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lnTeLLecTuaL pRopeRTy Issues In sorTwaRe

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The question is whether, as to copyright protection for computer software, ',the sky is falling." . . . I submit, "It just ain't so." Morton David Goldberg, Partner, Schwab, Goldberg, Price, ~ Dannay [Mly answer to that is, the truth is the sky is falling all around you. It just hasn't hit you yet. Jerome H. Reichman, Professor of Law, Vanderbilt University I don't think the sky is falling. I think it is sagging in a few places, and primarily because the law hasn't been properly applied. Ronald S. Laurie, Partner, Irell ~ Manella Market-mediated innovation is definitely the way to go, and my bottom line on the intellectual property front is let us not screw it up. The agonizing thing is, I cannot tell whether that means do nothing or do something radical. Mitchell D. Kapor, Chairman, ON Technology, Inc. I thought of concluding today with the adage, "If it ain't broke, don't fix it." But that does not truly reflect my views, which are stronger than that. So, I will conclude with a new adage, "If it ain't broke, don't break it." Howard G. Figueroa, Vice President, Commercial and Industry Relations, IBM Corp.

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1 Changing Contexts for the Software Industry An idea and a computer. Those two items, it has often been said, are all that is needed to enter the software industry. Although this characterization fails to convey the enormous range in the size of software firms, as well as in the complexity of computer programs and the underlying design and development efforts, it is accurate insofar as it captures the industry's vitality and its propensity for innovation. Indeed, the software industry possesses all the attributes of a vig- orous economic sector: stiff competition, a diverse mixture of firms, rapid sales growth, high rates of commercial innovation, strong per- formance in international markets, and, as the "idea and a computer" adage suggests, low barriers to entry. Market statistics vary, but they suggest that over the past twenty-five years the number of U.S. software firms has quadrupled, and the size of the product market has been doubling about every five years. In 1990, sales of packaged software alone by U.S. software firms totaled nearly $20 billion and accounted for more than 40 percent of the world market (Internation- al Data Corporation estimate cited in U.S. Department of Commerce, 1991~; U.S. purchases of "software products" (excluding custom-devel- oped software) amounted to $35 billion in 1990 according to another estimate (personal communication, INPUT, March 6, 1991~. Given this enviable track record and the outlook for continued rapid sales growth, it would seem that the industry faces a bright future. But some see the path to that future obstructed by uncer 3

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4 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE tainty over intellectual property protection for software and by the adversarial behavior that has arisen in this climate of uncertainty. The result, said Robert Spinrad, director of corporate technology at Xerox Corp., is confusion, which is having a "stultifying, dulling effect" and "slowing down the activity" of firms big and small. There are clear signs that legal concerns have become matters of paramount importance in an industry that, for most of its history, was unfettered by such concerns. One sign is the recent spate of copyright- and patent-infringement cases, in which firms are charg- ing that the commercial fruits of their innovative efforts have been unfairly usurped by others. Another is the flurry of filings for patents on software-related innovations. Until only a few years ago, it was widely believed that patents were largely unavailable for software. The result, according to critics of patent protection for software, is a fundamental change in the rules that have governed the behavior of software firms. A third sign is in evidence in Europe. There, software firms have divided into two camps and squared off over a European Commission proposal that would codify the application of convri~ht law to software (Verity, 1990~. -rip --em Diagnoses of the current state of affairs vary widely, as do prognoses of how intellectual property concerns will affect the pace of innovation in software and the health of the industry. The quotations presented at the beginning of this chapter are representative of the diversity of opinion. Most notable about this spectrum of perspectives, perhaps, is not the viewpoints themselves, but rather the fact that in every quarter of software-related activity business, government, and academia people have strongly held opinions on what and how rights of ownership should be applied to software. Until only recently, intellectual property concerns were limited almost entirely to piracy, or the direct copying of software. Independent software developers and firms had wide latitude of action, and many software inventions were believed to be in the public domain, available for all to use and to build upon. Some new software products-for example, the first database management systems, the first Fortran compiler, or the first timesharing operation system represented major advances. Most, however, offered incremental improvements, such as support for new hardware models, adaptation to a new market niche, or greater ease of use. This environment accommodated independent innovation, in which different developers created separate products to accomplish the same task. One need only peruse the variety of offerings for two of the most common software applications word processing and spreadsheets to find evidence of this phenomenon. The freewheeling atmosphere also

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CHANGING CONTEXTS 5 fostered successive rounds of improvement in products with estab- lished markets. For a firm to be satisfied with the performance and functionality of an existing product was to risk losing market share to a competitor that targeted the same market niche. The nature of competition in the industry has been such that, if there is a perceived market for a particular software product, "someone will build it, and someone else will, as well," said Harry C. Reinstein, chairman and chief executive officer of the Aion Corp. While many software firms were aware of what intellectual prop- erty protection applied to software primarily trade secret law and copyright law- the actions of most firms suggested that legal concerns rarely entered into product-development decisions. The collective behavior of firms served to achieve the constitutional aim on which intellectual property law is based: "to promote the progress of science and the useful arts." More specifically, the software industry achieved the intent of intellectual property law, that is, to advance the public good, an objective widely interpreted to mean the generation and wide dissemination of ideas and innovations. Today's legal ferment indicates that software firms are much more attuned to intellectual property issues. And why not? Copyright law and patent law exist to encourage innovation. Both award limited monopolies to those who invest their resources, effort, and ingenuity in developing products that society may deem useful. Thus intellec- tual property law offers the potential for private financial gain as an incentive for undertaking the risks of innovation. To Francis D. Fisher, adviser to the Educational Technology Group at the Harvard Law School, concerns that innovation in software will diminish without strong intellectual property protection seem at odds with the industry's historically high rate of innovation. "It is not enough to suggest that the incentives of monopoly are needed," Fish- er maintained. '~We need evidence. We need to shift the burden of proof, so that those who believe that the public interest gains from extending property rights to software must prove their case." Among those who believe this case is unproven is Richard Stallman, whose Free Software Foundation and League for Programming Freedom pro- vide a test of his conviction that innovation is best served absent prices based on commercial monopoly. While Fisher may be unconvinced of the need to accord strict intel- lectual property rights to software, the perception that software is vulnerable to abuses by competitors and users is widespread. Firms trying to position themselves in the market to earn returns on their investment often devote considerable thought to protection strate- gies. But in the end, said Peter R. Schneider, IBM Corp. vice presi

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6 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE dent for systems and programming, "this is a crap shoot.... I cannot depend on my lawyers or the legal system" to identify a single mea- sure that, on its own, will provide adequate protection. As a result, a firm may take advantage of all the available protections.2 "[Ilt is like there is a disease out there," Schneider explained, "and massive doses of mixed antibiotics are best, because I am not sure which one of them is going to be the silver bullet." The uncertainty that Schneider expresses stems from doubts about the scope of intellectual property law and, in particular, how patent and copyright laws apply to the innovative elements embodied in a software product. "The current environment is such that you don't know the right thing to do," said Anita K. [ones, head of the Univer- sity of Virginia Computer Science Department and co-founder of a small software firm. "So, you act in a very protective fashion." Assertions like those made by Jones and Schneider raise two fun- damental questions. Why do firms-even large ones with access to the best legal advice perceive the need to act so protectively, and why are they unsure of the applicability of the 200-year-old body of intellectual property law to software? Some insight into these ques- tions can be gained by examining the changing and often unpredict- able economic, technical, legal, and social influences that are shaping the industry. A MATURING INDUSTRY Software is big business, and if forecasts of continued rates of sales growth exceeding 10 percent are accurate, it will become a much bigger business during the next decade. Japan, the nations of Western Europe, and other countries have taken steps to foster the develop- ment of internationally competitive software industries. Not coinci- dentally, many of these nations are also wrestling with questions concerning intellectual property protection for software. The economic importance of software has risen dramatically over the last three decades. During the 1960s, computer manufacturers provided little software beyond the operating system, which was neces- sary to the functioning of the machine. In the mid- to late-1960s, IBM began "unbundling" software from its hardware products, and other computer makers followed the example of the industry leader. In addition, the service bureaus of computer manufacturers and independ- ent automated data processing firms were major sources of leased software, as were computer users who developed their own programs. The best of the user-developed software was marketed and supported by computer manufacturers.

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CHANGING CONTEXTS 7 These changes sowed the seeds of the software industry. In 1970 U.S. expenditures for software products totaled an estimated $500 million. That number grew to an estimated $1 billion in 1975 and approached $3 billion in 1980 (CBEMA, 19901. In succeeding years, as noted above, sales, the number of firms, and the number of soft- ware applications mushroomed. At some point in the evolution of most industries, annual increases in sales begin to taper off, and product niches become crowded with competitors. In the software industry, the growing tide of litigation may mark the early stages of this maturation process, when firms devote less time to prospecting, begin to stake out their territories, and start prosecuting trespassers. The competitive landscape fills up. Such a scenario is, of course, highly speculative. The general expec- tation is that innovation and new product development will proceed at a rapid clip. As Bruce Tognazzini, designer of dozens of programs for Apple Computer, Inc., said in regard to human interfaces, "You ain't seen nuthin' yet," and he reminded that "little companies are the major innovators out there, still." Tognazzini's outlook, with which many software industry analysts would concur, suggests that there is still much new territory for software firms to explore. Nonetheless, the steadily growing number of software firms, both in the United States and abroad, means that the population of prospec- tors combing the terrain for new commercial opportunities is also increasing. Moreover, established firms have already made substan- tial investments in developing products and building a customer base for those products. For these firms, innovation can have some negative consequences. If an innovation by a competitor has the potential to supplant existing products, it jeopardizes the established firm's revenue stream and, thus, its return on past investments. Ancl for the established firm to stay competitive, it will have to make new investments in research, development, and marketing. Even if the innovation is the established firm's own creation, it may not translate into substantial new revenue growth. Rather, it may help the firm maintain its customer base and avert a loss in sales. Start-up firms, in contrast, are not constrained by past investments, nor must they worry about carving up an existing customer base. In relative terms, start-up firms may realize greater returns on innova- tion than do firms with established product lines. Compared with the early days of the software industry, explained Lewis M. Branscomb, director of the Science, Technology, and Public Policy Program at Harvard University's John F. Kennedy School of Government, "there are more stakeholders, and the stakeholders are generally more heavily invested than before. Large investments pro

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8 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE duce new inelasticities in the system. Technological changes create conflict because they are harder to accommodate." To protect their investments and maintain their position in the market, firms will take advantage of whatever tools are available, including intellectual property law. Although the law is not intended to guarantee profits, ownership rights accorded through the law do provide innovators the opportunity to earn a return on their creative efforts in the market, the ultimate judge of the commercial value of a particular innovation. Eliminate the financial incentive for making software, suggested John F. Shoch, general partner at the Asset Management Co., and to- day's intellectual property disputes would disappear, but so would the pipeline of products that add new capability after new capability to the computer. "If software had no value and nobody wanted to buy it, this would be a very academic discussion," Shoch maintained. "It would be a wonderful hobby. It wouldn't be a business, and nobody would care where intellectual property boundaries are drawn because no one would be making any money, and no one would bother filing a lawsuit." Economic analyses provide support for Shoch's contention. Schumpeter, Scherer (1984), and other economists, Branscomb explained, have clearly shown that without some form of temporary protection for inventions, the market, by itself, "will not support the risks and costs of technical progress." This may be especially true for software, which can require large expenditures for development but costs virtu- ally nothing to manufacture-or to copy. Software's inherent vulnerability to copying seems to underscore the need for protection that encourages individuals and businesses to pursue new ideas and new computer applications, producing benefits for the larger society. But the prospect of private gain, intellectual property law's incentive for innovation, spawns vested interests and the inclination for firms to act according to their own needs, which may not coincide with the public's or even the industry's best inter- ests. Thus there is also the inclination for firms to wield intellectual property protection as a tactical weapon against competitors. There are some indications-and even more allegations-of such be- havior in the software industry. In a recent law suit, one firm claimed that a competitor was "using its copyrights to hold the computer in- dustry hostage by its licensing and litigation practices" (Pollack, 1990~. At issue in several pending law suits is retroactive declaration of ownership rights. According to some industry observers, firms that initially promoted widespread use of particular innovations to culti- vate the market for their own commercial implementations, later

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CHANGING CONTEXTS 9 have declared the innovations proprietary and demanded royalties for their use. Thus questions about the applicability of intellectual property pro- tection to software must be considered in the context of how firms are likely to use the available protection to advance their position in the market. CHANGING TECHNOLOGY As the power and speed of computers have increased, so have the utility, complexity, and, ultimately, the importance of software. Ad- vances in hardware stimulate new rounds of software innovation, resulting in new applications that expand the role of software and move the computer toward its projected incarnation as the universal machine. "In every new generation of hardware," Branscomb said, "function that was previously provided in software is often incorporated in the hardware, where it can be more efficiently executed. Nevertheless, as the technology evolves, new layers of software are developed, which bring new functions to the hardware, and this ever-growing bubble of capability seems not only to be adding new function, but an even larger fraction of the function is delivered through layers of software." One consequence of this evolution is software's growing share of the expense associated with computer systems. Another is difficult questions about where value, or the intellectual property, lies in soft- ware and how best to protect those elements that surpass a certain threshold of creativity. While once proscriptions against outright copy- ing of program code might have been accepted as sufficient means to address abuses that undermine intellectual property rights, today the concepts of value and sufficient creativity require clarification to guide the application of the law to issues that no well beyond the copying of code. . ~ . . . Although these concepts are subject to interpretation, a recognized criterion of value is the nature of the interaction between a software application and the user. "As time has moved on," explained Schneider of IBM, "more and more of the creative output has been focused on interfaces, and that is simply a reflection of the fact that in order to grow in our industry we are spending less energy figuring out how to do task dispatching and memory management and more energy focusing on how to interface with the end user and how to expand the marketplace." The emphasis on developing software that mimics and comple

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10 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE meets the behavior of the human user makes ergonomic factors im- portant determinants of value in software. Many in the industry be- lieve that limiting intellectual property protection solely to the copy- ing of code is an inadequate safeguard for the creativity, as well as the underlying financial investment, embodied in software that, in effect, meshes with the intuitions, needs, and predilections of the us- er. While charges of verbatim copying have not disappeared, software firms are now asking the courts to determine whether competitors copied the "look and feel" or "structure, sequence, and organization" of a software product, despite substantial differences in the code of the original and competing products. While all courts agree that a program's functionality is not copyrightable, courts disagree on the extent to which particular elements of a computer program constitute functional subject matter. Interfaces, generally defined as the boundary between two envi- ronments, are critical to satisfying user demand for achieving the com- patibility and interoperability of independent software applications. As the web of computers and related information technologies grows, the value and utility of software are largely defined by its role in some larger system by its ability to interface and work with other applications. As a result, users are objecting to obstacles to interopera- bility imposed by the idiosyncrasies of proprietary system interfaces. Computer manufacturers and software developers are responding to this demand, as the rapid growth of networking attests and the momentum for so-called open systems also grows. But, again, these technological changes are altering the identity of software and generat- ing new questions, including how to price software. Software applications, according to Esther Dyson, publisher of the software industry newsletter "Release 1.0," are evolving from discrete packages of functionality into collections of functions that users can invoke individually. "Software is going to be much more fluid," she said. "You won't know what computer it runs on. You are going to sit at a terminal and ask for a service. Where that service gets executed you probably won't know." And during the execution of that service, Dyson continued, functions performed by many different pieces of software- residing perhaps on many different machines may participate in accomplishing a specific task. In essence carrying out a user request will create the software equivalent of "going to a prime contractor who uses a variety of subcontractors." Such fluidity and interoperabil- ity among software applications will undermine existing pricing sys- tems. "If I use three pieces of software but only a small part of the func- tionality of each," Dyson asked, "whom do I pay? How do I get charged?" The answers are not clear. "We are not at all sure we know how to

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CHANGING CONTEXTS 11 control the assets" software-once they are available in a distrib- uted computing network, said Schneider of IBM. ,'The free flow through LANs [local area networks] says we have gotten to the point where we are not sure how to bill for software anymore." One po- tential pricing mechanism is an enterpris~wide contract, in which software suppliers receive a fraction of client revenues. If software pricing is troublesome, so too will be the allocation of royalties for its use. Even more problematic are questions about the rights of owner- ship accorded to each of the application components that are combined and recombined to create a customized work of software at the user's behest. Today, questions about what constitutes fair use of software elements and what distinguishes a derivative work from an original one focus primarily on the behavior of designers and program implementors. Tomorrow, Dyson noted, users who create software as a byproduct of running a business (and potentially a product or source of competitive advantage) will become part of the conundrum. In this fluid environment, the corollary to the question of what elements of software warrant protection becomes a critical issue. That is, if the goal of interoperability is to be fully realized, then the soft- ware industry will have to determine what elements should not be protected, and therefore freely licensed. For example, several forum participants advocated "open" program-to-program interfaces. Objec- tors to this proposal argued that the decision of whether to declare an interface proprietary or open should rest with the innovator. The popularity of a widely used interface should be incentive enough to make it generally available. However, software vendors want to be reassured that they do not lose the rights to the underlying code when they publish the interfaces, and users want reassurances that a royalty for the interface will not be imposed once its popularity is established and its use becomes a necessity. Yet another technological development automated reverse engi- neering technology has the potential to complicate the application of intellectual property law to software. Already available technology can in certain circumstances decompile, or translate, computer code into a higher-level language, mechanically restructure the program, and generate new computer code that, by appearance, is substantially different from the original. Some forum participants minimized the potential for abuses posed by this technology, at least in its current form. Branscomb, for example, noted that the technology "works only on clean, well-structured object [machine-readable] code." The recompiled code, he added, "is still undocumented and will be very hard to maintain." But if abuses do arise, several legal experts pointed out, intellectual property law may not be an effective means of re

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12 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE dress. If the copied version and the original are substantially dis- similar and there is no evidence of reverse compilation, they said, judges and juries will be hard pressed to find infringement. CHANGING LEGAL CONTEXT The constitutional foundation of intellectual property law precedes by nearly two centuries the introduction of computers and software. Obviously, the framers of this body of law never anticipated computer software. Nor, however, did they foresee such developments as mo- tion pictures, record albums, compact disks, and numerous other tech- nologies and expressions now protected by copyright law. To some, the demonstrated flexibility of intellectual property law strongly indi- cates that the legal system can continue to adapt to new technologies and to handle questions related to software. Unlike most other tech- nologies, however, software may be eligible for both patent and copyright protection, which introduces a significant source of uncertainty. "EPlatent and copyright law have survived as long as they have sur- vived," maintained Frank Ingari, head of marketing and development in the Spreadsheet Division of Lotus Development Corp., "because they have shown a remarkable capability to deal with wave upon wave of technology and wave upon wave of innovation and industrial develop- ment." Those who are confident in the providence of the legal system see today 's intellectual property disputes as the consequence of an inevitable gap between the rate of technological progress and the pace of the law. Confusion and uncertainty will diminish, according to this view, as courts resolve today's issues. Ideally, the decisions will yield predict- able rules for firms to follow and guideposts for addressing unforeseen issues that are certain to arise with new developments in the rapidly changing field. Computer scientists respond, however, with "What about tomorrow's issues?" Many technical and legal experts are not convinced that today's disputes are the manifestations of transient legal problems. They are less confident in the ability of existing intellectual property law to be stretched to accommodate features of software that, they contend, are ill-served by the traditional models of legal protection. Vanderbilt University law professor Jerome H. Reichman went so far as to predict that continuing to stretch copyright and patent laws beyond their traditional scope will lead to "unsupportable restraints of trade and a breakdown of the world's intellectual property system." Others troubled by the current state of affairs in the software indus- try called for a reassessment. '~We need to think again and we need to

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CHANGING CONTEXTS 13 be willing to question some of the most fundamental assumptions" of intellectual property law, said Randall Davis, associate director of the Artificial Intelligence Laboratory at the Massachusetts Institute of Technology. Branscomb of Harvard suggested that the technical community's discomfort with the law may stem from a seeming incongruity between law and science. Therefore one might question the validity of applying legal precedents to what many technical experts believe is an un- precedented technology. "It is entirely possible," Branscomb said, "speaking from the scientist's point of view, that judges make correct and just findings in each case, while the opinions that give the ration- ale may look to the scientist as though they are stretching paradigms of early technologies to fit the frame of new ones, perhaps in an awkward way. Thus it is not unreasonable to ask, if the courts give us the right- that is, fair and just answers, based on ill-fitting models: Does that matter?" It does matter, according to Stanford University law professor Paul Goldstein, if the decisions do not clarify the law. "One of the law's roles in society is to reduce uncertainty," he said, distinguishing legal risks from the uncertainties of the marketplace, which are inherent to all forms of business. To software industry commentator Dyson, clarity and consistency may be as important as legal content. "I don't think anyone really cares what the rules are as long as it is clear what they are," she said. "The market can adjust." So far, however, judicial decisions in software-related copyright infringement cases have not been consistent, maintained Ronald S. Laurie, head of the computer law group in Irell & Manella's North- ern California office. This same problem, Laurie predicted, is likely to emerge in the application of patent law to software. "I submit," he said, "that all of the issues that we are familiar with and that have caused such controversy and emotion in the copyright area concerning 'structure, sequence, and organization' and levels of abstraction are going to be reenacted in the patent context of the doc- trine of equivalents." (See chapter 2 for a discussion of this doctrine.) Patent protection, itself, exemplifies how the application of intel- lectual property law to software has changed. Following a 1972 Supreme Court decision, Gottschalk, Acting Commissioner of Patents v. Benson et al. (409 U.S. 63, 93 S. Ct. 253 [19721), widely interpreted as rendering software as unpatentable subject matter separate from novel hard- ware, producers were discouraged from filing patent claims for their inventions. A 1981 Supreme Court decision, Diamond v. Diehr (450 U.S. 175), however, has been interpreted as restoring the protection for software that meets the stringent standards of patent law. Since then,

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14 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE the U.S. Patent and Trademark Office has been awarding patents for software-related inventions, and the number of claims filed for pat- ents has been increasing steadily. Many in the software industry welcome the protection, believing that patent law is the proper legal context in which to address some issues that, because of the presumed unavailability of patent protec- tion, were forced into the domain of copyright law. Critics argue, however, that making patent protection available now amounts to changing the rules in the middle of the game. Some of these critics predict that patent protection will lead to a restructuring of the soft- ware industry. "We don't have right now a clear notion about the boundaries of either patent or copyright [lawl," said Pamela Samuelson, law professor at the University of Pittsburgh. "And we don't have a sense of the relationship between those two laws.... The lawyers out there have radically different views about that, and since they will give advice based on those very different views, we are in for some litigation in the future." UNPREDICTABLE FUTURE Questions concerning intellectual property protection are a wedge that opens the door to an even larger and perhaps more complex set of issues that arise as society proceeds in the Information Revolution. "We still are in a stage of implementing the obvious in new ways," said Ernest E. Keet, partner at Vanguard Atlantic Ltd., the Connecti- cut-based merchant banking firm. "We really still have a long way to go to apply this new technology the computer and software...." Today's debate focuses primarily on software as a tool for storing, processing, and presenting textual information in alphanumerical or graphical form. But tomorrow, the debate will almost certainly be ex- panded to include questions about rights of ownership to information itself and to the ideas embodied in that information. And that infor- mation will not only be blocks of text and tables of numbers, but also sounds and images combined and packaged in digital form. The possibilities for new products and service created by freeing infor- mation from the constraints of analog media for example, sound from vinyl and tape, and images from photographs, tape, and film- are seemingly endless, barely hinted at by such terms as multimedia, hypermedia, infotainment, and edutainment. "In the 30 years I have been in this business," said Harry Reinstein of Aion, "I know of no time that I could have accurately predicted where we would be in 5 years."

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CHANGING CONTEXTS 15 Reinstein is hardly alone. Consider a prediction made in the Wall Street fournaZ in a series of future-looking articles appearing during the mid-1960s: By the year 2000, the United States would have about 220,000 computers. Compare the reality: In 1990, an estimated 50 million computers were in U.S. homes and businesses. Wholly unan- ticipated by virtually everyone was the emergence of the personal computer, as well as a host of other information-related technologies. The more than 200-fold difference between projection and reality at the start of the decade leading into the next century is testimony, the WaZZ Street Journal said 25 years later, that the "electronic revolution has exploded beyond the dreams of even the most breathless early enthusiasts' visions of the future" (Miller, 1989~. To a great degree, prospects for realizing the possibilities now germinating in the minds of scientists, engineers, designers, and invest- ors hinge on advances in software. If computers are truly to become the universal machine in the global information-based economy that is now evolving, it is software that will match the ever-increasing computational power of hardware with ever-more-sophisticated hu- man needs and expectations. For example, many experts believe that the next great leap in the problem-solving capabilities of computers will spring from parallel computing, in which interconnected machines, from two to tens of thousands, work on separate pieces of the same problem. Although embryonic versions of parallel computers already exist, the utility of such machines is constrained. "We do not have the algorithms that al- low us to take some data-processing problem or transaction-process- ing problem and effectively break it up into small pieces and bring 1,000 or even 5,000 processors to bear on the problem," explained Michael O. Rabin, professor of computer science at Harvard Univer- sity and Hebrew University. What is needed, he added, are "com- pletely new algorithms." In Rabin's view, one potent incentive would be to provide stronger intellectual property protection. He expressed concern that without the incentive of exclusive rights of ownership, innovators might ignore the need for algorithms, and progress toward effective parallel computing and its numerous anticipated benefits might be impeded. Others do not share this view, citing the healthy growth of the research community in this area. But a corollary to Rabin's assertion, one often raised as an objec- tion to the patenting of algorithms and so-called software-related inventions, is that exclusive ownership of innovations grants monopoly power to inventors. Monopoly control, goes the argument, may cor- don off the rest of the industry from building on fundamental break- throughs. The public, in turn, might not reap the full conunercial

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16 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE benefits of major advances until after the 17-year period of patent protection expires. Other issues lurking on the horizon stem from the differing legal treatment given to different manifestations of information. Unlike numbers and words, noted Francis Fisher, images, under existing law, can be subject to rights. Yet, property rights in images may be inconsistent with the degree of freedom we want in communicating ideas that are incorporated in images. Images are just the beginning. Observed Fisher, "We can even foresee the not distant day when the stuff of communications will include expressions and ideas that themselves are intelligent. That is, they will incorporate some sort of computer program. There may then be little distinction between what is a piece of software program and what is a piece of information on which that program operates." In business and other realms of human activity where information is the fundamental item of value, notions of what software is will become all encompassing, predicted Esther Dyson. "The software business is virtually everybody," she said; "it is not a type of intellectual property. It is the representation of most intellectual property." In- creasingly, software defines and embodies business practices, she said. For example, tax accounting and other procedures are represented and embodied not just in manuals but also in the applications that per- form them. CONCLUSION The path into the Information Age is not well marked, but innova- tion in software is necessary to pave the ``ray and to ensure a steady rate of progress. Indeed, software not only sets the pace but also limits it. While the speed and power of computers double about every two years, software applications that harness this power for human uses evolve at a much slower rate, creating an ever-widening gap between expectation and reality. "EClompared to computer hardware," said Harvard's Branscomb, "software is still the Achilles heel of the computer and communica- tions industries, responsible for more shipment delays, cost overruns, and user frustrations by a mile." Branscomb later warned against the complacency that can arise when the software industry's past is used as the basis for projecting its future performance. "There is plenty of need," he said, "for new creative ideas, for the skills, tools, and effort to realize software ideas in code that is elegantly and reliably expressed. It is, in other words, not sufficient, in my opinion, to simply say that because software

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CHANGING CONTEXTS 17 revenue doubles every five years and the United States has a prepon- derantly favorable position in world markets, then everything is there- fore as good as it either could be or should be." Intellectual property law figures prominently in the industry's fu- ture, setting the rules that guide the behavior of firms and individual inventors. Although optima are rarely achieved in real life, the law helps set the course toward achieving the goals that are deemed to be in the public interest. Among these goals, according to Branscomb, are encouraging the creation and diffusion of new concepts and ideas, as well as the dissemination of useful innovations based on these new ideas; encouraging the development of interoperability and con- nectivity in the interest of equitable public access to the fruits of in- formation technology; generating the investments needed to advance the industry and the knowledge infrastructure on which the industry technological progress is based; and assuring equitable allocation of the benefits of investment, creative genius, and hard work in an effi- ciently functioning marketplace. "All of that needs to be accomplished on a worldwide level," Brans- comb said, ',because software is, of course, a mapr element in international trade, having not only the feature that it is cheap to replicate but also that it is cheap to communicate." At this juncture, well-intentioned people disagree strongly on what legal environment is best for the technology, the industry, and, most important, for the public" today and tomorrow. What is clearly needed is balance: balance between private and public interest, balance between the need to protect the essence of innovation and the need to share for the sake of compatibility and interoperability, and balance between the need to foster leaps in the technology and the need to allow incremental improvements in the existing base of technology. The legal uncertainties that cloud the software industry today indi- cate that the proper balance has yet to be achieved. Determining where to position the fulcrum of intellectual property law will not be easy. "I can see how too-protectionist a view could hurt our company," said Ingari of Lotus, "and, obviously, I can see how not enough pro- tection could hurt our company." Added ON Technology, Inc.'s Chairman Mitchell Kapor: "The digital revolution has just started. I cannot tell you how it is going to come out. I can see some of the dynamics. Market-mediated innovation is definitely the way to go, and my bottom line on the intellectual proper- ty front is let us not screw it up. The agonizing thing is, I cannot tell whether that means do nothing or do something radical. So, I am here to sort that out, but I know that the stakes are large."

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18 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE NOTES 1. Indeed, the Free Software Foundation (FSF) uses copyright in the form of a licensing agreement Stallman calls "Copyleft," but for an opposite purpose: to prevent its software from being incorporated into a priced product. FSF work revolves around products labeled GNU, for GNU's Not Unix. GNU software can run on Unix without being Unix and therefore without being subject to Unix licensing constraints (Garfinkel, 1991). 2. Use of multiple forms of protection may also stem from other causes. After all, a homeowner who installs strong locks and a burglar alarm does not do so because of uncertainty about the laws regarding burglary. However, the uncertainty that pre- vails in the software industry adds to the motivation for seeking multiple le- gal protections.

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How do you get innovation to happen faster? Do you allow people really strong protection of their ideas so that it is worth the effort to take giant leaps? Or do you make protection weak so that innovation can be done all incrementally7 Bruce Tognazzini, Evangelist, Apple Computer, Inc. We have few phenomena more harmful to technological progress than [legal] uncertainty. Paul Goldstein, Stella W. and Ira S. Lillick Professor of Law, Stanford University Copyright does not protect function. It does protect form, and if the two are bound together, we have a heck of a problem. Dennis S. Kar~ala, Director, Center for the Study of Law, Science, and Technology, Arizona State University Until we have a clearer picture about the patent-copyright inter- face, I think we are going to be in some trouble.... Copyright is not supposed to pick up for what is to some extent the bad busi- ness of the patent system. Pamela Samuelson, Professor of Law, University of Pittsburgh If we continue to stretch these paradigms [patent and copyright law] too far in order to accommodate the subject matters, . . . I'm afraid we are going to have a breakdown and a lot more problems than we think we are solving. Jerome H. Reichman, Professor of Law, Vanderbilt University If you think you are getting inconsistent and irrational decisions in the courts now, create a new statute with no precedents and watch what happens. Ronald S. Laurie, Partner, Irell ~ Manella