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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

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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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62 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

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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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66 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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68 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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70 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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72 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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74 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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76 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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78 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