlying program 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 progr amming languages has not been at issue in a decided case However there 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 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 independently 87-- 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 85 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 t v Tlmc ad SpaC-e processr y 722 F SUpp 1354 1362 E D ci 1989 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 invest- ment 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 91 than in its encoding 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 mtiPt in 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 used 97--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 determin ed 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 in- teraction 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 110 outlining program or costestimation program 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 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 107 fTI V cA $ 706 F Supp 934 9950 co 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 interpreted to show the absence of ' 'mechanical or utilitarian constraints' 116 on the designer In one case the commands themselves were not protected 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 B y arguing that 1-2-3 was so innovative that it occupied the field and set a de facto i n d u s t r y standard and that therefore defendants were free to copy plaintiff's expression defendants have flipped copyright on its head 118 113740 F Supp 37 67 D Mass 1990 ne court orgamzation' of the menu command system ' 1 IJ 706 F SUpp 984 994 D Corm 1989 said 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 that '' a n example of distinctive details of expression is the preCISe 'structure SXluence and 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 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 1 2 7 Protection of the structure sequence and organization has been described as consistent with the application of copyright to more traditional types of 128 ' 'literary' works such as novels 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 125 seC $rhe dtl JdS Ow 79 F zd 1222 Sd 1 rhc all V 145 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 133 CONTU 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 Cir 1986 and SAS V $ H 605 F SUPP 816 M D 'enn 1985 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 p 1588 appendix to Clapes et d op cit footnote 128 146 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 determin ation of the level of competition desirable l36 rticulating this line has proven to be difficult In practice there will rarely be access to the high-level language version of a competitor's pro134 NatiO cO SSiOn on New 'rw O OgiC u5eS of Copyrigb ed gram 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 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 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 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 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 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 Recompilation and Disassembly 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 145 large program 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 disassem- l 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 148 attempt to hide the copying 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 151 competitive advantage 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 h tigs 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 00000000 01100110 00000010 00011010 01100110 00000010 00000010 01111100 00000001 10100011 00000010 01011001 00000000 00000010 01011001 11101001 00000000 01100010 10100001 10010001 01000001 00000011 00101001 11101010 10100011 00000010 01100000 00101011 10100011 00000110 01110100 11111111 01100000 10111000 00000010 11001000 01100100 01100100 00000111 11101000 00000010 00000000 01010000 01111101 00000010 00000010 11111111 01111010 10111000 00000000 01000001 00000011 01010001 10100011 00000110 11110111 00000101 10100011 01100010 11101001 10100001 01100110 01100100 11101000 Machine language programs are difficult to read and understand If the original high-level program is not available disassembler programs may be used to translate the machine program into a more understandable form called assembly language However assembly programs are still more difficult to understand than high-level language programs Part of the language program is shown below language language language assembly DISASSEMBLED PROGRAM 2D9F SOURCE OTA MOV MOV MOV MOV MOV MOV MOV PUSH MOV POP XCHG SUB JGE Ax 0001 2DC1 0260 AX Ax 0005 2DC5 0262 AX Ax 0000 0266 AX AX 0260 Ax Ax 0262 Cx Ax Cx Ax 2DC1 2DDB JMP INC MOV Push MOV ADD MOV POP DEC JZ INC JMP CALL 2DDB CX 0264 AX CX AX 0266 AX 0264 0266 AX CX CX 2DDB WORD PTR 0264 2DC5 2558 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 prin160 ciples or discoveries 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 164 underlying program 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 Figure 4-C-1--Neural Network architecture 1 The network consists of a large number Inputs 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 outputs behavior of a conventional computer However neural networks are not programmed in the same way as conventional computers Neural networks are The circles represent processing elements that perform a weighted sum on their inputs and compute an output value that is then sent ''trained The network is presented with input values to the next layer of processing elements for which the desired output is known The network SOURCE OTA then adjusts the weights until this output is achieved 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 m Nos 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 rights 4 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 AidedSofi 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 H to 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 adminis tered 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 VA Institute for Defense Analyses July 1991 7 Fmm Eic- Wd Atkins op cit fOOtllOte 3 the workshop on Qgal ls es in Sofiare Re e IDA Document D-1OO4 A lexandri 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 173 creative process 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 disci175 pline 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 of Tcxhing Future Software ACM vol 32 No 3 Mmch 1989 pp 294-297 Nor-man E Gibbs ' 'The SEI Education Program TIc Challenge $ 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 stration U S Congress Office of 'Ikchnology Assessmen6 Review of Administration% Social Security Administration and Veterans Admtm 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 Association for Computing Machinery IEEE Computer Society Task Force on the Core of Computer Science developed its detailed definition of the discipline through three paradigms theory rooted in mathematics abstraction or modeling rooted in the experimental scientific method and design rooted 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 Committee on Commerce Science and Transportation Sept 13 1991 SOURCE OTA and cited sources Indusq Association testimony at hearings bCfOrC dlc SeIlitlC 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 T h e r e f o r e 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 161 Electronic Publishing 161 Print-Based Electronic Publishing 162 Nonprint Electronic Publishing 165 Copyright Issues for Digital Information 170 What Is a Work 171 Originality and Authorship 173 Use of Digital Information 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 Many books and periodicals are now written edlted and typeset on computers they are only committed to paper in time to be delivered to the end user Computer-aided publishing systems offer many advantages to publishers information only has to be typed once and then the captured keystrokes can be edited corrected rearranged or updated with relative ease Pages can be laid out and pasted up directly on the computer Graphics can be inserted either by using graphics software to draw them on the computer or by using a scanner to make digital versions of printed photographs or drawings Then all the text and graphic information can be converted to a form usable by computer-based typesetters and in some cases computer-driven printing machinery 3 Newspapers were at the forefront of implementing computer-aided publishing 4 but the techniques have rapidly spread to magazine journal and book publishing as well Fairly low-cost desktop publishing systems using personal computers and laser printers have even brought these abilities to small businesses community groups and schools The easier manipulation of digitized information means that many different products can be derived from basically the same information For example magazines and newspapers can more easily produce different regional editions of the same issue While the bulk of the text may be the same articles or 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 Th e 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 electronic text can be sent via telephone lines to several printing and distribution facilities throughout the country thus reducing mailing costs and speeding delivery to subscribers can make several different versions of a standard text for different universities Authors and 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 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 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 and handbooks many standard reference works 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 m a n y sources or actual electronic editions of fu11 journall or magazine While many elcectrnically published digital versions of the 'paper journals journal are electronic is gradually growing and c h a n g i n g t h e informal ion is exchanged among r e s e a r c h communities Ten refereed electronic journals are publishing way now available research and many on the Intcrnet 8 a information networks collection of o t h r ugh which universities businesses and government agen- cics share services 1ike electronic mail file ex- 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 G e n o m e Project at the Welch Library at J O h nS change and access to Hopkins University mounts text related to the 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 13 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 problem with digital retrieval is 'getting too much information Most on-line database retrieval systems allow the use of several strategies to narrow the search to retrieve a reasonable amount of information See box 5-B Retrieval and text analysis software are becoming increasingly sophisticated Still getting the precise information one wants without reading through lots of irrelevancies or worse yet missing something important can sometimes be a daunting challenge 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 p r o v i d e r I n 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 develop19 ment project In the commercial world prototype hypertext systems have been developed for financial auditing a field that is heavily dependent on crossindexing and relating information from differ- ent 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 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 iillolld 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 2 7 S o m e u n i v e r s i t y 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 information 29 1 Works are easily copied 2 They can be easily transmitted to other users or be accessed by multiple users 3 They can be easily manipulated and modified 4 Works are essentially equivalent text video or music are all reduced to a series of bits and stored in the same medium 5 Works are inaccessible to the user without hardware and software tools for retrieval decoding and navigation 6 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 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 27 Cliffor i 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 use the works What Is a Work As mentioned in chapter 2 copyright protection attaches to an ''original work of authorship' when it is ' 'fixed in any tangible medium of expression Thus when an author writes a novel on a computer or word processor it is clear that a printout is fixed and tangible and protected by copyright It is also fairly clear that the words on the cathode-ray tube are evanescent and therefore unprotectable 30 A new kind of work that is increasingly being 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 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 Works to Digital Form Converting 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 for33 incorporating music into recordings or movies The fee structures of these 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 34 173 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 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 Amcrjc - 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 17 USC lo2 a personal communication June 21 1991 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 competi- tor's unauthorized use of them was an infringement 42 The case ultimatey y 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 returnin g royalties to copyright 46 Ibid 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 176 Finding a Balance Computer Software Intellectual Property and the Challenge of Technological Change documents based on how much information a user has retrieved last one Often infringement is so widespread and diffuse that it is difficult to determine damage 47 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 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 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 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 28 1991 Samuelson Digital Media and the Changing Face of Intellectual Property Law ' op cit footnote 29 pp 323-340 NOV Chapter 5--Digital Information and Copyright 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 52 177 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 55 Coment5 at OTA Advisow p 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 examinin g 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 expen- 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 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 179 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 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 5 in the following discussion which spotlights some of the issues on intellectual property and innovation that economists have explored including 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 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 H e 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 theNational 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 differ- s 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 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 185 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 Cop@ghted works cow r ognized tit the infomtion Ccxnprising software innovation in '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 13 me Natioml Comlsslon on New UseS of computer 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 power 18 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 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 issues and economic opinion on the social advantages and disadvantages of patent monopolies see Chapter 6--Economics Intellectual Property and Software and transaction costs 23 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 76 187 '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 w h e n e c o n o m i s t s 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 programmin g 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 invention incentives in a particular context depends property was desirable to promote innovation 28 on the existing balance in that context between 1 Theoretical and empirical work from the mid- 1970s the joint effectiveness of a variety of means of to present has challenged the assumption that appropriating returns and 2 the extent to which the stronger intellectual property regimes yield positive 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 produce excessive incentives for certain types of Winter puts it 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 are usually expected to be lower than the benefits 30 accruing to society However there are exceptions For certain types of inventive efforts private returns may exceed social returns This might occur for example if the inventor is able to invest in complementary assets whose prices will tend to increase after his or her invention is disclosed and implemented The inventor's gain from these complementary assets need not be related to or bounded by the 31 social value of the invention The possibility for extraordinary returns from inventions with valuable complementary assets might divert inventive efforts from other areas that might be more beneficial to society as a whole although less rewarding to the individual rights holder Another source of excessive incentives for inventive activities comes about from the possibility of 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 restric- tions 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 LA W @ ''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 38 entry 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 or improved products and processes 43 The researchers surveyed industry R D managers concerning the relative effectiveness of 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 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 tit s 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 industry 45 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 economic value of the patent Patent licensing can 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 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 50 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 genera- tion 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 es be 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 engi62 neering In their view although the C O U r 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 inven63 tion and patenting of the secret '' is permitted 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 tit s recy con as wi me ' 'prosp t' eoly of patenfig 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 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 where disclosure serves tO head problems in enforcement see Steven Chapter 6--Economics Intellectual Property and Software 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 68 exploit their discoveries 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 patents 7 1 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 195 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 ' ' s t i m u l u s e f f e c t 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 74 MacMup op Cit foo ote 21 p g me quote about the swift pace 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 of technological advance is from 1941 uP discusses tie imPficatio of 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 7 7 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 ste mming 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 84 197 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 85 and the Installed Base 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 93 creating ''excess inertia ' ' 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 beg innning 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 targeting strategic computing technologies like commercial applications of expert systems neural nets and fuzzy logic 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 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 made by mainframe market Previously m mainframes 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 Company Revenue $ billions IBM $62 7 DEC 12 7 Hewlett-Packard 11 9 Apple 5 3 Compaq 2 9 Sun 1 8 Tandem 1 6 Percentage of sales United States 41 0% 46 0 46 7 64 4 54 6 57 9 50 1 Europe 37 0% 40 0 34 7 22 9 41 8 24 2 32 5 SOURCE 1989 data from Salomon Brothers Inc and company reports cited in Jonathan Levine et al Europe Ain't No Bonanza Anymore Business Week Aug 6 1990 p 27 the major packaged software vendors that specialize in software are U S firms like Microsoft or Computer Associates International 14 Research and Technology Initiatives Historically research in Europe has been fragmented by company and country Beginning in 1993 market unification in the European Community EC 15 will permit more integration of research in member countries with the intention of strengthening the technological base of industry in the EC and improving EC industry's global competitiveness The Research and Development R D Title to the EC Treaty provides a firmer legal basis for cooperation in R D and calls for the EC to adopt a multiyear framework laying out all its R D activities In 1987 the EC adopted the New Framework Program after debate concerning content of and funding for cooperative R D and the relative merits of coordinated research versus competition in stimulating commercially productive innovations l6 There have been three Framework Programs providing R D funding in overlapping 4-year periods Framework 8 Komel op cit footnote 4 g v e et op cit foo ote 5 and David E Sanger Fujitsu TO BUY la s e The New York Times July 31 1990 pp Dl D6 10 Ricbd L Hudson 'Japame Set To DO Batfle Europe's Computer ke$ 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 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 21 207 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 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 25 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 Gov ernment'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 programming g 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 proje c t 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 36 attention on parallel processing 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 op Cit fo'emote 9 28 Sager J y 1990 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 Cu sumano 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 37 Sager April 1990 oP 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 cit fOO Ote 36 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 38 For mple Shiba co i5 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 super- computers 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 48 or offices in Japan 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 54 investment and tax incentives for software developers 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 do minate 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 fim Wu 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 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 66 exports 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 Singapore 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 Over the past decade Singapore has actively pursued a national goal of developing a vital software and services 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 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 ojcct Mmger ad 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 industry partnership the Institute of Systems Science ISI at the National Institute of Singapore is working on AI and fuzzy-logic applications including a neural network for foreign-exchange trading and a logistics system incorporating fuzzy-logic principles for the Singapore seaport 70 @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 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 20- r 1 92 15 215 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 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 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 David Eichmann West Virginia University Public Interest Issues Workshop Gideon Frieder Syracuse University David Bender White Case Andrew Johnson-Laird Johnson-Laird Inc Stanley M Besen The RAND Corp Lindsey Kiang Digital Equipment Corp Anne W Branscomb Harvard University Tom Kirkland MCC Lynn Robert Carter Software Engineering Institute John F Kramer DARPA ISTO Steven W Gilbert EDUCOM Peter Menell University of California at Berkeley Janlori Goldman ACLU-National Headquarters Bryan Pflug Boeing Commercial Airplane Co Bruce A Lehman Swidler Berlin Chartered Hasan Sayani Advanced Systems Technology Corp Arthur Levine Finnegan Henderson Farrabow Garrett Dunner Software-Developer Issues Workshop Paul Mayer ZPAY Payroll System Inc Eleanor Arita Sunburst Communications Inc John McCarthy Stanford University Douglas K Brotz Adobe Systems Inc Steven J Metalitz Information Industry Association Chris Byrnes Landmark Systems Corp Robert L Oakley Georgetown University Law Center David Curtis Microsoft Corp Marybeth Peters U S Copyright Office Bernard Goldstein Broadview Associates Linda Roberts Chair Office of Technology Assessment -216- Appendix C--Workshop Participants and Reviewers 217 Marc Rotenberg Computer Professionals for Social Responsibility User Interface Technologies and Intellectual Property Workshop Irving Samuels Capital P C Users Group Bernard Galler University of Michigan G Lee Skillington U S Patent and Trademark Office Michael Good Digital Equipment Corp Richard Stallman Free Software Foundation Paul Heckel Hyperracks Richard H Stern Oblon Spivak McClelland Maier Neustadt PC Robert Jacob Naval Research Laboratory Nancy Kendzierski Hewlett-Packard Laboratories Digital Libraries Electronic Publishing and Intellectual Property Workshop Michael Lesk Bell Communications Research David Bearman Archive and Museum Informatics Aaron Marcus Aaron Marcus and Associates Alan Bogage Howard County Central Library David C Nagel Apple Computer 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 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 Marvin Sirbu Carnegie Mellon University Kevin O'Connor Chair Office of Technology Assessment Suzanne Thorin Library of Congress Charles Ortner Milgrim Thomajan Lee Ted K Yamashita CONTEL Technology Center 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 Reviewers Nicole Field Software Publishers Association Bernard A Galler The University of Michigan Prue Paul Goldstein Stanford University Richard A Belgard Consultant Computer Communications Industry Association Adler Association of Research Libraries David Bender White Case Richard Bland Storage Technology Corp Bruce I Blum The Johns Hopkins University Robert S Bramson Robert S Bramson Associates Gregory E Gorman Stephen Gould Congressional Research Service Seth Greenstein McDermott Will Emery June Hargrove University of Maryland David L Hayes Fenwick West Anne W Branscomb Harvard University Steven L Haynes West Publishing Co Dan Bricklin Slate Corp Paul Heckel Hyperracks Sara Brown Software Publishers Association Wayne Herrington U S International Trade Commission Clark Calkins CC Software George Hersey Yale University Lynn Robert Carter Software Engineering Institute Edwin Hettinger College of Charleston Donald S Chisum University of Washington Heidi Hijikata U S Department of Commerce Stephen Chow Cesari McKenna Lee A Hollaar University of Utah Eileen D Cooke American Library Association Robert Holleyman Business Software Alliance Brad Cox Information Age Consulting Robert Jacob Naval Research Laboratory Bridget Czamota European Community Commission Jan Paul I Davis Martin Marietta Energy Systems Mary Jensen University of South Dakota Joseph Ebersole Attorney William Johnson University of Virginia Michael Ernst MIT Laboratory for Computer Science Andy Johnson-bird Johnson-Laird Inc Joseph Farrell University of California at Berkeley Brian Kahin Harvard University Jancin American Bar Association Appendix C--Workshop Participants and Reviewers 219 Dennis S Karjala Arizona State University Glen Self Electronic Data Systems Inc Michael S Keplinger U S Patent and Trademark Office Sandra Sellers Willian Brinks Olds Hofer Gilson Lione Tom Kirkland Microelectronics and Computer Corp Robert Sherwood Consultant Glenn J McLaughlin Congressional Research Service G Lee Skillington U S Patent and Trademark Office Peter Menell University of California at Berkeley Mary Smolenski U S Department of Commerce 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 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 Shirley M Radack National Institute of Standards and Technology Suzanne P Weisband University of Arizona David P Reed Lotus Development Corp Milton Wessel Georgetown University Law Center Pamela Samuelson The University of Pittsburgh 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 trade 126-127 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 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 20-21 225 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 Commis sion 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 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 98 100 101 227 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 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 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 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 This document is from the holdings of The National Security Archive Suite 701 Gelman Library The George Washington University 2130 H Street NW Washington D C 20037 Phone 202 994-7000 Fax 202 994-7005 nsarchiv@gwu edu