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OCR for page 59
4
A Closer Look at Current Issues
Legal uncertainty can take many forms: Is a particular software
element "prior art" and thus freely available, or is it wending its way
through the patent process, emerging months from now as exclu-
sively owned intellectual property? What protection patent or
copyright is most appropriate for a particular innovation? Will either
one provide adequate protection, or should the innovation remain a
trade secret? Is the specification of a software application an idea or
is it expression? What constitutes "comprehensive nonliteral similarity"?
Is the goal of compatibility a legally valid argument for adopting
others' ideas and even parts of their implementation? This litany of
questions could go on and on. The lack of clear answers to most
underlies the "stultifying, dulling effect" that Xerox's Robert Spinrad
complained intellectual property concerns are imposing on the industry.
Because so many questions are unresolved, according to Francis
Fisher, adviser to the Harvard Law School's Educational Technology
Group, the software industry often cannot predict how intellectual
property law applies to specific types of behavior shown by firms in
the marketplace, to concerns about specific elements of software, or
industry-wide issues, such as compatibility and interoperability. As a
result, Fisher said, developers are forced to "gamble on unpredict-
able judicial interpretation."
While the hope is that decisions in pending litigation and in cases
yet to come will eventually yield predictable guides, another outcome
might be inconsistent decisions, which could generate in their after
59
OCR for page 60
60
INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
math greater uncertainty and more law suits. A single decision can
have far-reaching effects, perhaps changing the behavior of the entire
industry, and a hasty search for legislative remedies would likely
ensue, advised Michael l. Remington, chief counsel for the Subcomrnit-
tee on Intellectual Property in the U.S. House of Representatives. "If
disaster strikes," he said, "bills will be introduced in the Congress
that will not be thought through, and we may end up with another
statutory scheme that we may live to regret in the long run."
This scenario is, of course, speculative. Indeed, one could argue,
as did Howard G. Figueroa, IBM Corp. vice president for commercial
and industrial relations, that such speculation should not obscure
evidence indicating that the software industry has prospered under
the current intellectual property system. Statistical measures show,
he said, that the software industry is an increasingly important segment
of the U.S. economy, contributing as a "wealth producer and as a
trade-balance enhancer."
"Industry-wide in the United States," Figueroa added, "the copyright
system has worked well, inspiring the authorship of original programs"
and engendering "head-on competition."
Yet another perspective suggests it is precisely because of the industry
strong performance, as well as because of the growing utility and
value of software, that today's legal issues are regarded with urgency
by many. "Even the possibility that the legal basis for a stable, func-
tional marketplace is threatened," noted Lewis Branscomb of Harvard
University, "is enough to create alarm in the industry, . . . one of the
few high-tech industries in which U.S. firms still enjoy a commanding
position in international trade."
Point and counterpoint largely characterize discussions of the ade-
quacy of intellectual property protection. In the remainder of this
chapter, some of the issues fueling this debate are examined in more
detail.
PROTECTED OR UNPROTECTED?
The software industry consists of followers and leaders. The most
innovative firms open new product areas, creating applications that
add new dimensions of utility and value to computers. Follower
firms, recognizing the opportunity to increase revenues by moving
into a new market, respond to commercially promising innovation by
developing products that embody variations of the original inventor's
idea. Sometimes the products of follower firms are better embodiments
of the idea-superior, perhaps, in performance and function or lower
in price than those of the pioneering firm. Occasionally, a follower
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A CLOSER LOOK AT CURRENT ISSUES
61
might introduce a product that is a "knock off" of the original, a
mere copy that might be altered to avoid the suspicion of duplica-
tion.
Between the extremes of "knock offs" and products that are the
result of major leaps in innovation is a vast middle ground where
some of the most difficult business and legal decisions lie. As discussed
in chapter 3, software designers and programmers often use techniques,
data structures, algorithms, and even lines of code developed by others,
but for entirely different applications. Some of these bits and pieces
reside in the public domain or, in the terms of patent law, would be
recognized as prior art. But the status of other borrowed elements
may not be clear. Software designer Dan Bricklin noted that design-
ers may use elements that they believe are prior art only to find later
that those elements have been patented. The designers may prevail
O
in an infringement case, but the cost of pursuing those objections in
court can be prohibitive.
Frank In~ari. who oversees software development in Lotus's
Spreadsheet Division, described the dilemma. He said he has "con-
cerns on both sides of protection, as in, 'Are my guys using something
they shouldn't be using?' which I have to worry about as much as the
other side of the discussion 'Am I protecting what I am developing?"'
Often the answers to these questions are not clear because of grey
areas in intellectual property law. Under patent law's doctrine of
equivalents or copyright law's concept of substantial similarity, for ex-
ample, an independently developed and arguably dissimilar software
component might be deemed similar enough to constitute infringe-
ment. Thus far, developers have little guidance to help them assess,
before investing creative effort and financial resources, the likelihood
of such an outcome.
Without adequate direction on the scope, durability, and application
of patent and copyright protections, firms may operate on the presumption
that their products and innovations are vulnerable to theft by a competitor.
The tendency may be to rely on trade secrets, and the result, warned
Esther Dyson, will be a "world of stagnation. Remember, too, we're
talking not just about vendors, but about users creating and either
sharing or hiding valuable technology. Without an assumption of
protection, we probably won't have, say, shared airline reservation
systems, efficient money markets, and so forth." Whether lack of
sharing and interaction will occur is yet to be seen; in some aspects
of the market, a steadily increasing proportion of software sales has
been of non-trade secret software.
One indication that firms are either wary or uninformed of the
protection accorded by patents and copyrights can be seen in the
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INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
results of a survey sponsored by the Massachusetts Software Coun-
cil.~ About 75 percent of the respondents said that they relied on
trade secret law, and only 25 percent relied on copyright, even though
this latter protection applies to works of authorship, published and
unpublished, and can be used in conjunction with trade secrets. Only
8 percent of the software vendors said they used patents. Heavy
reliance on trade secret law can pose considerable risk since innova-
tions protected in this manner do not qualify as prior art and, there-
fore, may be eligible for patenting, perhaps by a competing firm.
THE PATENT-COPYRIGHT INTERFACE
If for no other reason, the status of software as both patentable
and copyrightable intellectual property makes the technology unusual.
As has long been true of some industrial designs in developed coun-
tries, explained Jerome Reichman of Vanderbilt University, treatment
in both legal domains poses the potential for a conflict between two
conceptually separate branches of the law-copyright and patent-
at both the domestic and the international levels. Stressing the need
for a "holistic approach" to the different forms of intellectual property
protection, John Shoch of the Asset Management Co. said that the
seeming division of legal perspectives frustrates those within the in-
dustry. "[Wle can have a wonderful discourse on the impact and
limits of copyright law," he said, "and we can have another wonder-
ful discourse on the limits of patent law, and it is right at the edge
where things get interesting." Treatises on copyright, Shoch added,
focus on distinguishing between protectable expression and idea, the
point at which patent lawyers are likely "to pick up the gauntlet."
Yet software seems amenable to both protections, sometimes simul-
taneously. For example, copyright attorneys can argue cogently that
disputes over the ownership of graphical displays and the sequencing
of commands-that is, the look and feel of user interfaces-should be
resolved in the copyright arena because the issues center on creative
expression. Objecting to the subjectivity of copyright concepts, such
as "look and feel" and "structure, sequence, and organization," patent
attorneys argue just as persuasively that the issues can be addressed
more concretely by assessing the novelty and nonobviousness of use-
ful processes incorporated into interfaces.
A major challenge, according to Branscomb of Harvard University,
is to differentiate between the "elements of the technology that seem
to take you, on the one hand, to copyright and, on the other hand, to
patent." Moreover, some elements seem to be "inexorably linked" to
both laws, "so that you have to figure out a way to invoke both sets
of principles," he said.
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A CLOSER LOOK AT CURRENT ISSUES
PATENT PROBLEMS: STRUCTURAL OR LEGAL?
63
Even the most ardent advocates of patent protection for software
find the current patent system to be deficient in some structural and
administrative areas. Those who question the appropriateness of
patents for software-related inventions include these shortcomings in
their appraisals, but only as a starting point that leads to more funda-
mental concerns.
University of Washington law professor Donald Chisum, a strong
proponent of patents for software, listed six problems in the procure-
ment and enforcement of patents, none of them peculiar to software.
The first is the expense of searching for previously patented inventions
as a precautionary step to avoid infringement and then of preparing,
filing, negotiating, and maintaining a patent. Estimates of these costs
range from about $15,000 to more than $25,000 (Kahin, 1989~. Second
is the length of the patent review and approval process, averaging
about 30 months, or nearly a year longer than the average for other
inventions. During this period, the patent application remains confi-
dential, undisclosed to other inventors who may also wish to patent
a similar innovation. Except for the United States, said Chisum, every
industrial nation "has a procedure for publishing patent applications
18 months after they are filed." He added, however, that firms com-
pound the delay by waiting too long before applying for a patent.
The third problem Chisum cited is "inadequate examination by
the Patent and Trademark Office," contributing to delays and the issu-
ance of patents for ambiguous claims. Additional training for patent
examiners and creation of advisory boards composed of representa-
tives from industry and academia could remedy this deficiency, he
suggested. Imprecise claims, at the heart of Chisum's fourth concern,
ambiguity in the scope of issued patents, in turn spawn lawsuits.
Chisum said these can constitute a fifth problem, "arguably ground-
less suits, in some instances financed either by attorneys on a contin-
gency-fee basis or by simply going out and openly raising money
from investors to speculate on the outcome of a patent suit against a
major company." Completing his list of shortcomings, Chisum noted
that patent enforcement is country specific, a problem for companies
selling products in international markets. Not only must firms seek
patents in each nation where they sell their product, but they also
must conform to procedures and requirements that vary among coun-
tries. For software firms this variability is especially problematic,
because not all nations extend patent protection to software.
While Chisum sees these problems as affecting all technologies,
others view the consequences as more severe for software. An over
OCR for page 64
64
INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
riding concern is the danger of being blindsided-of pursuing an
innovation that may already be patented or that may be in the patent-
review pipeline. The first difficulty, according to Dyson, publisher
of "Release 1.0," could be assuaged with a "meaningful, automatically
updating electronic database that contains information on patented
technologies." Currently, searches of patent literature are error-prone
exercises, incurring a high risk of overlooking relevant subject matter
because of the fragmented, disorganized state of patent information.
The second issue, that of losing out to a competitor whose application
was submitted earlier, is more problematic because of the short life
cycle of software products. Thus the competitor who loses out on a
patent has the option of licensing the innovation from the patent
holder, if that option exists, or of foregoing the next generation of
the product-development cycle.
Eventually, claims Brian Kahin, the rapid rate of innovation in the
software industry will be slowed to conform with the pace of the
patent review and approval process. More worrisome to Kahin and
others are the combined effects of the approval of overly broad claims
and the scope of patent protection. Software innovator Bricklin, cre-
ator of the original spreadsheet program, VisiCalc, believes that the
combination could be "very bad for the industry," antithetical to the
industry's propensity for "frequent independent innovation." Had
patents been available when he and his collaborator developed Visi-
Calc, Bricklin speculated, their company, Software Arts, would have
sought the protection. The consequences of such a decision, he further
speculated, would have been to prevent other innovators from explor-
ing different expressions of the spreadsheet idea and to handicap the
competition, blocking the development of today's successful spread-
sheet programs, such as Excel and Lotus 1-2-3. The consequence of
foregoing a patent in this hypothetical situation, however, would be
to eliminate a sizable source of revenues. "There are not many,"
Chisum said, "who will say, 'I knew I could get a patent worth $200
million, but I think I will pass it up this time"'; in fact, Chisum added,
the potential for such a loss strikes fear in the heart of most compan-
ies and should motivate them to file for patents promptly, thereby
resulting in timely disclosure and hastening the pace of development.
Several forum participants were unwilling to dismiss the award-
ing of patents for overly broad claims as simply a structural problem
that will diminish as the Patent Office becomes more experienced
with software-related inventions and as rulings by the District Courts
and Court of Appeals for the Federal Circuit (CAFC) clarify issues per-
taining to the patenting of software. To them, such patents have the
potential to inflict long-term damage if they are upheld by the courts.
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A CLOSER LOOK AT CURRENT ISSUES
65
The evidence, though limited and often circumstantial, suggests that
the courts will look favorably on at least some of these claims. For
example, in a case cited by Fisher (Magnavox Co. v. Activision, Inc., 848
F.2d 1244 [Fed. Cir. 19881), the courts held that Activision, the maker
of a video game in which an animated track runner fails to clear a
hurdle and knocks it down, infringed on a patent (licensed exclusively
to Magnavox) on the idea in software of having one object hit another,
causing it to move.
Patents have been granted for products or software-directed proces-
ses that some believe do not satisfy the patent law's criterion of
nonobviousness, either because they are too abstract or are merely
descriptions of ideas that are already in the public domain. Such ob-
jections have been raised over patents issued for footnoting, redlining
(text comparison), merging of documents, and other processes. Extrapo-
lating from these instances, Kahin anticipates that patents will even-
tually be awarded for automated methods of performing common
business practices and for interactive learning techniques. It remains
to be seen, however, whether the courts will uphold patents based on
broad claims. As a rule of thumb, patent attorneys estimate that the
CAFC, which has jurisdiction over appeals of patent decisions made
by the District Courts, upholds about half of all patents. Even if the
courts do find an ambiguous software patent to be valid, however, it
is not certain whether they will rule that a competitor's specific im-
plementation of ideas expressed in a patent constitutes infringement.
To Mitchell Kapor of ON Technology, this wait-and-see attitude is
unsatisfactory, inserting more uncertainty into an already uncertain
legal situation. Waiting for rulings on the validity of broad claims, he
said, creates a situation akin to the "greenhouse effect," the contro-
versial projection of global warming due to growing atmospheric
concentrations of carbon dioxide and other heat-absorbing gases. "The
sense that I have now," Kapor said, acknowledging opinions to the
contrary, "is that we face, potentially, some disasters from inappropri-
ate software patents."
If the software industry's "greenhouse effect is real," he continued,
"then we have a very, very, very serious problem, disrupting the ac-
tivities of large and small companies. [Dloing nothing and letting
matters work themselves out in the courts seem to be unwise." At this
stage, according to Chisum, only a few general trends that have un-
folded under the relatively recent influence of software-related pat-
ents are discernible. "We will see more procuring of patents," he said.
"We will see more licensing and then eventually litigation."
Chisum's scenario is suggestive of conditions that already exist in
the hardware industry, where patents and licensing are a regular
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INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
part of doing business. Most manufacturers of computer hardware
maintain a portfolio of patents, which are cross-licensed with the
portfolios of major competitors. Typically, a manufacturer will re-
quire access to other firms' innovations to make a product, and yet
that same manufacturer will hold patents essential to competitors'
products. In making an integrated circuit, for example, a semiconductor
manufacturer may use technologies patented by 20 companies. Be-
cause of this interdependency, patents on hardware only occasion-
ally impede the product~evelopment efforts of established firms.
But start-up firms, lacking a patent portfolio of sufficient size and,
therefore, the associated leverage for bargaining with competitors,
are likely to be at a disadvantage.2
If patenting becomes as pervasive in software as it is in hardware,
Kahin predicts that the software industry will undergo rapid consoli-
dation. "Although cross-licensing allows efficient, competitive exploi-
tation of patents in industries where there are relatively few firms of
roughly similar size," he has written, "cross-licensing will not work for
the many thousands of small firms and tens of thousands of individ-
uals in the software industry, because these small players have little
or nothing to bring to the table. The vision of cross-licensing as a
solution to the problem of software patents implicitly assumes a
whole-sale shakeout and restructuring of the industry" (Kahin, 1989,
pp. 9-10).
Not all small software producers agree with this prognosis. In-
deed, presidents of six California-based software firms painted quite
a different picture in a letter to the New York Times: "By making an
invention the temporary property of its inventor, patents become the
lifeblood of small innovative technology companies. It [patents] lets
them attract investors and gives incentive to improve the property,
educate the market, and market the product. Without patents, an
entrenched competitor can merely wait for others to innovate and
incorporate innovations into its products only when inventions are
proved and market share is threatened" (Gasper et al., 1989~.
COMPATIBILITY AND INTEROPERABILITY
While it is clear that the public interest is served by industry be-
havior that yields a wide variety of high-quality, reasonably priced
software, it is also clear that consumers want to be freed of the con-
straints of incompatible proprietary systems, which prevent them from
realizing the full fruits of the diversity of software offerings. After
purchasing a vendor's system, users often discover that a particular
set of needs would be best served by applications designed to run on
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A CLOSER LOOK AT CURRENT ISSUES
67
another proprietary system. Precisely because of this variability in
the utility and quality of software applications, organizations may
purchase hardware from several different vendors. Incompatibilities,
however, prevent users from exchanging the results of applications
between unlike machines or from using the same graphical display
on different machines or with different software unless they make a
hefty investment in systems integration.
Underlying the crescendo of user demand for compatibility is a
facet of software use that, apart from its technological and design
underpinnings, distinguishes it from other media, such as paintings
and literary works. Once they become accustomed to the look and
feel of an interface, users would rather stick with the same interface
than use a different one for each new application. For works of art,
in contrast, such imitation would be regarded as offensive, as well as
make for dull art museums. In addition, Aion's Harry Reinstein point-
ed out that once users have selected a computer operating system or
a database management system, they are, by analogy, committing
themselves to one artistic genre, a specific user interface.
A parallel situation in book buying was hypothesized by Reinstein.
"If I buy a mystery story," he said, "I will forever limit myself to
buying mystery stories with that set of characters, that major detective,
and, therefore, presumably that author. That is exactly the situation
in which we find ourselves in commercial software. By and large, if
you buy an operating system you don't trivially change it."
Demand for interoperability arises from the usefulness, or machine-
like nature, of software, rather than its aesthetics. For machines,
compatibility is a well-recognized virtue. "It is in the public interest
that the brakes and clutch of an automobile be in the same relative
position on every car we drive," Fisher explained. "Yet under exist-
ing law, one who holds the rights to a computer interface may find it
in his interest not to share that interface with others on reasonable
terms. Not sharing interface designs will be particularly appealing
to a rights holder that already has a substantial share of the market."
Recognizing the importance of compatibility and interoperability
as a selling feature, most vendors now participate in standards-setting
organizations, seeking to foster the agreement on standards that
complement their products and their development and marketing
strategies. The process of setting standards, however, is a delicate
one, as described below. While nurturing compatibility, standards
also present the risk of freezing technology at a premature stage.
Once in place, standards even bad one~are hard to change, perhaps
resulting in costs that exceed the benefits of interoperability. Thus,
factored into the complex calculus of protections for software must
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INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
be considerations of how the law accommodates or inhibits
interoperability, as well as flexibility in changing standards in tandem
with technological advances.
Open Interfaces, a Controversial Suggestion
Building on the notion that software is unfinished componentry,
part of a larger system, Aion's Reinstein advocated that all interfaces
be classified as "open." Noting that ideas are often an inseparable
part of the interface definition, Reinstein said, "The simplest, most
disentangling position I can take is let us just not protect interfaces.
Let us invest in the expression of them underneath, and have that be
the protected part'' of the software product. "Interfaces are legitimate
points of competitive entry," and "openness" is a "critical element of
software competitiveness," he said.
Copying of interface code, including automated reverse engineer-
ing, should not be allowed, he explained. Rather, the implementation
should be licensable, and the specification of an interface should be
available for others to implement independently. Third parties would
avoid the cost of development incurred by the innovator, Reinstein
acknowledged, but they would have to invest in writing the code to
support the interface.
Those opposed to a flat declaration that all interfaces should be
open maintain that the decision of whether to make the specification
publicly available is a choice for firms to make. In addition, objectors
contend that nearly all elements of a program, including those that
connect subroutines and other internal parts of the program, can be
construed as interfaces. Consequently, an open-interface rule would
render all expressions within a program vulnerable to copying and to
misappropriation of the program's functionality. Copyright protec-
tion, say those who object to the notion of open interfaces, would
become meaningless. It is therefore not surprising that industry views
on this issue are very strongly held, because the commercial interests
at stake are perceived as vital by many firms.
Addressing these latter concerns, Reinstein defined three catego-
ries of "public" interfaces. The first category, and least controversial
one, includes interfaces that innovators, perhaps motivated by marketing
considerations, have declared to be open. In his second category,
Reinstein places interfaces that are "clearly discernible through normal
use," a characterization most relevant to user interfaces. This is a
determination for the industry to make, he said, but if there is "gen-
eral agreement" that a user interface, particularly its appearance, fits
in this category, then it should be available for others to use or emu
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A CLOSER LOOK AT CURRENT ISSUES
69
late. Finally, interfaces that are "separately priced, separately dis-
tributed, or separately packaged'' (a language or database management
program, for example) are legitimate points of competitive entry, and
they should be classified as public, Reinstein said.
Open interfaces, concurred Scott Davis of Digital Equipment Corp.,
would focus competition on providing "better implementations of
standards. That is where the competition can be, and a better imple-
mentation may mean something like improved performance, or it
might mean security features" that are not offered with other imple-
mentations.
Vanguard Atlantic's Lee Keet was among those who faulted the
proposal. "I generally agree," he said, "that the utilitarian aspect of
the interface should be open for all to use, but I do point out that, in
many cases, interfaces have . . . artistic aspects," which warrant pro-
tection.
Immediate Declaration of Rights
The Association of Data Processing Service Organizations (ADAPSO)
has been considering a proposed seven-point set of guidelines to clarify
whether interfaces and languages are public or proprietary. "Decla-
rations or waivers of proprietary interest in an external interface or
language," the proposed guidelines recommend, "should be made
specifically and separately, and on a timely basis." Among the prow
lems that would be eliminated with industry-wide adherence to this
general rule would be disputes that arise when claims of ownership
are delayed and, in the interim, firms presume that use is condoned.
Esther Dyson, while stressing that protection should be accorded
only to software elements that meet "high standards of originality,"
also endorsed immediate declaration of ownership rights. "ET]he job
of the vendor is to define his product, to define what he considers to
be original, and to sell that. The changes you are seeing in software
mean that specification is almost indistinguishable from the imple-
mentation. That is why you need [a high standard of originality,
because if anything you specify ends up being protectable, you have
a mess. But you can't just protect the implementation . . . [when spec-
ification and implementation are] transformable into each other."
Uncertain of the practicality of such an approach, Pamela Samuel-
son of the University of Pittsburgh explained that firm-initiated
declarations of originality and ownership would be inimical to the
procedures required for securing a patent. Patent law, she pointed
out, requires owners to show that an innovation satisfies the condi-
tions necessary for protection. Particularly for software elements
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INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
that have features that seem to fall in the gap between copyright and
patent law, "I don't think the right solution is . . . just to say it is your
property, and then everything will work out," Samuelson said. "In
the Anglo-American tradition, the government, through its patent
and copyright laws, defines the kinds of innovations that are eligible
for protection, the criteria that must be met to qualify for protection,
and the extent of protection the law will give to the innovation (both
as to duration and as to scope). If you don't follow the procedures,
you don't qualify under the criteria, or the thing you want to protect
is considered by the law to be unprotectable; in general, the innova-
tion can be freely copied by competitors, whether the innovator likes
it or not."
Concerns about the length of protection afforded by patents (17
years) and copyrights (50 years or more) were expressed by several
forum participants, who preferred terms that reflected the rapid pace
of development in the industry. To assure that important innovations
are available for others to build on, a few suggested that mandatory
licensing of patented and copyrighted works be required after an
initial one- or two-year period of exclusive use. And to spur dissemina-
tion of innovations and to encourage firms to offer their best technol-
ogies as industry standards, some participants recommended that
standards bodies allow the innovators of standards to receive royalties
in return for use of their technology. Some of these bodies now make
no- or low-cost licensing a condition for adopting a technology as a
standard.
Standardization
By one estimate, more than 1,000 standards pertaining to com-
puter-related technology have either been adopted or are pending
before national and international standards-setting bodies (Gantz,
1989~. This high level of activity is symptomatic of snowballing con-
sumer demand not only for compatibility of information-related
equipment, but also for interoperability of software, allowing independ-
ent, perhaps geographically isolated applications to work cooperatively.
Unsatisfied with the computer sector's progress toward these ide-
als, groups of users are nudging vendors toward standardization
sometimes forcefully. General Motors and other manufacturing con-
cerns organized to develop the manufacturing automation protocol,
or MAP, which specifies the standards that vendors of software and
information-related equipment must conform to if they wish to sell
their products to consortium members and other firms that are follow-
ing the MAP lead. Another large customer, the U.S. Department of
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A CLOSER LOOK AT CURRENT ISSUES
71
Defense, continues to forge ahead with its 16-year-old effort to im-
pose a universal computer language-Ada-on its suppliers.
Given the intensity of user wants, companies face a "real risk of
being bypassed by the marketplace by being too restrictive in autho-
rizing the use of the expression in [their] protocols," IBM's Figueroa
explained.
Yet standardization can be a contentious affair, influenced to some
degree by the nature of intellectual property protection. Companies
jockey to have their way of doing things accepted, formally or infor-
mally, as the industry standard. Losing a standards "battle" means
either that a firm will be forced to jettison part or all of its particular
approach and to begin anew, or that it can proceed with its propri-
etary technology, hoping to convince users that the merits of its ap-
proach exceed the benefits of compatibility. Moreover, as already
mentioned, a firm that has invested heavily in developing a new
technology may balk at the prospect of making freely available an
innovation that, if made a standard, could make other companies
more competitive.
In the international arena, national interests can undermine formal
standardization efforts. With each participating country accorded an
equal vote, members of international standards-setting bodies may
endorse implementations that are perceived to be most beneficial to
regional business interests. Compromise is difficult, and if it is reached,
the resultant standards may be based on inferior technology. This
danger, however, is also present in national standardization efforts.
Users tend to favor standardization because it allows them to
choose from among the offerings of different vendors, freeing them
from the idiosyncrasies and, thus, incompatibilities of proprietary
systems. In turn, compatibility fosters the growth of computer net-
works that, at the beckoning of the user, can integrate applications
unhampered by worries about which vendors made the various software
elements needed to solve a specific problem and whether the neces-
sary elements can work together. From the vantage point of individual
software products, compatibility greatly increases value because of
so-called network externalities the benefits that accrue to being part
of a larger system. Therefore small companies are also likely to be pro-
ponents of standardization because their product lines rarely attain
the critical mass of offerings necessary to address the majority of
user needs. Compatibility affords the opportunity to compete by
adding value in areas neglected by dominant firms. Large firms, in
contrast, provide a diversity of products that, in effect, already com-
pose a network. Thus the benefits that accrue with compatibility-
principally, expanded markets are likely to be smaller for compa
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INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
nies that already have significant shares of the market. "The gains you
get from making your market a little bigger," explained Stanley M. Besen,
senior economist at the Rand Corporation, "may be relatively small
compared to the losses you get by making your market more competitive."
In theory, standardization reduces redundant variety and ineffi-
ciency. "We might be better off with fewer things created if they
were more widely disseminated," Besen said. "The idea is not to
maximize the number of things, but to maximize the value of the
things that are created, and that might, in fact, involve fewer things
that are more widely disseminated." Without standards, firms may
engage in strategies that result in spurious differentiation of pro-
ducts; innovation may be devoted less to adding value and more to
creating difference for difference's sake.
Once an industry agrees on a standard, firms can focus their re-
search and development efforts on areas that are said to be "on top" of
the standard, where innovation is likely to produce greater func-
tional benefits. In other words, standards are like a foundation upon
which innovation can build. "What you want to do," said Scott Davis,
senior consulting engineer at the Digital Equipment Corp., "is build
on what somebody else has built and not reinvent what was on the
bottom."
But variety also has positive attributes that can be erased by stan-
dardization. The primary argument against standardization posits
that it may freeze technology at a premature stage of development.
Standards should not be regarded as the final "best solution, but as
temporary rigidity," advised Esther Dyson, publisher of "Release 1.0."
"They are like the San Andreas fault. They hold things together for a
while, but underneath and around and ahead of the standards, things
are changing. You don't want to ratify standards so strongly that
they prevent progress.... So, standards are not forever. Standards
get superseded."
In fact, added Davis, standards are rarely the best solution to a
particular need, even when they are new. "Standards tend to be
least-common-denominator kinds of solutions," he said, "so that you
are not able to take full advantage of the underlying system, the
underlying implementation." In the case of de lure standardization,
part of the reason why standards fall short of the technological opti-
mum stems from the need for compromise among the many partici-
pants in the process. In the case of de facto standardization, the
candidate that prevails may be the product of chance occurrences, or
the decision may be dictated by the actions of a dominant firm. In
either situation, the resultant standard is not necessarily the best of
the options available.
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A CLOSER LOOK AT CURRENT ISSUES
THE INFLUENCE OF INTELLECTUAL PROPERTY LAW
73
Although easy access to innovations and widespread dissemina-
tion of ideas are generally recognized goals of intellectual property
law, it does not necessarily follow that compatibility, a means to
achieving these goals, is also an aim of the law. Indeed, the courts
have been somewhat equivocal in their handling of the issue. In
Apple Computer, Inc. v. Franklin Computer Co. (545 F. Supp. 812 [E.D.
Pa. 19821, Aff'd. 714 F.2d 1240 [3rd Cir. 19831), in which Franklin was
found to have copied Apple's operating system, the Court of Appeals
for the Third Circuit found the copyright infringer's compatibility
argument less than compelling.
"Franklin," it said, "may wish to achieve total compatibility with
independently developed applications programs written for the Apple
II, but that is a commercial and competitive objective which does not
enter into the somewhat metaphysical issue of whether particular
ideas and expression have merged."
In another case, E.F. Johnson Co. v. Uniden Corp. (623 F. Supp. 1485
[D. Minn. 19851), the Federal District Court in Minnesota was more
sympathetic to compatibility concerns. At issue was whether the
Uniden Corporation copied the software in the E.F. Johnson Company's
mobile radio system and, in so doing, infringed Johnson's copyright.
Uniden contended that it copied only those elements necessary to
achieve compatibility. Duplication of one element of lohnson's soft-
ware was necessary to achieve compatibility, the court found, but
"virtually all other aspects of the defendant's [Uniden's] program
could have been independently created, however, without violence
to defendant's compatibility objective." The court ruled that Uniden
did violate lohnson's copyright, but the decision suggests that copy-
ing is permissible when it is the "only and essential means of creating"
compatible software.
"The issue of whether the merger-of-ideas-and-expression defense
should prevail in cases involving the need for compatibility is an
important one," Besen said, "especially for software."
Not everyone agrees, however, that software compatibility is an
overriding need, dismissing this claim as a guise for abetting wide-
spread copying of successful products. John Shoch said he regarded
as "specious, even pernicious" the argument that an innovator whose
product holds sizable market share must surrender his intellectual
property to competitors. For a competitor to assert that his program
must be compatible with the market leader, who, therefore, "must
lose some of his protection . . . ," he said, "is the silliest thing I
have ever heard of. The fact that you have been successful does not,
by definition, expose you to that loss of your rights."
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INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
Promoting compatibility may make business sense, Shoch said,
but the decision of whether to pursue this strategy should rest with
companies, not with the law.
Intellectual property law, however, does influence the pace at
which software compatibility and interoperability evolve in the indus-
try, as well as the nature of the standards that are adopted. "Standards
are a strategic tool [that] can be used to [a firm's] advantage or disad-
vantage," Besen said. The magnitude of either one is determined in
large part by the scope of protection for the standardized technology.
With weaker protection, which makes it easier to adopt parts of
another's invention, "participants' interests are more closely aligned,"
access to the standardized technology is not impeded, and competi-
tion is more likely to be within the standard, Joseph Farrell, a professor
of economics at the University of California, Berkeley, has written
(Farrell, 1989, p. 161. Strong protection for the standardized technology,
in contrast, would force competition into incompatible channels.
Such a situation could either foster spurious differentiation of products,
or it could push product development into new directions, resulting
in socially useful innovations. In his paper, Farrell further elaborates
on how intellectual property protection influences standardization,
suggesting that copyright may impede the process because of its pre-
sumed aversion to function:
[S]ince copyright protection is broadest where the expression is most
arbitrary, useful innovations may go unprotected while arbitrary choices
of user interface, for instance, may be held to be protected and may gen-
erate large rents if they become de facto market standards.
In the case of traditional creative works, such as novels, protection of
an arbitrary creation does not constrain later innovators. If the first innovator's
choice of expression is "arbitrary," she could equally well have made any
of a number of other choices, and it might seem to follow logically that a
later innovator's options are not unduly constrained: he need only avoid
consciously doing the same as the first innovator, and this might not
seem unduly burdensome. Indeed, in a traditional "decreasing-returns"
economy, he will prefer to avoid direct competition with the first innova-
tor, and would have no motive to imitate except for the wish to save costs
by slavish copying rather than performing independent work.
But this argument fails to hold in a market characterized by dynamic
increasing returns, such as market externalities. Then, the mere fact that
a previous innovator used a certain arbitrary expression, and customers
have grown used to it, makes that arbitrary expression an important and
no longer arbitrary aspect of design. Although, en ante, English could just
as well have been written right-to-left as left-to-right, a publisher who
tried to introduce that convention now would surely fail.
Left unanswered in this analysis, however, is the recurring ques-
tion of how to distinguish between useful innovations, ideas' and
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A CLOSER LOOK AT CURRENT ISSUES
75
creative expression. In the copyright area, for example, controversy
surrounds the granting of protection for the "look and feel" and the
"structure, sequence, and organization" of programs. Critics of the
decision in Whelan v. laslow, for example, argue that the decision award-
ed protection for an idea, not the expression of the idea. Because of
the presumed unavailability of patent protection for software, say
others, the court was forced to rely on copyright law to address a
matter of software functionality-"structure, sequence, and organiza-
tion"- that is more appropriately an issue for patent law. Meanwhile,
as the number of software-related patents mounts, there are fears
that broad ideas, rather than useful innovations or embodiments of
ideas, are being granted monopoly-like protection. Making the waters
even murkier is the lack of clarity in court rulings on whether firms
can adopt elements of competitors' software to achieve compatibility.
WITHHOLDING OF SOURCE CODE
In his book The Mythical Man-Mor~th, Frederick P. Brooks, Ir., a
professor of computer science at the University of North Carolina
at Chapel Hill and former IBM project manager who directed the
development of the operating system for the IBM System/360 line of
mainframe computers, extols the virtues of comprehensive, easily
understood documentation of computer programs. Such documen-
tation, Brooks writes, tells the program's "story to the human user"
(Brooks, 1975, p. 164~. Moreover, "the intimate availability of the
source program' line by line, to the reader of the documentation makes
possible new techniques" (p. 169~.
Brooks's essay preceded by nearly a decade his former employer's
decision to adopt what was becoming the standard practice of shipping
software products without source code. It was a difficult decision,
according to IBM's Peter Schneider, and not only because of its perceived
negative impact on users. Schneider noted that many of the improve-
ments IBM had made in its software and some commercially successful
products were, in effect, developed by the company's field force and
its customers. "The opportunity to do that is now precluded," he
explained, "because to build those products they had to have access
to our source code, and we no longer allow source code out of our
laboratories."
These costs notwithstanding, IBM perceived the need for a "safety
net namely, going to object code only and more restrictive contract
terms and conditions" as more compelling, Schneider said. "The
reaction to become more secretive because of the uncertainty of the
legal system was a prudent business decision."
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INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
The fallout from this nearly industry-wide decision has material-
ized in several forms. For example, advocates of no or, at most, weak
intellectual property protection for software have argued that the
withholding of source code vitiates the analogy between literary works
and computer programs, the basis for extending copyright protection
to software. If software products are not delivered in a human-read-
able form, the argument goes, the expression is not revealed to users,
and copyright protection is not warranted.
Users most affected by the denial of source code are those who
would like to adapt or customize vendor-supplied software to their
own peculiar circumstances or to changing organizational needs. In
some instances, vendors will acquiesce to those needs and supply the
source code, but only after they are convinced of the integrity of
clients' security measures and restricted conditions of use are stipulated
in a contract. This compromise solution, however, does not work for
all customers, including one of the largest, the federal government.
As part of its "data rights" requirement, the federal government
generally requires software vendors to relinquish the source code
along with the products they sell to the government. Unconvinced
that, in using the source code for its own purposes, the government
would not jeopardize their trade secrets, many companies have re-
frained from doing business with federal agencies, according to Anita
Tones of the University of Virginia, who was one of the founders of a
small software firm that made such a decision. Other firms have
taken a different tack in addressing this concern. They withhold their
most advanced technology and sell to the government only hard-
ware and software that are not the state of the art and therefore are
cause for less concern if inadvertently revealed to competitors.
This practice is not limited to small business, Tones asserted. "Some
very large companies that sell both hardware and software," she said,
"have separate divisions to do business with the government ....
[These firms] do not give those divisions access to their best technology
.... They phase their commercial divisions into the government
divisions as the technology and the manufacturing plants age. I sub-
mit to you that that is not in the public's interest and a major reason
for that is the government's stance on data rights."
Universities are also hampered by the withholding of source code,
Tones maintained, contending that distributing object code only "inhibits
the flow of ideas in the university research community. Without
source code, and barring reverse engineering of programs," she said,
researchers cannot "get the maximum benefit out of new ideas that
are in the form of software. That is the only form that is maximally
useful."
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A CLOSER LOOK AT CURRENT ISSUES
77
Through contractual arrangements, some companies will supply
source code to scientists, allowing them to make alterations and to
experiment with new applications. But contract-imposed restrictions
often prevent researchers from sharing this altered code and the resultant
innovations with their peers, Jones said. As a consequence of these
actions, the industry is handicapping the ability of universities to
contribute to software research and development, she claimed. "The
universities have fed the high-technology software business to a very
large and rich extent, and I don't like to see any constraints on that,"
Jones said.
The introduction of trade secret law into the academic environment
in connection with software and other new technologies can have
serious consequences for the traditional academic mission, Reichman
maintains. "University professors are habitually slow to consider
that they may have illicitly borrowed software solutions covered by
proprietary rights," he said. "Copyright law can magnify the ensuing
difficulties because it is a field in which innovation occurs through
sequential and cumulative improvements, and every researcher mak-
ing use of another researcher's prior art can expose himself to potential
liability for infringement or at least to litigation. absent explicit au-
thorization for use."
Others at the forum questioned whether rigid restrictions on the
distribution of source code were inimical to copyright law's fair use
doctrine, which permits copying and, perhaps, reverse compilation
for research and other noncommercial purposes. Contractual stipula-
tions, however, might block the rights normally afforded by the fair
use exception.
REVERSE ENGINEERING
Copyright's allowance for independent development provides a
safe haven for follower firms. For some firms, this safe haven takes the
form of a "clean room,"3 a means of avoiding charges of infringement
or at least improving the chances of prevailing against such charges.
A firm that desires to copy the idea but not the expression of a competi-
tor's program can isolate its programmers, providing these workers
only with a description of the software application they are to emu-
late. Outside the clean room, other workers may study the manual
and other documentation provided with legally obtained software,
and they may observe and test the original program while it is running
on a computer. These benchmark test results and observations are
used to assess the performance and functionality of code written in
the clean room. Code that does not achieve the desired level of
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INTELLECTUAL PROPERTY ISSUES IN SOFTWARE
functionality may be returned to the clean room, perhaps with a
more detailed description of the problem, for modification.
This description applies to the purest form of the clean room con-
cept, and it is the software industry counterpart to reverse engineer-
ing in industries that manufacture machinery, including computers.
In hardware industries, reverse engineering is a common practice,
but makers of machinery must not only figure out how the targeted
product works, but they must also determine how to manufacture it
and develop the necessary assembly process, all of which can take
substantial amounts of time and money. Similar investments in
manufacturing and technology are not required to reproduce software
products. The "purity" of the software clean room is determined by
the level of detail in the information that is passed into the room: the
more detailed the information "chunks" of code from the target pro-
gram, for example the more suspect the process may become and
the more likely the clean room program will be similar to the original.
The great temptation in developing software, of course, is to use
reverse compilation technology, which, as IBM's Figueroa explained,
"facilitates the low-cost adaptation of the protected expression in the
original program, resulting in the quick and cheap generation of a
competing program. Thus, the program creator has his lead time
erased, his price undercut, and his market reduced for the very thing
he created."
According to Schneider, also of IBM, reverse compilation and sub-
sequent changes in code, data structure, or other components can
yield a program that, although the product of illegal copying, bears
little, if any, provable resemblance to the original. If the designers
and programmers of the original work find it difficult to determine
whether a program is a copy, as Schneider maintained is often the
case, then judges, who are not schooled in the technology, may have
an especially hard time assessing whether a program is a derivative
work and, therefore, infringes on the original.
CONCLUSION
Ideally, explained Francis Fisher, incentives, or the monopoly rights
that serve as the "carrot" to induce innovation, will yield "access to
goods and services, including ideas and expressions, for a price that
is as close to cost as possible.... Monopoly profits beyond those
needed to cover costs are not in the public interest." Thus an effective
intellectual property system should contribute to efficiently operating
national and international markets, and at the same time fairly reward
investment, creative genius, and hard work and drive firms to pur
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A CLOSER LOOK AT CURRENT ISSUES
79
sue successive rounds of innovation. But it cannot do so unless the
costs associated with unsuccessful risks are included. It is the risk in
creation, not the cost of production, that intellectual property protec-
tion must reward.
Yet in the real world, optima are rarely achieved, forcing a pragmatic
consideration that recognizes that a productive balance between pro-
tection and dissemination is a shifting target. "What bad behavior
will be tolerated," asked Bricklin, "so as not to throw out the baby
with the bath water?" Measures crafted to address one wrong, such
as automatic cloning of programs, could have the unintended, nega-
tive consequences of inhibiting independent innovation a common
occurrence, according to Bricklin, in software development or of
discouraging other desirable aspects of the behavior of innovators
and investors.
Even if the existing framework of intellectual property law is eventual-
ly deemed satisfactory, clarification of the scope and applicability of
both patent and copyright law was described by forum participants
as a critical need. "What we are looking for," said John Shoch, "is a
consistent and unified way to deal with the issues of software and
intellectual property." Because such a holistic perspective, one that
provides a comprehensible set of guidelines for investors and software
developers, does not now exist, more litigation is a prospect for the
software industry. According to several legal experts at the forum,
that is an almost absolute certainty. But the likelihood of more legal
disputes should not be surprising, given the inevitable lag between
the rate of technological advance and the slower pace at which the
law responds.
NOTES
1. Results of the survey were reported in "Release 1.0," August 21, 1989, 89-8, p. 3.
2. Paraphrase of comments made by Gordon Moore, chairman, Intel Corp., at the
May 1989 CSTB Colloquium on Competitiveness.
3. In this usage, clean room is a metaphor for a software development workplace
uncontaminated by familiarity with the expression of a competitor's product. In the
manufacture of semiconductors, great expense is taken to isolate workers from con-
tamination by minuscule amounts of dust. Hence the metaphor.
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If you limit protection, you are going to end up in a world of
stagnation and trade secrets.
Esther Dyson, Publisher, "Release 10"
The bottom line is that we decided to invest in software develop-
ment as a separate business, and we based our decision to put
significant resources into that business on the expectation that
we could protect the expression in our programs from copying.
Howard G. Figueroa, Vice President, Commercial and
Industry Relations, IBM Corp.
Saying it is okay to do nothing because things will work out
strikes me as analogous to the response given by the man who
jumped off the top of the Empire State Building. When asked as
he passed the 50th floor, "How's it going?", he replied, '~So far,
terrific." So cautious, thoroughgoing inquiry seems to me to be
really justified here.
Mitchell D. Kapor, Chairman, ON Technology, Inc.
I am appalled by the crudity of the discussion right now in the
industry around what is interface and what is functionality. I
think that we should do a whole lot more worrying about the way
these expressions and the way this creativity break out in pieces
and in components.
Frank Ingari, Vice President, Spreadsheet Division,
Lotus Development Corp.
There has to be some way of recognizing the economic value and
importance of existing standards, conventions, and user interface
models, and yet be able to build on it at a reasonable cost.
Robert Spinrad, Director, Corporate Technology, Xerox Corp
Representative terms from entire chapter:
closer look
